FDIC Extends Comment Period for Proposed Custodial Account Recordkeeping Rule and Faces Criticism on New Regulatory Proposals

The Federal Deposit Insurance Corporation (FDIC) has extended the public comment period for its proposed rule on recordkeeping for banks’ custodial accounts. The comment period, initially set to end on December 2, has been extended to January 16, 2025, to allow interested parties additional time to analyze the proposal and prepare comments.

The proposed rule aims to strengthen recordkeeping for bank deposits received from third-party, non-bank companies that accept deposits on behalf of consumers and businesses. It requires FDIC-insured banks holding certain custodial accounts to maintain accurate account records, including daily reconciliation to identify the individual owner of the funds. This move is intended to address risks related to these arrangements, protect depositors, and boost public confidence in insured deposits.

In addition to the recordkeeping rule, the FDIC has faced criticism for its recent proposals to regulate the asset management sector. The FDIC is proposing to amend the Change in Bank Control Act of 1978 (CBCA) to require asset managers or individuals to notify the agency before acquiring a stake in an insured depository institution. This would remove exemptions for acquisitions already reviewed by the Federal Reserve Board of Governors and increase regulatory filings and scrutiny on asset managers’ positions in banks. Critics argue that this proposal is overbearing and could lead to duplicative regulation, potentially disrupting the current regulatory framework.

Industry experts have expressed concerns that the new proposals could complicate the process for asset managers to buy bank stocks for mutual funds and other investment strategies. The potential for multiple regulators examining the same transaction could entangle asset managers in complex regulatory processes, which could impede investor objectives and stability in the banking sector.

The future of these proposals remains uncertain, particularly given the recent presidential election. Sources suggest that the change in administration may lead to the departure of key officials at the FDIC, potentially ending the pursuit of these regulatory changes).