Supervised Securities Holding Company Registration, 32881-32884 [2012-13311]

Agencies

• FEDERAL RESERVE SYSTEM

[Federal Register Volume 77, Number 107 (Monday, June 4, 2012)]
[Rules and Regulations]
[Pages 32881-32884]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-13311]



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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: https://www.reginfo.gov/public/do/PRAMain. For copies of 
the current reporting forms, please see the Federal Reserve's public 
Web site at: https://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