The FDIC Board of Directors issued a proposal on December 13 amending and updating the rules regarding the use of the official FDIC sign and advertising statements to better reflect the modern consumer banking landscape. As noted in a memorandum from the FDIC staff, the update is also meant to address the growth of the fintech sector and partnerships between banks and fintechs. The proposed rule also seeks to clarify instances when FDIC deposit insurance coverage is being misrepresented to consumers.
Currently, the FDIC's official sign and advertising statement regulations require insured depository institutions (IDIs) to continuously display the official sign where insured deposits are usually and normally received in the IDIs’ principal place of business and at all of its branches and to use an official advertising statement, such as “Member FDIC,” when advertising deposit products and services. In addition, the FDIC prohibits any person from misusing the name or logo of the FDIC or from engaging in false advertising or making knowing misrepresentations about deposit insurance.
The proposed rule would amend Part 328 of the FDIC regulations to:
- modernize and amend the rules governing the display of the official sign in branches, to apply them to non-traditional branches such as at cafes or other places of business;
- require a new non-deposit sign stating that non-deposit products are not insured by the FDIC; are not deposits; and may lose value, in instances when both insured deposits and non-deposit products are offered within the same premises (the areas within the physical premises must also be segregated and the new sign must not be placed in close proximity to the official sign);
- require a new digital sign to be clearly and conspicuously (and in some cases continuously) displayed across all banking channels, including automated teller machines (ATMs) and evolving digital channels such as websites, web-based applications, and mobile applications that offer consumers access to insured deposits;
- clarify the FDIC’s rules regarding misrepresentations of deposit insurance coverage by addressing specific scenarios where information provided to consumers may be misleading—for example, if a non-bank partners with an IDI, it is a material omission for the non-bank to fail to clearly and conspicuously disclose that it is not itself an FDIC-insured institution and that the FDIC’s deposit insurance coverage only protects against the failure of an IDI (the proposal also more clearly shifts the risk of such misrepresentations to the IDIs if they fail to monitor such actions);
- amend definitions of “non-deposit product” and “uninsured financial product” to include cryptocurrencies; thus, under the proposal, if an IDI’s ATM offers customers the ability to purchase cryptoassets, the ATM would be required to clearly, continuously, and conspicuously display disclosures indicating that the cryptoassets are not insured by the FDIC, are not deposits, and may lose value; and
- require IDIs to maintain policies and procedures addressing compliance with the regulations.
The proposal comes after two previously published requests for information from February 2020 and April 2021 from the public and has a 60-day comment period.
The last major update to the regulations governing FDIC signage was in 2006. Since then, significant changes have occurred, including the evolution of bank branches and their role in serving consumers, the proliferation of digital channels such as the internet and mobile phones as a critical and fundamental mechanism to access banking and financial services, and an increasingly broad array of financial products offered through banking channels, including access to non-deposit products and cryptocurrencies.
Acting Chairman Gruenberg stated that “The revisions are intended to extend the certainty and confidence provided by the FDIC official sign found at bank branch teller windows to digital channels, such as bank websites and mobile applications, through which depositors are increasingly handling their banking needs,” and that “…the FDIC has seen instances where scammers have made false or misleading assertions that their products offer the protections afforded by FDIC insurance. We have also seen circumstances where certain non-banks were making unsubstantiated claims about deposit insurance.”
Chairman Gruenberg’s remarks may have been referring to the customer confusion caused by the bankruptcy of Voyager Digital and whether certain funds were protected by FDIC insurance, as referenced in a letter from the FDIC and Federal Reserve. Perhaps because of this, one point of note that IDIs and their fintech/crypto partners should focus on is the requirement that an IDI maintain policies and procedures that include provisions for monitoring and evaluating activities of third parties that offer IDI products or services to others. Failure of an IDI to establish and maintain these policies would be a violation of the regulation.
Thus, the proposal may be seen as the FDIC informing IDIs that if they don’t adequately monitor and manage the risks and activities of their fintech/crypto partnerships appropriately, then the IDI will be in violation and the FDIC has clear authority to take an enforcement action against the IDI.