[Federal Register Volume 76, Number 171 (Friday, September 2, 2011)]
[Proposed Rules]
[Pages 54717-54721]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-22469]
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Proposed Rules
Federal Register
________________________________________________________________________
This section of the FEDERAL REGISTER contains notices to the public of
the proposed issuance of rules and regulations. The purpose of these
notices is to give interested persons an opportunity to participate in
the rule making prior to the adoption of the final rules.
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Federal Register / Vol. 76, No. 171 / Friday, September 2, 2011 /
Proposed Rules
[[Page 54717]]
FEDERAL RESERVE SYSTEM
12 CFR Part 241
[Regulation OO; Docket No. R-1430]
RIN 7100-AD 81
Supervised Securities Holding Companies Registration
AGENCY: Board of Governors of the Federal Reserve System (``Board'').
ACTION: Proposed rule with request for public comments.
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SUMMARY: The Board is issuing a proposed rule to implement section 618
of the Dodd-Frank Wall Street Reform and Consumer Protection Act
(``Dodd-Frank Act''), which permits nonbank companies that own at least
one registered securities broker or dealer, and that are required by a
foreign regulator or provision of foreign law to be subject to
comprehensive consolidated supervision, to register with the Board and
subject themselves to supervision by the Board. The proposed rule
outlines the requirements that a securities holding company must
satisfy to make an effective election, including filing the appropriate
form with the responsible Reserve Bank, providing all additional
required information, and satisfying the statutory waiting period of 45
days or such shorter period the Board determines appropriate.
DATES: Comments must be received on or before October 11, 2011.
ADDRESSES: You may submit comments, identified by Docket No. R-1430 and
RIN No. 7100-AD 81, by any of the following methods:
Agency Web Site: http://www.federalreserve.gov. Follow the
instructions for submitting comments at: http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm.
Federal eRulemaking Portal: http://www.regulations.gov.
Follow the instructions for submitting comments.
E-mail: [email protected]. Include docket
number in the subject line of the message.
FAX: 202/452-3819 or 202/452-3102.
Mail: Jennifer J. Johnson, Secretary, Board of Governors
of the Federal Reserve System, 20th Street and Constitution Avenue,
NW., Washington, DC 20551.
All public comments are available from the Board's Web site at
http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm as
submitted, unless modified for technical reasons. Accordingly, your
comments will not be edited to remove any identifying or contact
information. Public comments may also be viewed electronically or in
paper in Room MP-500 of the Board's Martin Building (20th and C
Streets, N.W.) between 9 a.m. and 5 p.m. on weekdays.
FOR FURTHER INFORMATION CONTACT: Amanda K. Allexon, Senior Counsel
(202) 452-3818, or Bao Nguyen, Attorney, (202) 736-5599, Legal
Division; or Michael J. Sexton, Assistant Director, (202) 452-3009,
Division of Banking Supervision and Regulation; Board of Governors of
the Federal Reserve System, 20th and C Streets, NW., Washington, DC
20551. Users of Telecommunication Device for the Deaf (TTD) only,
contact (202) 263-4869.
SUPPLEMENTARY INFORMATION:
I. Background
Section 618 of the Dodd-Frank Act permits a company that owns at
least one registered securities broker or dealer (a ``nonbank
securities company''), and that is required by a foreign regulator or
provision of foreign law to be subject to comprehensive consolidated
supervision, to register with the Board as a securities holding company
and become subject to supervision and regulation by the Board.\1\ A
securities holding company that registers with the Board under section
618 is subject to the full examination, supervision, and enforcement
regime applicable to a registered bank holding company, including
capital requirements set by the Board (though the statute allows the
Board to modify its capital rules to account for differences in
activities and structure of securities holding companies and bank
holding companies). The primary difference in regulatory frameworks
between securities holding companies and bank holding companies is that
the restrictions on nonbanking activities that apply to bank holding
companies do not apply to securities holding companies.
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\1\ 12 U.S.C. 1850a.
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Under section 618 of the Act, a securities holding company that
elects to be subject to supervision by the Board must submit a
registration form that includes all such information and documents the
Board, by regulation, deems necessary or appropriate. The statute also
specifies that registration as a supervised securities holding company
becomes effective 45 days after the date the Board receives all
required information, or within such shorter period as the Board, by
rule or order, may determine.
Section 618 makes a registered securities holding company subject
to all of the provisions of the Bank Holding Company Act of 1956 (12
U.S.C. 1841 et seq.) (``BHC Act'') in the same manner as a bank holding
company, other than the restrictions on nonbanking activities contained
in section 4 of the BHC Act.\2\ Consistent with the Dodd-Frank Act, the
Board anticipates applying the same supervisory program, including
examination procedures, reporting requirements, supervisory guidance,
and capital standards, to supervised securities holding companies that
the Board currently applies to bank holding companies. However, the
Board may, based on experience gained during the supervision of
supervised securities holding companies, modify these requirements as
appropriate and consistent with section 618.
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\2\ 12 U.S.C. 1850a(d)(1) and (e)(2).
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II. Overview of Proposed Rule
This proposed rulemaking would permit securities holding companies
to elect to become supervised securities holding companies by
registering with the Board. The proposed rule outlines the requirements
that a securities holding company must satisfy to make an effective
registration, including filing the appropriate form with the
responsible Reserve Bank, providing all additional information
requested by the Board, and satisfying the statutory waiting period of
45 days or such shorter period the Board determines appropriate. The
Board is seeking
[[Page 54718]]
comments on all aspects of this proposed rulemaking.
Section 241.1 of the proposed rule outlines the authority under
which the Board is issuing the proposed rule. Section 241.2 of the
proposed rule incorporates the statutory language in section 618
defining a ``securities holding company'' to mean any company that
directly or indirectly owns or controls, is controlled by, or is under
common control with, one or more brokers or dealers registered with the
Securities and Exchange Commission. The term does not include, among
other things, a company that is a nonbank financial company supervised
by the Board, a bank holding company, a savings and loan holding
company, an insured bank, a savings association, or a foreign banking
organization with U.S. banking operations. Under the proposal, terms
such as ``affiliate,'' ``bank,'' ``bank holding company,'' ``control,''
and ``subsidiary'' are defined to have the same meaning as in section
225.2 of the Board's Regulation Y.
Section 241.3 of the proposed rule requires a securities holding
company that elects to register to become a supervised securities
holding company to file the proper form with the responsible Reserve
Bank. As discussed further in section IV below, the Board is proposing
to create a new form for this purpose. The proposed form, which is
similar to the Board's current form Y-3F, used by a company registering
to become a bank holding company, would include a number of questions
relating to the organizational structure of the securities holding
company, its capital structure, and its financial condition.
Specifically, the proposed form would require a securities holding
company electing to be supervised to submit:
1. An organization chart for the securities holding company showing
all subsidiaries.
2. The name, asset size, general activities, place of
incorporation, and ownership share held by the securities holding
company for each of the securities holding company's direct and
indirect subsidiaries that comprise 1 percent or more of the securities
holding company's worldwide consolidated assets.
3. A list of all persons (natural as well as legal) in the upstream
chain of ownership of the securities holding company who, directly or
indirectly, own 5 percent or more of the voting shares of the
securities holding company. In addition, the Board would request
information concerning any voting agreements or other mechanisms that
exist among shareholders for the exercise of control over the
securities holding company.
4. For the senior officers and directors with decision-making
authority for the securities holding company, the biographical
information requested in the Interagency Biographical and Financial
Report FR 2081c (the Financial Report need not be provided).
5. Copies of the most recent quarterly and annual reports prepared
for shareholders, if any, for the securities holding company and
certain subsidiaries.
6. Income statements, balance sheets, and audited GAAP statements,
as well as any other financial statements submitted to the securities
holding company's current consolidated supervisor, if any, each on a
parent-only and consolidated basis, showing separately each principal
source of revenue and expense, through the end of the most recent
fiscal quarter and for the past two (2) fiscal years.
7. A description of the methods used by the securities holding
company to monitor and control its operations, including those of its
domestic and foreign subsidiaries and offices (e.g., through internal
reports and internal audits).
8. A description of the bank regulatory system that exists in the
home country of any of the securities holding company's foreign bank
subsidiaries. The description also should include a discussion of each
of the following:
a. The scope and frequency of on-site examinations by the home
country supervisor;
b. Off-site monitoring by the home country supervisor;
c. The role of external auditors;
d. Transactions with affiliates;
e. Other applicable prudential requirements;
f. Remedial authority of the home country supervisor;
g. Prior approval requirements; and,
h. Any applicable regulatory capital framework.
9. A description of any other regulatory capital framework to which
the securities holding company is subject.
The proposed rule further provides that the Board may at any time
request additional information that it believes is necessary to
complete the registration.
Under the proposed rule, the registration is considered filed when
all information required by the Board is received. Section 241.3 of the
proposed rule also states that a registration filed by a securities
holding company becomes effective and supervision by the Board begins
on the 45th calendar day after the date that a complete filing is
received. Under the proposed rule, the Board also reserves the right to
shorten the 45-day waiting period and begin consolidated supervision at
such earlier date as the Board specifies to the securities holding
company in writing.
The proposed rule provides that, upon an effective registration, a
supervised securities holding company would be supervised and regulated
as if it were a bank holding company, and that the nonbanking
restrictions contained in section 4 of the BHC Act will not apply to a
supervised securities holding company. This treatment will generally
mean that supervised securities holding companies will, among other
things, be required to submit the same reports and be subject to the
same examination procedures, supervisory guidance, and capital
standards that currently apply to bank holding companies. However, the
Board anticipates that there will be a period of time before the Board
becomes fully acquainted with supervised securities holding companies
(and their operations) because they are a new class of entities the
Dodd-Frank Act requires the Board to supervise. As a result, the
proposed rule provides the Board with flexibility to supervise and
regulate supervised securities holding companies in a manner that is
consistent with safety and soundness and that addresses the risks they
pose to financial stability.
III. Solicitation of Comments and Use of Plain Language
Section 722 of the Gramm-Leach-Bliley Act (Pub. L. 106-102, 113
Stat. 1338, 1471, 12 U.S.C. 4809) requires the Federal banking agencies
to use plain language in all proposed and final rules published after
January 1, 2000. The Board invites comment on how to make the proposed
rule easier to understand. For example:
Is the material organized in a clear, understandable, and
complete way? If not, how can the rule be presented more clearly?
Are the requirements in the rule clearly stated? If not,
how could the rule be more clearly stated?
Do the regulations contain technical language or jargon
that is not clear? If so, which language requires clarification?
Would a different format (grouping and order of sections,
use of headings, paragraphing) make the regulation easier to
understand? If so, what changes would achieve that?
[[Page 54719]]
Is the section format adequate? If not, which of the
sections should be changed and how?
What other changes can the Board incorporate to make the
regulation easier to understand?
IV. Administrative Law Matters
A. Paperwork Reduction Act Analysis
In accordance with the requirements of the Paperwork Reduction Act
of 1995 (44 U.S.C. 3501 et seq.) (``PRA''), the Board may not conduct
or sponsor, and the respondent is not required to respond to, an
information collection unless it displays a currently valid Office of
Management and Budget (OMB) control number. The OMB control numbers for
the existing information collections are provided below. The OMB
control number will be assigned for the new information collection
related to registrations described below. The Board reviewed the
proposed rule under the authority delegated to the Board by OMB.
Title of Existing Information Collections:
The Annual Report of Bank Holding Companies (FR Y-6),
The Report of Foreign Banking Organizations (FR Y-7),
The Consolidated Financial Statements for Bank Holding
Companies (FR Y-9C),
The Parent Company Only Financial Statements for Large
Bank Holding Companies (FR Y-9LP),
The Parent Company Only Financial Statements for Small
Bank Holding Companies (FR Y-9SP),
The Financial Statements for Employee Stock Ownership Plan
Bank Holding Companies (FR Y-9ES),
The Supplement to the Consolidated Financial Statements
for Bank Holding Companies (FR Y-9CS),
The Financial Statements of U.S. Nonbank Subsidiaries of
U.S. Bank Holding Companies (FR Y-11 and FR Y-11S),
The Financial Statements of Foreign Subsidiaries of U.S.
Banking Organizations (FR 2314 and FR 2314S),
The Bank Holding Company Report of Insured Depository
Institutions' Section 23A Transactions with Affiliates (FR Y-8),
The Consolidated Bank Holding Company Report of Equity
Investments in Nonfinancial Companies (FR Y-12) and the Annual Report
of Merchant Banking Investments Held for an Extended Period (FR Y-12A),
and
The Capital and Asset Report of Foreign Banking
Organizations (FR Y-7Q), and the Financial Statements of U.S. Nonbank
Subsidiaries Held by Foreign Banking Organizations (FR Y-7N and FR Y-
7NS).
Frequency of Response: Annually, semi-annually, quarterly, event-
generated.
Affected Public: Nonbank companies.
Abstract: The information collection reporting requirements are
found in sections 241.3(a)(1) and 241.3(b)(3)(i) of the proposed rule.
These requirements would implement regulations related to section 618
of the Dodd-Frank Act, which, as discussed above, permit securities
holding companies to register with, and subject themselves to
supervision by, the Board. As previously noted, a supervised securities
holding company is subject to all of the provisions of the BHC Act in
the same manner as a bank holding company, other than the restrictions
on nonbanking activities contained in section 4 of the BHC Act.
Section 241.3(a)(1) would require securities holding companies that
elect to register to become supervised securities holding companies to
file a registration form with the responsible Reserve Bank. The
registration form would ask information on: The organization chart
(including all subsidiaries), shareholders, senior officers and
directors, methods used to monitor and control its operations, and
foreign bank subsidiaries and the bank regulatory system in which these
foreign bank subsidiaries operate. Section 241.3(b)(3)(i) would require
supervised securities holding companies to be subject to supervision
and regulation by the Board as if such companies were bank holding
companies. Accordingly, the Federal Reserve would require supervised
securities holding companies to file the same reports as bank holding
companies as follows: FR Y-6 and FR Y-7 (OMB No. 7100-0297); FR Y-9C,
FR Y-9LP, FR Y-9SP, FR Y-9ES, and FR Y-9CS (OMB No. 7100-0128); FR Y-11
and FR Y-11S (OMB No. 7100-0244); FR 2314 and FR 2314S (OMB No. 7100-
0073); FR Y-8 (OMB No. 7100-0126); FR Y-12 and FR Y-12A (OMB No. 7100-
0300); FR Y-7Q, FR Y-7N and FR Y-7NS (OMB No. 7100-0125).
Estimated Burden:
The estimated burden per filing for the registration form in
section 241.3(a)(1) is eight hours (one business day). The Board
estimates that approximately five securities holding companies would
file a request to become a supervised securities holding company.
Therefore, the total annual burden for the registration form is
estimated to be 40 hours. Effective upon registration, and except as
otherwise provided by order of the Board, a supervised securities
holding company shall file the existing bank holding company reporting
forms listed above on the calendar quarter-end under section
241.3(b)(3)(i). The hourly burden estimates associated with each of
these reporting forms is not expected to change materially as the
information to be collected is substantively similar to that which is
currently being collected from bank holding companies. There is
currently only one securities holding company as of June 30, 2011,
which would be added to the respondent panel for each report, as
appropriate.
For additional information on the current burden associated with
any of the existing information collections, please see OMB's public
Web site at: http://www.reginfo.gov/public/do/PRAMain. For copies of
the current reporting forms, please see the Federal Reserve's public
Web site at: http://www.federalreserve.gov/reportforms/default.cfm.
Comments are invited on:
(a) Whether the collection of information is necessary for the
proper performance of the Board's functions, including whether the
information has practical utility;
(b) The accuracy of the estimates of the burden of the information
collection, including the validity of the methodology and assumptions
used;
(c) Ways to enhance the quality, utility, and clarity of the
information to be collected;
(d) Ways to minimize the burden of the information collection on
respondents, including through the use of automated collection
techniques or other forms of information technology; and
(e) Estimates of capital or start up costs and costs of operation,
maintenance, and purchase of services to provide information.
Comments on the collection of information should be sent to Cynthia
Ayouch, Acting Federal Reserve Clearance Officer, Division of Research
and Statistics, Mail Stop 95-A, Board of Governors of the Federal
Reserve System, Washington, DC 20551, with copies of such comments sent
to the Office of Management and Budget, Paperwork Reduction Project
(SHC Registration), Washington, DC 20503. You may also submit comments
electronically, identified by Docket number, by any of the following
methods:
Agency Web Site: http://www.federalreserve.gov. Follow the
instructions for submitting comments on the http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm.
[[Page 54720]]
Federal eRulemaking Portal: http://www.regulations.gov.
Follow the instructions for submitting comments.
E-mail: [email protected]. Include docket
number in the subject line of the message.
B. Regulatory Flexibility Act Analysis
In accordance with section 3(a) of the Regulatory Flexibility Act
(5 U.S.C. 601 et seq.) (``RFA''), the Board is publishing an initial
regulatory flexibility analysis of the proposed rule. The RFA requires
an agency either to provide an initial regulatory flexibility analysis
with a proposed rule for which a general notice of proposed rulemaking
is required or to certify that the proposed rule will not have a
significant economic impact on a substantial number of small entities.
Based on its analysis and for the reasons stated below, the Board
believes that this proposed rule will not have a significant economic
impact on a substantial number of small entities. Nevertheless, the
Board is publishing an initial regulatory flexibility analysis. A final
regulatory flexibility analysis will be conducted after comments
received during the public comment period have been considered.
In accordance with section 618 of the Dodd-Frank Act, the Board is
proposing Regulation OO (12 CFR part 241 et seq.) to establish a
process for a securities holding company to elect to be supervised by
the Board. The proposed rule would establish the requirements and
procedures for registering with the Board in order to become a
supervised securities holding company. As noted above, a supervised
securities holding company would be supervised and regulated as if it
were a bank holding company, and would be required to submit the same
reports that currently apply to bank holding companies. The reasons and
justification for the proposed rule are described in the Supplementary
Information. The Board does not believe that the proposed rule
duplicates, overlaps, or conflicts with any other Federal rules.
Under regulations issued by the Small Business Administration
(``SBA''), a ``small entity'' includes those firms within the ``Finance
and Insurance'' sector with asset sizes that vary from $7 million or
less in assets to $175 million or less in assets.\3\ The Board believes
that the Finance and Insurance sector constitutes a reasonable universe
of firms for these purposes because such firms generally engage in
activities that are financial in nature. Consequently, securities
holding companies with asset sizes of $175 million or less are small
entities for purposes of the RFA.
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\3\ 13 CFR 121.201.
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As discussed in the Supplementary Information, the proposed rule
would apply to any securities holding company that elects to be
supervised by the Board regardless of such a company's asset size.
However, at this time, only one company, which has assets in excess of
$175 million, has expressed interest in electing to become a supervised
securities holding company. Moreover, only one company ever elected to
be supervised under the investment bank holding company framework
administered by the Securities and Exchange Commission, which like the
framework in the proposed rule provided an elective mechanism to enable
a nonbank securities company to satisfy requirements by a foreign
regulator or provision of foreign law that such company be subject to
comprehensive consolidated supervision. Taking these facts into
consideration but also allowing for additional flexibility, the Board
estimates that approximately five securities holding companies may
possibly register to become a Board supervised securities holding
company.
In light of the foregoing, the Board does not believe that the
proposed rule, if adopted in final form, would have a significant
economic impact on a substantial number of small entities supervised by
the Board. Nonetheless, the Board seeks comment on whether the proposed
rule would impose undue burdens on, or have unintended consequences
for, small organizations, and whether there are ways such potential
burdens or consequences could be minimized in a manner consistent with
section 618 of the Dodd-Frank Act.
List of Subjects in 12 CFR Part 241
Administrative practice and procedure, Holding companies,
Securities, Federal Reserve System, Brokers and dealers, Foreign law,
Reporting and recordkeeping requirements.
For the reasons set forth in the preamble, the Board proposes to
amend 12 CFR chapter II as follows:
1. Add new part 241 to read as follows:
PART 241--SECURITIES HOLDING COMPANIES (REGULATION OO)
Sec.
241.1 Authority and Purpose.
241.2 Definitions.
241.3 Registration as a supervised securities holding company.
Authority: 12 U.S.C. 1850a.
Sec. 241.1 Authority and Purpose.
(a) Authority. This part is issued by the Board pursuant to section
618 of the Dodd-Frank Wall Street Reform and Consumer Protection Act
(12 U.S.C. 1850a).
(b) Purpose. This part establishes the procedure by which a
securities holding company may elect to register to be supervised by
the Board.
Sec. 241.2 Definitions.
Except as defined below, terms used in this part have the same
meaning given them in 12 CFR 225.2.
(a) Securities holding company. (1) A securities holding company
means any company that directly or indirectly owns or controls, is
controlled by, or is under common control with, one or more brokers or
dealers registered with the Securities and Exchange Commission; and
(2) Does not include a company that is--
(i) A nonbank financial company supervised by the Board pursuant to
Title I of the Dodd-Frank Wall Street Reform and Consumer Protection
Act (12 U.S.C. 5301 et seq.);
(ii) An insured bank (other than an institution described in
subparagraphs (D), (F), or (H) of section 2(c)(2) of the Bank Holding
Company Act of 1956 (12 U.S.C. 1841(c)(2)) or a savings association;
(iii) An affiliate of an insured bank (other than an institution
described in subparagraphs (D), (F), or (H) of section 2(c)(2) of the
Bank Holding Company Act of 1956 (12 U.S.C. 1841(c)(2)) or an affiliate
of a savings association;
(iv) A foreign bank, foreign company, or company that is described
in section 8(a) of the International Banking Act of 1978 (12 U.S.C.
3106(a));
(v) A foreign bank that controls, directly or indirectly, a
corporation chartered under section 25A of the Federal Reserve Act (12
U.S.C. 611 et seq.); or
(vi) Subject to comprehensive consolidated supervision by a foreign
regulator.
(b) Supervised securities holding company means a securities
holding company that is supervised by the Board pursuant to this part.
Sec. 241.3 Registration as a supervised securities holding company.
(a) Registration.
(1) Filing Requirement. A securities holding company may elect to
register to become a supervised securities holding company by filing
the appropriate form with the responsible Reserve Bank. The responsible
Reserve Bank is determined by the Director of
[[Page 54721]]
Banking Supervision and Regulation at the Board, or the Director's
delegee.
(2) Request for additional information. The Board may, at any time,
request additional information that it believes is necessary to
complete the registration.
(3) Complete filing. A registration by a securities holding company
is considered to be filed on the date that all information required on
the appropriate form is received.
(b) Effective date of registration.
(1) In general. A registration filed by a securities holding
company under paragraph (a) of this section is effective on the 45th
calendar day after the date that a complete filing is received by the
responsible Reserve Bank.
(2) Earlier notification that a registration is effective. The
Board may notify a securities holding company that its registration to
become a supervised securities holding company is effective prior to
the 45th calendar day after the date that a complete filing is received
by the responsible Reserve Bank. Such a notification must be in
writing.
(3)(i) Upon an effective registration and except as otherwise
provided by order of the Board, a supervised securities holding company
shall be treated, and shall be subject to supervision and regulation by
the Board, as if it were a bank holding company, or as otherwise
appropriate to protect the safety and soundness of the supervised
securities holding company and address the risks posed by such company
to financial stability.
(ii) The provisions of section 4 of the Bank Holding Company Act of
1956 (12 U.S.C. 1841 et seq.) do not apply to a supervised securities
holding company.
By order of the Board of Governors of the Federal Reserve
System, August 29, 2011.
Jennifer J. Johnson,
Secretary of the Board.
[FR Doc. 2011-22469 Filed 9-1-11; 8:45 am]
BILLING CODE 6210-01-P