[Federal Register Volume 77, Number 107 (Monday, June 4, 2012)]
[Rules and Regulations]
[Pages 32881-32884]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-13311]
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Rules and Regulations
Federal Register
________________________________________________________________________
This section of the FEDERAL REGISTER contains regulatory documents
having general applicability and legal effect, most of which are keyed
to and codified in the Code of Federal Regulations, which is published
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Federal Register / Vol. 77, No. 107 / Monday, June 4, 2012 / Rules
and Regulations
[[Page 32881]]
FEDERAL RESERVE SYSTEM
12 CFR Part 241
[Regulation OO; Docket No. R-1430]
RIN 7100-AD 81
Supervised Securities Holding Company Registration
AGENCY: Board of Governors of the Federal Reserve System (``Board'').
ACTION: Final rule.
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SUMMARY: The Board is adopting this final rule to implement section 618
of the Dodd-Frank Wall Street Reform and Consumer Protection Act
(``Dodd-Frank Act'' or ``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 final
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: The rule is effective July 20, 2012.
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, or
Brendan Burke, Senior Supervisory Financial Analyst, (202) 452-2987,
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 (although 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. Notice of Proposed Rulemaking: Summary of Comments
On September 2, 2011, the Board invited public comment on a
proposed rule implementing the registration requirements and procedures
for securities holding companies pursuant to section 618 of the Act.\3\
The Board received three comments, none of which addressed any
substantive aspect of the proposed rule. One commenter expressed the
view that firms should not elect to be supervised by the Federal
Reserve because of a ``lack of leadership at the FED Districts.''
Another commenter included the phrase ``supervised securities holding
companies registration'' in the subject line of the comment letter but
provided no comment. The third commenter mistakenly believed that
section 618 of the Dodd-Frank Act and the Board's proposed Regulation
OO apply to foreign companies that own national banks in the United
States. This commenter argued that such foreign companies should be
subject to supervision by the Board as supervised securities holding
companies if they wish to operate in the United States by owning
national banks. The Board is finalizing the rule with only technical
modifications.
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\3\ 12 U.S.C. 1850a.
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III. Description of Final Rule
The final rule permits securities holding companies to elect to
become supervised securities holding companies by registering with the
Board. The final 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
[[Page 32882]]
shorter period the Board determines appropriate.
Section 241.1 of the final rule outlines the authority under which
the Board is issuing the rule. Section 241.2 of the final rule changes
the proposed definition of the term ``securities holding company'' in
order to more closely reflect the statutory language. The revised
definition contains additional language, which makes clear that to
become a securities holding company, a company must, among other
things, be ``required by a foreign regulator or a provision of foreign
law to be subject to comprehensive consolidated supervision.'' Under
the Dodd-Frank Act and final rule, a company that is currently subject
to comprehensive consolidated supervision by a foreign regulator, 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 would not qualify for registration as a supervised
securities holding company. Under the final rule, 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 final 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. The Board is creating a new form for this purpose. The form,
which is similar to the Board's current form Application for a Foreign
Organization to Acquire a U.S. Bank or Bank Holding Company (FR Y-3F;
OMB No. 7100-0119), used by a company registering to become a bank
holding company, includes a number of questions relating to the
organizational structure of the securities holding company, its capital
structure, and its financial condition. Specifically, the form requires
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 final rule further provides that the Board may at any time request
additional information that it believes is necessary to complete the
registration.
Under the rule, the registration is considered filed when all
information required by the Board is received. Section 241.3 of the
final 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 final 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 final 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. The final
rule provides the Board with flexibility to adjust these requirements
as appropriate to ensure that securities holding companies operate in a
manner that is consistent with safety and soundness and that addresses
the risks they pose to financial stability.
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 final
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),
[[Page 32883]]
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 final rule.
These requirements 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 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) requires 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 asks for 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) requires
supervised securities holding companies to be subject to supervision
and regulation by the Board as if such companies were bank holding
companies. Accordingly, the Board will 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. Presently, the
Board is aware of only one company that would register as a supervised
securities holding company.
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.
The Board has a continuing interest in the public's opinions of
collections of information. At any time, comments regarding the burden
estimate, or any other aspect of this collection of information,
including suggestions for reducing the burden, may be sent to:
Secretary, Board of Governors of the Federal Reserve System, 20th and C
Streets NW., Washington, DC 20551; and to the Office of Management and
Budget, Paperwork Reduction Project (7100-NEW), Washington, DC 20503.
B. Regulatory Flexibility Act Analysis
The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) (``RFA'')
requires each federal agency to prepare a final regulatory flexibility
analysis in connection with the promulgation of a final rule, or
certify that the final rule will not have a significant economic impact
on a substantial number of small entities.\4\ The Board believes that
the final rule will not have a significant economic impact on a
substantial number of small entities, but nonetheless is conducting the
Regulatory Flexibility Act Analysis for this final rule.
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\4\ See 5 U.S.C. 603, 604 and 605.
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In accordance with section 618 of the Dodd-Frank Act, the Board is
adopting 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 final 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 final rule are described in the Supplementary
Information. The Board does not believe that the final 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.\5\ 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 assets sizes of $175 million or less are small
entities for purposes of the RFA.
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\5\ 13 CFR 121.201.
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As discussed in the SUPPLEMENTARY INFORMATION, the final rule
applies to any securities holding company that elects to be supervised
by the Board regardless of such a company's asset size. However, the
statute applies only to registered securities broker and dealers that
operate on an international basis and are required by a foreign
jurisdiction to be supervised on a comprehensive consolidated basis. To
the Board's knowledge, no registered
[[Page 32884]]
securities broker or dealer with total assets under $175 million meets
this requirement. At this time, only one company, which has assets well
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
is the statutory framework replaced by this final rule.
In light of the foregoing, the Board does not believe that the
final rule would have a significant economic impact on a substantial
number of small entities supervised by the Board.
C. Use of Plain Language
Section 722 of the Gramm-Leach-Bliley Act requires the Federal
banking agencies to use plain language in all proposed and final rules
published after January 1, 2000. The Board invited comment on whether
the proposed rule was written plainly and clearly, or whether there
were ways the Board could make the rule easier to understand. The Board
received no comment on these matters and believes that the final rule
is written plainly and clearly.
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.
Authority and Issuance
For the reasons set forth in the Supplementary Information, the
Board of Governors of the Federal Reserve System adds new Part 241 to
Chapter II of Title 12 as follows:
12 CFR Chapter II
0
1. Add 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 procedures 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--
(i) 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
(ii) Is required by a foreign regulator or provision of foreign law
to be subject to comprehensive consolidated supervision.
(2) A securities holding company 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) Currently 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 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) Supervision and regulation of securities holding companies. (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, May 29, 2012.
Jennifer J. Johnson,
Secretary of the Board.
[FR Doc. 2012-13311 Filed 6-1-12; 8:45 am]
BILLING CODE 6210-01-P