New York Codes, Rules and Regulations
Title 3 - BANKING
Legal Interpretations
LI 3 - Foreign Banking Corporations
Section LI 3.1 - Powers of branches and agencies of foreign banks with respect to the handling of securities
Current through Register Vol. 46, No. 12, March 20, 2024
Section 201-b of the Banking Law permits a branch, which has received a certificate from the Superintendent, to exercise fiduciary powers to act as fiscal or transfer agent for the foreign country of its incorporation or for any corporation organized under the laws of such foreign country or doing business there. Branches without such authorization, and all agencies, are precluded from so acting. Several requests were made for the department's view as to what functions may be performed by agencies and foreign-bank branches, without special authorization under section 201-b of the Banking Law, on behalf of corporations organized in, or otherwise related to, such bank's country of incorporation.
In principle the distinctions between what can be done by branches with fiduciary powers under section 201-b of the Banking Law as opposed to branches without fiduciary powers or agencies are practically identical to those applicable to trust companies, as opposed to banks without trust powers, under section 100(1) of the Banking Law. Specifically, banking entities lacking fiscal, transfer agent, or other fiduciary powers may nonetheless engage in the following types of business:
(1) custody for safekeeping of customers' securities, pursuant to instructions by such customers; (2) receipt of dividends on the securities for the account of such customers, and disposition thereof in accordance with instructions; (3) placing of orders for the purchase or sale of securities in accordance with customers' instructions; (4) execution of voting and other rights in connection with custodian accounts and in accordance with customers' instructions; (5) transaction of such business through nominees; and (6) receipt of fees or commissions from customers in connection with such business.
More difficult questions arise, however, where an entity is acting primarily on behalf of or in respect of a particular issuer or issue of securities, not just with respect to securities (which will often be of widely varying types) owned by and held for customers as such. The department regarded it as clear that only authorized fiscal and transfer agents could receive from the issuer and disburse to security holders principal and interest on debt securities, dividends on equity securities, and similar sums such as withholding reimbursements. Only such agents, moreover, could validate and effect issuance, transfer, exchange, conversion (if any) and retirement (as, for instance, by random selection of debt instruments for prepayment) of such securities, or act as the issuer's agent for service of process, receipt of securities for forwarding, and like purposes.
The foregoing would be true even of so-called "private placements" and even if there is a disclaimer, accepted by all parties, of any fiduciary relationship between the entity and the security holders. The applicable statutes create no exception for issues of limited scope. Moreover, even in the absence of a formal "fiduciary" relationship the rights of institutional purchasers of securities, and ultimately of the small investors they usually represent, can be seriously prejudiced by faulty performance of fiscal and transfer duties, which specific departmental grant and supervision of fiscal-agency powers was designed to avoid.
However, the department did note in conclusion that New York agencies and branches without fiduciary powers, under their power to receive and transmit funds could, on a "wholesale" basis (i.e. in one or a few large transactions substantially without investor contact, except of an interbank nature) handle remittances of funds to and from issuers in respect of their securities issues, and of course, in respect of normal commercial transactions including customary collections and payments. Foreign-bank agencies in particular would not be expected to retain such remittances for any significant length of time before transmission lest they come to resemble deposits (as opposed to credit balances), which agencies are not allowed to receive.
DATED: August 5, 1974
