Our parent bank wants to create a Time Deposit account that is opened here which is based on the parent bank's country's exchange rate.

So if the customer, who is now a resident here,opens up a CD account here, an offset account is opened up at the parent bank, based on the exchange rate. If during the term of the CD before maturity (say 12 mos), the exchange rate is more favorable in the parent company, the balance at the end of maturity, will be higher, including the APR for the deposit here.

However, if during the term the CD term, the exchange rate is less favorable, there is a chance that the balance could be lower for the customer at time of maturity.

Could there be any regulatory issues for this?

This is not my expertise, so any help is much appreciated.

Thanks

Are you talking about a true foreign currency denominated certificate of deposit? That, I believe would be a NDIP and not a CD.

I thought that too, but the account will be opened here in dollars and remain here as dollars. However, as I said, it will be based on the foregn exchange rate and could decrease more than the standard fees, etc. so what info do I need to determine if it is a NDIP or CD.

Also, is this a Reg W issue as well with the parent bank?

Sorry for my ignorance.

If the principal is at risk, I think it would be considered a security rather than a deposit. You need an investment attorney. If you pegged the interest based on some formula with the exchange rate, the formula could end up paying 0%, but I don't think you can pay "negative" interest and it still be considered a deposit.

I agree. A true deposit account cannot "lose value" (assuming it falls under the FDIC insured amounts). This is an investment product.

Re Reg W, you really need to walk through a transaction to determine exactly what is occurring in the transaction to see if Reg W is triggered.

I wouldn't try to set up an account like this without legal counsel experienced in investments (and Reg W).

Thank you very much for this valuable information RL and MS!