Proposed Agency Information Collection Activities; Comment Request, 35947-35952 [2017-16239]

Agencies

• FEDERAL RESERVE SYSTEM

[Federal Register Volume 82, Number 147 (Wednesday, August 2, 2017)]
[Notices]
[Pages 35947-35952]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-16239]


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FEDERAL RESERVE SYSTEM


Proposed Agency Information Collection Activities; Comment 
Request

AGENCY: Board of Governors of the Federal Reserve System.

ACTION: Notice, request for comment.

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SUMMARY: The Board of Governors of the Federal Reserve System (Board) 
invites comment on a proposal to extend for three years, without 
revision, the Reporting, Recordkeeping, and Disclosure Requirements 
Associated with Proprietary Trading and Certain Interests in and 
Relationships with Covered Funds (Regulation VV) (FR VV; OMB No. 7100-
0360).
    On June 15, 1984, the Office of Management and Budget (OMB) 
delegated to the Board authority under the Paperwork Reduction Act 
(PRA) to approve of and assign OMB control numbers to collection of 
information requests and requirements conducted or sponsored by the 
Board. In exercising this delegated authority, the Board is directed to 
take every reasonable step to solicit comment. In determining whether 
to approve a collection of information, the Board will consider all 
comments received from the public and other agencies.

DATES: Comments must be submitted on or before October 2, 2017.

ADDRESSES: You may submit comments, identified by FR VV, by any of the 
following methods:
     Agency Web site: https://www.federalreserve.gov. Follow the 
instructions for submitting comments at https://www.federalreserve.gov/apps/foia/proposedregs.aspx.
     Federal eRulemaking Portal: https://www.regulations.gov. 
Follow the instructions for submitting comments.
     Email: regs.comments@federalreserve.gov. Include OMB 
number in the subject line of the message.
     FAX: (202) 452-3819 or (202) 452-3102.
     Mail: Ann E. Misback, 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 
https://www.federalreserve.gov/apps/foia/proposedregs.aspx 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 form in Room 
3515, 1801 K Street (between 18th and 19th Streets NW.), Washington, DC 
20006 between 9:00 a.m. and 5:00 p.m. on weekdays.
    Additionally, commenters may send a copy of their comments to the 
OMB Desk Officer--Shagufta Ahmed--Office of Information and Regulatory 
Affairs, Office of Management and Budget, New Executive Office 
Building, Room 10235, 725 17th Street NW., Washington, DC 20503 or by 
fax to (202) 395-6974.

FOR FURTHER INFORMATION CONTACT: A copy of the PRA OMB submission, 
including the proposed reporting form and instructions, supporting 
statement, and other documentation will be placed into OMB's public 
docket files, once approved. These documents will also be made 
available on the Federal Reserve Board's public Web site at: https://www.federalreserve.gov/apps/reportforms/review.aspx or may be requested 
from the agency clearance officer, whose name appears below.
    Federal Reserve Board Clearance Officer--Nuha Elmaghrabi--Office of 
the Chief Data Officer, Board of Governors of the Federal Reserve 
System, Washington, DC 20551 (202) 452-3829. Telecommunications Device 
for the Deaf (TDD) users may contact (202) 263-4869, Board of Governors 
of the Federal Reserve System, Washington, DC 20551.

SUPPLEMENTARY INFORMATION:

Request for Comment on Information Collection Proposal

    The Board invites public comment on the following information 
collection, which is being reviewed under authority delegated by the 
OMB under the PRA. Comments are invited on the following:
    a. Whether the proposed collection of information is necessary for 
the proper performance of the Federal Reserve's functions; including 
whether the information has practical utility;
    b. The accuracy of the Federal Reserve's estimate of the burden of 
the proposed 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 information collection on 
respondents, including through the use of automated collection 
techniques or other forms of information technology; and
    e. Estimates of capital or startup costs and costs of operation, 
maintenance, and purchase of services to provide information.
    At the end of the comment period, the comments and recommendations 
received will be analyzed to determine the extent to which the Federal 
Reserve should modify the proposed revisions prior to giving final 
approval.

Proposal To Approve Under OMB Delegated Authority the Extension for 
Three Years, Without Revision, of the Following Report

    Report title: Reporting, Recordkeeping, and Disclosure Requirements 
Associated with Proprietary Trading and Certain Interests in and 
Relationships with Covered Funds (Regulation VV).
    Agency form number: FR VV.
    OMB control number: 7100-0360.
    Frequency: Annual, monthly, quarterly, and on occasion.
    Respondents: State member banks, bank holding companies, savings 
and loan holding companies, foreign banking organizations, U.S. State 
branches or agencies of foreign banks, and other holding companies that

[[Page 35948]]

control an insured depository institution and any subsidiary of the 
foregoing other than a subsidiary for which the OCC, FDIC, CFTC, or SEC 
is the primary financial regulatory agency. The Board will take burden 
for all institutions under a holding company including:
     OCC-supervised institutions,
     FDIC-supervised institutions,
     Banking entities for which the CFTC is the primary 
financial regulatory agency, as defined in section 2(12)(C) of the 
Dodd-Frank Act, and
     Banking entities for which the SEC is the primary 
financial regulatory agency, as defined in section 2(12)(B) of the 
Dodd-Frank Act.
    Estimated number of respondents: 5,027.
    Estimated average hours per response:

Reporting Burden

    Sec.  _.12(e)--20 hours (Initial setup 50 hours).
    Sec.  _.20(d) (entities with $50 billion or greater in trading 
assets and liabilities)--2 hours (Initial setup 6 hours).
    Sec.  _.20(d) (entities with at least $10 billion and less than $50 
billion in trading assets and liabilities)--2 hours (Initial setup 6 
hours).

Recordkeeping Burden

    Sec.  _.3(d)(3)--1 hour (Initial setup 3 hours).
    Sec.  _.4(b)(3)(i)(A)--2 hours.
    Sec.  _.5(c)--100 hours (Initial setup 50 hours).
    Sec.  _.11(a)(2)--10 hours.
    Sec.  _.20(b)--265 hours (Initial setup 795 hours).
    Sec.  _.20(c)--1,200 hours (Initial setup 3,600 hours).
    Sec.  _.20(d)--(entities with $50 billion or more in trading assets 
and liabilities) 440 hours.
    Sec.  _.20(d)--(entities with at least $10 billion and less than 
$50 billion in trading assets and liabilities) 350 hours.
    Sec.  _.20(e)--200 hours.
    Sec.  _.20(f)(1)--8 hours.
    Sec.  _.20(f)(2)--40 hours (Initial setup 100 hours).

Disclosure Burden

    Sec.  _.11(a)(8)(i)--0.1 hours.
    Estimated annual burden hours: 1,085,690 hours (718,388 hours for 
initial setup and 367,302 hours for ongoing compliance).
    General Description of Report: The Board, the Office of the 
Comptroller of the Currency (OCC), the Federal Deposit Insurance 
Corporation (FDIC), the Commodity Futures Trading Commission (CFTC), 
and the Securities and Exchange Commission (SEC) (collectively, the 
agencies) adopted a final rule that implemented section 13 of the Bank 
Holding Company Act of 1956 (BHC Act), which was added by section 619 
of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-
Frank Act). Section 13 contains certain prohibitions and restrictions 
on the ability of a banking entity supervised by the agencies to engage 
in proprietary trading and have certain interests in, or relationships 
with, a hedge fund or private equity fund. Section 248.20 and Appendix 
A of Regulation VV require certain of the largest banking entities 
engaged in significant trading activities to collect, evaluate, and 
furnish data regarding covered trading activities as an indicator of 
areas meriting additional attention by the banking entity and the 
Board.\1\
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    \1\ As announced in the joint implementing rules, the agencies 
are currently in the process of conducting a review of the reported 
data on covered trading activities collected through September 30, 
2015, and, based on this review, are considering whether to modify, 
retain, or replace the reported data.
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    The reporting requirements are found in sections 248.12(e) and 
248.20(d); the recordkeeping requirements are found in sections 
248.3(d)(3), 248.4(b)(3)(i)(A), 248.5(c), 248.11(a)(2), and 248.20(b)-
(f); and the disclosure requirements are found in section 
248.11(a)(8)(i). The recordkeeping burden for sections 
248.4(a)(2)(iii), 248.4(b)(2)(iii), 248.5(b)(1), 248.5(b)(2)(i), 
248.5(b)(2)(iv), 248.13(a)(2)(i), and 248.13(a)(2)(ii)(A) is accounted 
for in section 248.20(b); the recordkeeping burden for Appendix B is 
accounted for in section 248.20(c); the reporting and recordkeeping 
burden for Appendix A is accounted for in section 248.20(d); and the 
recordkeeping burden for sections 248.10(c)(12)(i) and 
248.10(c)(12)(iii) is accounted for in section 248.20(e). These 
information collection requirements for the Board implemented section 
13 of the BHC Act for banking entities for which the Board is 
authorized to issue regulations under section 13(b)(2) of the BHC Act 
and take actions under section 13(e) of that Act. These banking 
entities include any state bank that is a member of the Federal Reserve 
System, any company that controls an insured depository institution 
(including a bank holding company and savings and loan holding 
company), any company that is treated as a bank holding company for 
purposes of section 8 of the International Banking Act, and any 
subsidiary of the foregoing other than a subsidiary for which the OCC, 
FDIC, CFTC, or SEC is the primary financial regulatory agency. The 
Board takes burden for all institutions under a holding company 
including OCC-supervised institutions, FDIC-supervised institutions, 
banking entities for which the CFTC is the primary financial regulatory 
agency, and banking entities for which the SEC is the primary financial 
regulatory agency. Compliance with the information collection is 
required for covered entities to obtain the benefit of engaging in 
certain types of proprietary trading or investing in, sponsoring, or 
having certain relationships with a hedge fund or private equity fund. 
No other federal law mandates these reporting, recordkeeping, and 
disclosure requirements. At this time, there are no required reporting 
forms associated with this information collection.

Reporting Requirements

    Section 248.12(e) states that, upon application by a banking 
entity, the Board may extend the period of time to meet the 
requirements on ownership limitations in Regulation VV for up to two 
additional years, if the Board finds that an extension would be 
consistent with safety and soundness and not detrimental to the public 
interest. An application for extension must (1) be submitted to the 
Board at least 90 days prior to expiration of the applicable time 
period, (2) provide the reasons for application including information 
that addresses the factors in paragraph (e)(2) of section 248.12, and 
(3) explain the banking entity's plan for reducing the permitted 
investment in a covered fund through redemption, sale, dilution, or 
other methods.
    Section 248.20(d) provides that a banking entity engaged in 
proprietary trading activity must comply with the reporting 
requirements described in Appendix A, if (1) the banking entity has, 
together with its affiliates and subsidiaries, trading assets and 
liabilities (excluding trading assets and liabilities involving 
obligations of or guaranteed by the United States or any agency of the 
United States) the average gross sum of which over the previous 
consecutive four quarters, as measured as of the last day of each of 
the four prior calendar quarters, equals or exceeds the established 
threshold; (2) in the case of a foreign banking entity, the average 
gross sum of the trading assets and liabilities of the combined U.S. 
operations of the foreign banking entity (including all subsidiaries, 
affiliates, branches and agencies of the foreign banking entity 
operating, located or organized in the United States and excluding 
trading assets and liabilities involving obligations of or guaranteed 
by the United States or any agency of the United States) over the 
previous

[[Page 35949]]

consecutive four quarters, as measured as of the last day of each of 
the four prior calendar quarters, equals or exceeds the established 
threshold; or (3) the Board notifies the banking entity in writing that 
it must satisfy the reporting requirements contained in Appendix A. The 
threshold for reporting is $50 billion beginning on June 30, 2014; $25 
billion beginning on April 30, 2016; and $10 billion beginning on 
December 31, 2016. Unless the appropriate agency notifies the banking 
entity in writing that it must report on a different basis, a banking 
entity with $50 billion or more in trading assets and liabilities must 
report the information required by Appendix A for each calendar month 
within 30 days of the end of the relevant calendar month. Beginning 
with information for the month of January 2015, such information must 
be reported within 10 days of the end of that calendar month. Any other 
banking entity subject to Appendix A must report the information 
required by Appendix A for each calendar quarter within 30 days of the 
end of that calendar quarter unless the appropriate agency notifies the 
banking entity in writing that it must report on a different basis. 
Appendix A requires banking entities to furnish the following 
quantitative measurements for each trading desk of the banking entity: 
(1) Risk and position limits and usage; (2) risk factor sensitivities; 
(3) Value-at-Risk and stress Value-at-Risk; (4) comprehensive profit 
and loss attribution; (5) inventory turnover; (6) inventory aging; and 
(7) customer facing trade ratio.
    Risk and position limits are the constraints that define the amount 
of risk that a trading desk is permitted to take at a point in time, as 
defined by the banking entity for a specific trading desk. Usage 
represents the portion of the trading desk's limits that are accounted 
for by the current activity of the desk. Risk and position limits must 
be reported in the format used by the banking entity for the purposes 
of risk management of each trading desk. Risk and position limits are 
often expressed in terms of risk measures, such as Value-at-Risk (VaR) 
and risk factor sensitivities, but may also be expressed in terms of 
other observable criteria, such as net open positions. When criteria 
other than VaR or risk factor sensitivities are used to define the risk 
and position limits, both the value of the risk and position limits and 
the value of the variables used to assess whether these limits have 
been reached must be reported. The calculation period is one trading 
day and the measurement frequency is daily.
    Risk factor sensitivities are changes in a trading desk's 
comprehensive profit and loss that are expected to occur in the event 
of a change in one or more underlying variables that are significant 
sources of the trading desk's profitability and risk. A banking entity 
must report the risk factor sensitivities that are monitored and 
managed as part of the trading desk's overall risk management policy. 
The underlying data and methods used to compute a trading desk's risk 
factor sensitivities will depend on the specific function of the 
trading desk and the internal risk management models employed. The 
number and type of risk factor sensitivities that are monitored and 
managed by a trading desk, and furnished to the appropriate agency, 
will depend on the explicit risks assumed by the trading desk. In 
general, however, reported risk factor sensitivities must be 
sufficiently granular to account for a preponderance of the expected 
price variation in the trading desk's holdings. Trading desks must take 
into account any relevant factors in calculating risk factor 
sensitivities, including, for example, the following with respect to 
particular asset classes: Commodity derivative positions, credit 
positions, credit-related derivative positions, equity derivative 
positions, equity positions, foreign exchange derivative positions, and 
interest rate positions, including interest rate derivative positions. 
The methods used by a banking entity to calculate sensitivities to a 
common factor shared by multiple trading desks, such as an equity price 
factor, must be applied consistently across its trading desks so that 
the sensitivities can be compared from one trading desk to another. The 
calculation period is one trading day and the measurement frequency is 
daily.
    VaR is the commonly used percentile measurement of the risk of 
future financial loss in the value of a given set of aggregated 
positions over a specified period of time, based on current market 
conditions. Stress VaR is the percentile measurement of the risk of 
future financial loss in the value of a given set of aggregated 
positions over a specified period of time, based on market conditions 
during a period of significant financial stress. Banking entities must 
compute and report VaR and stress VaR by employing generally accepted 
standards and methods of calculation. VaR should reflect a loss in a 
trading desk that is expected to be exceeded less than one percent of 
the time over a one-day period. For those banking entities that are 
subject to regulatory capital requirements imposed by a Federal banking 
agency, VaR and stress VaR must be computed and reported in a manner 
that is consistent with such regulatory capital requirements. In cases 
where a trading desk does not have a standalone VaR or stress VaR 
calculation but is part of a larger aggregation of positions for which 
a VaR or stress VaR calculation is performed, a VaR or stress VaR 
calculation that includes only the trading desk's holdings must be 
performed consistent with the VaR or stress VaR model and methodology 
used for the larger aggregation of positions. The calculation period is 
one trading day and the measurement frequency is daily.
    Comprehensive profit and loss attribution is an analysis that 
attributes the daily fluctuation in the value of a trading desk's 
positions to various sources. First, the daily profit and loss of the 
aggregated positions is divided into three categories: (1) Profit and 
loss attributable to a trading desk's existing positions that were also 
positions held by the trading desk as of the end of the prior day 
(existing positions); (2) profit and loss attributable to new positions 
resulting from the current day's trading activity (new positions); and 
(3) residual profit and loss that cannot be specifically attributed to 
existing positions or new positions. The sum of (1), (2), and (3) must 
equal the trading desk's comprehensive profit and loss at each point in 
time. In addition, profit and loss measurements must calculate 
volatility of comprehensive profit and loss (i.e., the standard 
deviation of the trading desk's one-day profit and loss, in dollar 
terms) for the reporting period for at least a 30-, 60-, and 90-day lag 
period, from the end of the reporting period, and any other period that 
the banking entity deems necessary to meet the requirements of the 
rule. The specific categories used by a trading desk in the 
comprehensive profit and loss attribution analysis and amount of detail 
for the analysis should be tailored to the type and amount of trading 
activities undertaken by the trading desk. The new position attribution 
must be computed by calculating the difference between the prices at 
which instruments were bought and/or sold and the prices at which those 
instruments are marked to market at the close of business on that day 
multiplied by the notional or principal amount of each purchase or 
sale. Any fees, commissions, or other payments received (paid) that are 
associated with transactions executed on that day must be added 
(subtracted) from such difference. These factors must be

[[Page 35950]]

measured consistently over time to facilitate historical comparisons. 
The calculation period is one trading day and the measurement frequency 
is daily.
    Inventory turnover is a ratio that measures the turnover of a 
trading desk's inventory. The numerator of the ratio is the absolute 
value of all transactions over the reporting period. The denominator of 
the ratio is the value of the trading desk's inventory at the beginning 
of the reporting period. For derivatives other than options and 
interest rate derivatives, value means gross notional value. For 
options, value means delta adjusted notional value. For interest rate 
derivatives, value means 10-year bond equivalent value. The calculation 
period is 30 days, 60 days, and 90 days and the measurement frequency 
is daily.
    Inventory aging generally describes a schedule of the trading 
desk's aggregate assets and liabilities and the amount of time that 
those assets and liabilities have been held. Inventory aging should 
measure the age profile of the trading desk's assets and liabilities. 
In general, inventory aging must be computed using a trading desk's 
trading activity data and must identify the value of a trading desk's 
aggregate assets and liabilities. Inventory aging must include two 
schedules, an asset-aging schedule and a liability-aging schedule. Each 
schedule must record the value of assets or liabilities held over all 
holding periods. For derivatives other than options and interest rate 
derivatives, value means gross notional value. For options, value means 
delta adjusted notional value. For interest rate derivatives, value 
means 10-year bond equivalent value. The calculation period is one 
trading day and the measurement frequency is daily.
    The customer-facing trade ratio is a ratio comparing (1) the 
transactions involving a counterparty that is a customer of the trading 
desk to (2) the transactions involving a counterparty that is not a 
customer of the trading desk. A trade count based ratio must be 
computed that records the number of transactions involving a 
counterparty that is a customer of the trading desk and the number of 
transactions involving a counterparty that is not a customer of the 
trading desk. A value based ratio must be computed that records the 
value of transactions involving a counterparty that is a customer of 
the trading desk and the value of transactions involving a counterparty 
that is not a customer of the trading desk. For purposes of calculating 
the customer-facing trade ratio, a counterparty is considered to be a 
customer of the trading desk if the counterparty is a market 
participant that makes use of the banking entity's market making-
related services by obtaining such services, responding to quotations, 
or entering into a continuing relationship with respect to such 
services. However, a trading desk or other organizational unit of 
another banking entity would not be a client, customer, or counterparty 
of the trading desk if the other entity has trading assets and 
liabilities of $50 billion or more as measured in accordance with 
section 248.20(d)(1) unless the trading desk documents how and why a 
particular trading desk or other organizational unit of the entity 
should be treated as a client, customer, or counterparty of the trading 
desk. Transactions conducted anonymously on an exchange or similar 
trading facility that permits trading on behalf of a broad range of 
market participants would be considered transactions with customers of 
the trading desk. For derivatives other than options and interest rate 
derivatives, value means gross notional value. For options, value means 
delta adjusted notional value. For interest rate derivatives, value 
means 10-year bond equivalent value. The calculation period is 30 days, 
60 days, and 90 days and the measurement frequency is daily.

Recordkeeping Requirements

    Section 248.3(d)(3) specifies that proprietary trading does not 
include any purchase or sale of a security by a banking entity for the 
purpose of liquidity management in accordance with a documented 
liquidity management plan of the banking entity that (1) specifically 
contemplates and authorizes the particular securities to be used for 
liquidity management purposes, the amount, types, and risks of these 
securities that are consistent with liquidity management, and the 
liquidity circumstances in which the particular securities may or must 
be used; (2) requires that any purchase or sale of securities 
contemplated and authorized by the plan be principally for the purpose 
of managing the liquidity of the banking entity, and not for the 
purpose of short-term resale, benefitting from actual or expected 
short-term price movements, realizing short-term arbitrage profits, or 
hedging a position taken for such short-term purposes; (3) requires 
that any securities purchased or sold for liquidity management purposes 
be highly liquid and limited to securities the market, credit and other 
risks of which the banking entity does not reasonably expect to give 
rise to appreciable profits or losses as a result of short-term price 
movements; (4) limits any securities purchased or sold for liquidity 
management purposes, together with any other instruments purchased or 
sold for such purposes, to an amount that is consistent with the 
banking entity's near-term funding needs, including deviations from 
normal operations of the banking entity or any affiliate thereof, as 
estimated and documented pursuant to methods specified in the plan; (5) 
includes written policies and procedures, internal controls, analysis 
and independent testing to ensure that the purchase and sale of 
securities that are not permitted under section 248.6(a) or (b) are for 
the purpose of liquidity management and in accordance with the 
liquidity management plan described in this paragraph; and (6) is 
consistent with the appropriate agency's supervisory requirements, 
guidance, and expectations regarding liquidity management.
    Section 248.4(b)(3)(i)(A) provides that a trading desk or other 
organizational unit of another banking entity with more than $50 
billion in trading assets and liabilities is not a client, customer, or 
counterparty unless the trading desk documents how and why a particular 
trading desk or other organizational unit of the entity should be 
treated as a client, customer, or counterparty of the trading desk for 
purposes of section 248.4(b).
    Section 248.5(c) requires documentation for certain purchases or 
sales of a financial instrument for risk-mitigating hedging purposes 
that is: (1) Not established by the specific trading desk establishing 
the underlying positions, contracts, or other holdings the risks of 
which the hedging activity is designed to reduce; (2) established by 
the specific trading desk establishing or responsible for the 
underlying positions, contracts, or other holdings but that is not 
specifically identified in the trading desk's written policies and 
procedures; or (3) established to hedge aggregated positions across two 
or more trading desks. In connection with any purchase or sale that 
meets these specified circumstances, a banking entity must, at a 
minimum and contemporaneously with the purchase or sale, document (1) 
the specific, identifiable risk(s) of the identified positions, 
contracts, or other holdings of the banking entity that the purchase or 
sale is designed to reduce; (2) the specific risk-mitigating strategy 
that the purchase or sale is designed to fulfill; and (3) the trading 
desk or other business unit that is establishing and responsible for 
the hedge. The banking entity must also create and retain records 
sufficient to demonstrate compliance with this section for at least

[[Page 35951]]

five years in a form that allows the banking entity to promptly produce 
such records to the appropriate agency on request, or such longer 
period as required under other law or this part.
    Section 248.11(a)(2) requires that a banking entity must create a 
written plan or similar documentation in order to acquire or retain an 
ownership interest in a covered fund that is organized and offered by 
the banking entity pursuant to that exemption. The covered fund must be 
organized and offered only in connection with the provision of bona 
fide trust, fiduciary, investment advisory, or commodity trading 
advisory services and only to persons that are customers of such 
services of the banking entity. The written plan or similar 
documentation must outline how the banking entity intends to provide 
advisory or other similar services to its customers through organizing 
and offering the covered fund.
    Section 248.20(a) requires each banking entity to develop a 
compliance program reasonably designed to ensure and monitor compliance 
with the prohibitions and restrictions on proprietary trading and 
covered fund activities and investments set forth in section 13 of the 
BHC Act. For a banking entity with total consolidated assets over $10 
billion, the compliance program from section 248.20(b) must include: 
(1) Written policies and procedures reasonably designed to document, 
describe, monitor and limit trading activities, including setting and 
monitoring required limits set out in sections 248.4 and 248.5 and 
activities and investments with respect to a covered fund (including 
those permitted under sections 248.3 through 248.6 or sections 248.11 
through 248.14) to ensure that all activities and investments conducted 
by the banking entity that are subject to section 13 of the BHC Act and 
Subpart D of Regulation VV comply with section 13 of the BHC Act and 
applicable regulations; (2) a system of internal controls reasonably 
designed to monitor compliance with section 13 of the BHC Act and 
Subpart D of Regulation VV and to prevent the occurrence of activities 
or investments that are prohibited by section 13 of the BHC Act and 
applicable regulations; (3) a management framework that clearly 
delineates responsibility and accountability for compliance with 
section 13 of the BHC Act and Subpart D of Regulation VV and includes 
appropriate management review of trading limits, strategies, hedging 
activities, investments, incentive compensation, and other matters 
identified in this part or by management as requiring attention; (4) 
independent testing and audit of the effectiveness of the compliance 
program conducted periodically by qualified personnel of the banking 
entity or by a qualified outside party; (5) training for trading 
personnel and managers, as well as other appropriate personnel, to 
effectively implement and enforce the compliance program; and (6) 
records sufficient to demonstrate compliance with section 13 of the BHC 
Act and applicable regulations, which a banking entity must promptly 
provide to the Board upon request and retain for a period of no less 
than five years or such longer period as required by the Board.
    Section 248.20(c) specifies that the compliance program of a 
banking entity must satisfy the requirements and other standards 
contained in Appendix B, if (1) the banking entity engages in 
proprietary trading permitted under subpart B and is required to comply 
with the reporting requirements of section 248.20(d); (2) the banking 
entity has reported total consolidated assets as of the previous 
calendar year end of $50 billion or more or, in the case of a foreign 
banking entity, has total U.S. assets as of the previous calendar year 
end of $50 billion or more (including all subsidiaries, affiliates, 
branches and agencies of the foreign banking entity operating, located 
or organized in the United States); or (3) the Board notifies the 
banking entity in writing that it must satisfy the requirements and 
other standards contained in Appendix B. Appendix B provides enhanced 
minimum standards for compliance programs for banking entities that 
meet the thresholds in section 248.20(c) as described above. These 
include the establishment, maintenance, and enforcement of the enhanced 
compliance program and meeting the minimum written policies and 
procedures, internal controls, management framework, independent 
testing, training, and recordkeeping. The program must: (1) Be 
reasonably designed to identify, document, monitor, and report the 
permitted trading and covered fund activities and investments; 
identify, monitor, and promptly address the risk of these covered 
activities and investments and potential areas of noncompliance; and 
prevent activities or investments prohibited by, or that do not comply 
with, section 13 of the BHC Act and this part; (2) establish and 
enforce appropriate limits on covered activities and investments, 
including limits on size, scope, complexity, and risks of individual 
activities or investments consistent with the requirements of section 
13 of the BHC Act and this part; (3) subject the effectiveness of the 
compliance program to periodic independent review and testing, and 
ensure that internal audit, corporate compliance, and internal control 
functions involved in review and testing are effective and independent; 
(4) make senior management and others accountable for effective 
implementation of compliance program and ensure that board of directors 
and chief executive officer (or equivalent) of the banking entity 
review effectiveness of the compliance program; and (5) facilitate 
supervision and examination by the relevant agencies of permitted 
trading and covered fund activities and investments.
    Section 248.20(d) provides that certain banking entities engaged in 
certain proprietary trading activities must comply with the reporting 
requirements described in Appendix A. A banking entity subject to these 
requirements must also, for any quantitative measurement furnished to 
the appropriate agency pursuant to section 248.20(d) and Appendix A, 
create and maintain records documenting the preparation and content of 
these reports, as well as such information as is necessary to permit 
the appropriate agency to verify the accuracy of such reports, for a 
period of five years from the end of the calendar year for which the 
measurement was taken.
    Section 248.20(e) specifies additional recordkeeping requirements 
for covered funds. Any banking entity that has more than $10 billion in 
total consolidated assets as reported on December 31 of the previous 
two calendar years must maintain records that include: (1) 
Documentation of the exclusions or exemptions other than sections 
3(c)(1) and 3(c)(7) of the Investment Company Act of 1940 relied on by 
each fund sponsored by the banking entity (including all subsidiaries 
and affiliates) in determining that such fund is not a covered fund; 
(2) for each fund sponsored by the banking entity (including all 
subsidiaries and affiliates) for which the banking entity relies on one 
or more of the exclusions from the definition of covered fund provided 
by sections 248.10(c)(1), 248.10(c)(5), 248.10(c)(8), 248.10(c)(9), or 
248.10(c)(10) of subpart C of the final rule, documentation supporting 
the banking entity's determination that the fund is not a covered fund 
pursuant to one or more of those exclusions; (3) for each seeding 
vehicle described in sections 248.10(c)(12)(i) or 248.10(c)(12)(iii) of 
subpart C that will

[[Page 35952]]

become a registered investment company or SEC-regulated business 
development company, a written plan documenting the banking entity's 
determination that the seeding vehicle will become a registered 
investment company or SEC-regulated business development company, the 
period of time during which the vehicle will operate as a seeding 
vehicle, and the banking entity's plan to market the vehicle to third-
party investors and convert it into a registered investment company or 
SEC-regulated business development company within the time period 
specified in section 248.12(a)(2)(i)(B) of subpart C; and (4) for any 
banking entity that is, or is controlled directly or indirectly by a 
banking entity that is, located in or organized under the laws of the 
United States or of any State, if the aggregate amount of ownership 
interests in foreign public funds that are described in section 
248.10(c)(1) of subpart C owned by such banking entity (including 
ownership interests owned by any affiliate that is controlled directly 
or indirectly by a banking entity that is located in or organized under 
the laws of the United States or of any State) exceeds $50 million at 
the end of two or more consecutive calendar quarters, beginning with 
the next succeeding calendar quarter, documentation of the value of the 
ownership interests owned by the banking entity (and such affiliates) 
in each foreign public fund and each jurisdiction in which any such 
foreign public fund is organized, calculated as of the end of each 
calendar quarter, which documentation must continue until the banking 
entity's aggregate amount of ownership interests in foreign public 
funds is below $50 million for two consecutive calendar quarters.
    Pursuant to section 248.20(f)(1), a banking entity that does not 
engage in activities or investments pursuant to subpart B or subpart C 
(other than trading activities permitted pursuant to section 248.6(a) 
of subpart B) may satisfy the requirements of section 248.20 by 
establishing the required compliance program prior to becoming engaged 
in such activities or making such investments (other than trading 
activities permitted pursuant to section 248.6(a) of subpart B).
    Pursuant to section 248.20(f)(2) a banking entity with total 
consolidated assets of $10 billion or less as reported on December 31 
of the previous two calendar years that engages in activities or 
investments pursuant to subpart B or subpart C (other than trading 
activities permitted under section 248.6(a)) may satisfy the 
requirements of section 248.20 by including in its existing compliance 
policies and procedures appropriate references to the requirements of 
section 13 and this part and adjustments as appropriate given the 
activities, size, scope, and complexity of the banking entity.

Disclosure Requirements

    Section 248.11(a)(8)(i) requires that a banking entity must clearly 
and conspicuously disclose, in writing, to any prospective and actual 
investor in the covered fund (such as through disclosure in the covered 
fund's offering documents) (1) that ``any losses in [such covered fund] 
will be borne solely by investors in [the covered fund] and not by [the 
banking entity]; therefore, [the banking entity's] losses in [such 
covered fund] will be limited to losses attributable to the ownership 
interests in the covered fund held by [the banking entity] in its 
capacity as investor in the [covered fund] or as beneficiary of a 
carried interest held by [the banking entity]''; (2) that such investor 
should read the fund offering documents before investing in the covered 
fund; (3) that the ``ownership interests in the covered fund are not 
insured by the FDIC, and are not deposits, obligations of, or endorsed 
or guaranteed in any way, by any banking entity'' (unless that happens 
to be the case); and (4) the role of the banking entity and its 
affiliates and employees in sponsoring or providing any services to the 
covered fund.
    Legal authorization and confidentiality: The Board's Legal Division 
has determined that section 13 of the Bank Holding Company Act (BHC 
Act) authorizes the Board and the other agencies to issue rules to 
carry out the purposes of the section (12 U.S.C. 1851(b)(2)). In 
addition, section 13 requires the agencies to issue regulations 
regarding internal controls and recordkeeping to ensure compliance with 
section 13 (12 U.S.C. 1851(e)(1)). The information collection is 
required in order for covered entities to obtain the benefit of 
engaging in certain types of proprietary trading or investing in, 
sponsoring, or having certain relationships with a hedge fund or 
private equity fund, under the restrictions set forth in section 13 and 
the final rule.
    As required information, the information submitted under sections 
248.12(e) and 248.20(d) of the rule can be withheld under exemption 4 
of the Freedom of Information Act (FOIA) if disclosure would result in 
substantial competitive harm (5 U.S.C. 552(b)(4)). The information 
required to be submitted meets this test, as detailed below. In 
addition, the information is ``contained in or related to examination, 
operating, or condition reports prepared . . . for the use of '' the 
Board, and thus may be withheld under exemption 8 of FOIA (5 U.S.C. 
552(b)(8)). Under section 248.12(e), the banking entity, as part of any 
request to extend the period to divest ownership of a covered fund, 
must provide to the agency (among other information): The total 
exposure of the banking entity to the covered fund and its materiality 
to the institution; the risks and costs of disposing of, or maintaining 
the fund, within the applicable period; and the contractual terms 
governing the banking entity's interest in the covered fund. Among the 
types of information required to be submitted under section 248.20(d) 
and Appendix A are (1) risk and position limits and usage; (2) risk 
factor sensitivities; (3) Value-at-Risk and stress Value-at-Risk; (4) 
comprehensive profit and loss attribution; (5) inventory turnover; (6) 
inventory aging; and (7) customer facing trade ratio. Disclosure of 
this type of internal proprietary business information would clearly 
cause substantial competitive harm.
    Regarding the information contained in the rule subject to 
recordkeeping requirements only, no issues of confidentiality normally 
would arise. If such information were gathered by the Federal Reserve 
during the course of supervisory examinations and inspections, however, 
such information normally would be deemed exempt under exemption 8 of 
FOIA (5 U.S.C. 552(b)(8)). The information collected in response to 
these recordkeeping requirements would be confidential commercial and 
financial information of the type normally exempt from disclosure under 
exemption 4 of FOIA, if gathered by the Federal Reserve (5 U.S.C. 
552(b)(4)). Such information includes: The banking entity's liquidity 
management plan to qualify for certain regulatory exclusions under 
section 248.3(d)(3); documentation requirements for certain hedging 
transactions or exemptions under sections 248.5(c) and 248.11(a)(2); 
and a detailed compliance program (or equivalent trading policies and 
procedures) under sections 248.20(b)-(f).

    Board of Governors of the Federal Reserve System, July 28, 2017.
Ann E. Misback,
Secretary of the Board.
[FR Doc. 2017-16239 Filed 8-1-17; 8:45 am]
 BILLING CODE 6210-01-P