Our bank is purchasing the custodial rights for a portfolio of brokered certificates of deposit (CDs) from a bank that previously was the deposit broker for the CDs. Our bank will become the deposit broker and custodian of the CDs, which have individual owners and are deposited at a separate bank. However, the CD accounts at the depository bank will be held in our name with our EIN, and we will receive a percentage of the interest from the CDs. Along with the portfolio, we will receive one year’s worth of physical records for the CDs and all prior records for the CDs in electronic form. The records will include the identifying information for the owners of the CDs that the selling bank obtained as part of its Customer Identification Program (CIP). We will not conduct our own CIP for these accounts. What are the record retention requirements for these documents?

Disclaimer: The Electronic Commerce Security Act (ECSA) was repealed and replaced with the Uniform Electronic Transaction Act (UETA), effective June 25, 2021. Please note that this change may affect the continued accuracy of this guidance as it pertains to the ECSA.

We believe that your bank should retain any identifying information for the individual owners of the brokered CDs that you receive from the selling bank for five years after the CD accounts are closed. As to other documents related to the brokered CD accounts, we are not aware of any requirements; however, based on OCC rules, your bank may wish to retain such documents for at least three years from the termination of a CD or the termination of any litigation relating to the CD, whichever is later. All of these documents may be retained in electronic form.

Banks must retain any identifying information required by their Customer Identification Program (CIP) for five years after an account is closed. For brokered deposit accounts, the deposit broker is responsible for maintaining these records. As stated in the FFIEC’s BSA/AML Examination Manual, “[t]he bank accepting brokered deposits depends on the deposit broker to sufficiently perform required account opening procedures and to follow applicable BSA/AML compliance program requirements.”

We believe that your bank should be treated as the deposit broker in this situation. While the definition of “deposit broker” excludes those whose “primary purpose is not the placement of funds with depository institutions,” we do not believe your bank would be excluded from the “deposit broker” definition. The FDIC’s guidance on identifying brokered deposits clarifies that this exception “depends upon the intent of the third party in placing deposits” (i.e., to earn fees through the placement of the deposits), rather than “a comparison between the amount of revenue generated by the third party’s deposit-placement activities and the amount of revenue generated by the third party’s other activities.” Because your bank will be earning fees from the placement of the CDs, we believe your bank will fall into the “deposit broker” definition. As the new deposit broker and custodian of these accounts, your bank is responsible for retaining the identifying information for CD owners, and the institutions accepting the brokered deposits will be depending on you to do so.

For other documents related to the brokered CD, we are not aware of any law or regulation specifying a retention period. However, an OCC rule regarding “fiduciary accounts” may be helpful as a guide, although your bank is not regulated by the OCC. The OCC requires banks to maintain “adequate” documentation for fiduciary accounts for three years after the termination of a fiduciary account or litigation related to the account (if any), whichever is later.

Additionally, we note that your bank may store brokered CD documents electronically. Both Illinois and federal law provide that an electronic copy of a document cannot be denied legal effect, validity or enforceability solely because it is in electronic form (with a few exceptions that do not apply to your question).

For resources related to our guidance, please see:

FinCEN Regulations, 31 CFR 1020.220(a)(3)(ii) (“The bank must retain the information in paragraph (a)(3)(i)(A) of this section for five years after the date the account is closed or, in the case of credit card accounts, five years after the account is closed or becomes dormant. The bank must retain the information in paragraphs (a)(3)(i)(B), (C), and (D) of this section for five years after the record is made.”)

FinCEN Regulations, 31 CFR 1020.220(a)(3)(i)(A) (“The CIP must include procedures for making and maintaining a record of all information obtained under the procedures implementing paragraph (a) of this section.

(i) Required records. At a minimum, the record must include:

(A) All identifying information about a customer obtained under paragraph (a)(2)(i) of this section;

(B) A description of any document that was relied on under paragraph (a)(2)(ii)(A) of this section noting the type of document, any identification number contained in the document, the place of issuance and, if any, the date of issuance and expiration date;

(C) A description of the methods and the results of any measures undertaken to verify the identity of the customer under paragraph (a)(2)(ii)(B) or (C) of this section; and

(D) A description of the resolution of any substantive discrepancy discovered when verifying the identifying information obtained.”)

FinCEN Regulations, 31 CFR 1020.100(a)(1) (“For purposes § 1020.220: . . . Account means a formal banking relationship established to provide or engage in services, dealings, or other financial transactions including a deposit account, a transaction or asset account, a credit account, or other extension of credit. Account also includes a relationship established to provide a safety deposit box or other safekeeping services, or cash management, custodian, and trust services.”)
FFIEC BSA/AML Examination Manual, Brokered Deposits — Overview (“The bank accepting brokered deposits depends on the deposit broker to sufficiently perform required account opening procedures and to follow applicable BSA/AML compliance program requirements.”)
FDIC Deposit Insurance Regulations, 12 CFR 337.6(a)(5)(i) (“The term deposit broker means: (A) Any person engaged in the business of placing deposits, or facilitating the placement of deposits, of third parties with insured depository institutions, or the business of placing deposits with insured depository institutions for the purpose of selling interests in those deposits to third parties: . . .”)

FDIC Deposit Insurance Regulations, 12 CFR 337.6(a)(5)(ii) (“The term deposit broker does not include:

(A) An insured depository institution, with respect to funds placed with that depository institution;

(B) An employee of an insured depository institution, with respect to funds placed with the employing depository institution;

* * * * *

(I) An agent or nominee whose primary purpose is not the placement of funds with depository institutions

FDIC, Identifying, Accepting and Reporting Brokered Deposits FAQs (July 14, 2016) (“E9. What is the ‘primary purpose’ exception to the definition of a deposit broker? This exception applies to the following: ‘An agent or nominee whose primary purpose is not the placement of funds with depository institutions.’ This exception is applicable when the intent of the third party, in placing deposits or facilitating the placement of deposits, is to promote some other goal (i.e., other than the goal of placing deposits for others). The primary purpose exception is not applicable when the intent of the third party is to earn fees through the placement of the deposits. Also, the applicability of the primary purpose exception does not depend upon a comparison between the amount of revenue generated by the third party’s deposit-placement activities and the amount of revenue generated by the third party’s other activities. Rather, as previously stated, the applicability of the primary purpose exception depends upon the intent of the third party in placing deposits (or facilitating the placement of deposits).”)

OCC Fiduciary Rules, 12 CFR 9.8 (“Recordkeeping. (a) Documentation of accounts. A national bank shall adequately document the establishment and termination of each fiduciary account and shall maintain adequate records for all fiduciary accounts. (b) Retention of records. A national bank shall retain records described in paragraph (a) of this section for a period of three years from the later of the termination of the account or the termination of any litigation relating to the account. (c) Separation of records. A national bank shall ensure that records described in paragraph (a) of this section are separate and distinct from other records of the bank.”)

OCC Comptroller’s Handbook, Asset Management Operation and Controls, printed page 58 (“It is important to maintain those documents that substantiate fiduciary appointments and actions taken throughout the life of these accounts. . . . Banks should have policies and procedures that identify the proper retention periods for various records and should ensure that these records are stored, and at the appropriate time disposed of, with an appropriate level of information security. Record retention periods should conform to the requirements of applicable law. For example, OCC Regulation 12 CFR 9.8(b) requires a national bank to retain account records for a period of three years from the later of the termination of the account or the termination of any litigation relating to the account. . . .”)

OCC Fiduciary Rules, 12 CFR 9.2(d) (“Fiduciary account means an account administered by a national bank acting in a fiduciary capacity.”)

OCC Fiduciary Rules, 12 CFR 9.2(e) (“Fiduciary capacity means: trustee, executor, administrator, registrar of stocks and bonds, transfer agent, guardian, assignee, receiver, or custodian under a uniform gifts to minors act; investment adviser, if the bank receives a fee for its investment advice; any capacity in which the bank possesses investment discretion on behalf of another; or any other similar capacity that the OCC authorizes pursuant to 12 U.S.C. 92a.”)

Electronic Commerce Security Act, 5 ILCS 175/5-110 (“Information, records, and signatures shall not be denied legal effect, validity, or enforceability solely on the grounds that they are in electronic form.”)

Financial Institutions Electronic Documents and Digital Signature Act, 205 ILCS 705/10(a) (“If in the regular course of business, a financial institution possesses, records, or generates any document, representation, image, substitute check, reproduction, or combination thereof . . . that accurately reproduces, comprises, or records the agreement, transaction, act, occurrence, or event . . . [it] shall have the same force and effect under the laws of this State as one comprised, recorded, or created on paper or other tangible form by writing, typing, printing, or similar means.”)

Electronic Signatures in Global and National Commerce (ESIGN) Act, 15 USC 7001(a)(1) (“A signature, contract, or other record . . . may not be denied legal effect, validity, or enforceability solely because it is in electronic form.”)