§380.8. Predominantly engaged in activities that are financial or incidental thereto.
12 C.F.R. § 380.8
For purposes of sections 201(a)(11) and 201(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act 1 (“Dodd-Frank Act”) and this part, a company is predominantly engaged in activities that the Board of Governors of the Federal Reserve System (“Board of Governors”) has determined are financial in nature or incidental thereto for purposes of section 4(k) of the Bank Holding Company Act of 1956 (“BHC Act”) (12 U.S.C. 1843(k)), if:
At least 85 percent of the total consolidated revenues of such company (determined in accordance with applicable accounting standards) for either of its two most recently completed fiscal years were derived, directly or indirectly, from financial activities, or
Based upon all of the relevant facts and circumstances, the consolidated revenues of the company from financial activities constitute 85 percent or more of the total consolidated revenues of the company.
For purposes of paragraph (a) of this section, the following definitions apply—
The term “applicable accounting standards” means the accounting standards utilized by the company in the ordinary course of business in preparing its consolidated financial statements, provided that those standards are:
U.S. generally accepted accounting principles,
International Financial Reporting Standards, or
Such other accounting standards that are determined to be appropriate on a case-by-case basis.
The terms “broker” and “dealer” have the same meanings as in section 3 of the Securities Exchange Act of 1934 (15 U.S.C. 78c).
The term “financial activity” means—
Lending, exchanging, transferring, investing for others, or safeguarding money or securities.
Insuring, guaranteeing, or indemnifying against loss, harm, damage, illness, disability, or death, or providing and issuing annuities, and acting as principal, agent, or broker for purposes of the foregoing, in any state.
Providing financial, investment, or economic advisory services, including advising an investment company (as defined in section 3 of the Investment Company Act of 1940).
Issuing or selling instruments representing interests in pools of assets permissible for a bank to hold directly.
Underwriting, dealing in, or making a market in securities.
Engaging in any activity that the Board of Governors has determined to be so closely related to banking or managing or controlling banks as to be a proper incident thereto, which include—
Extending credit and servicing loans. Making, acquiring, brokering, or servicing loans or other extensions of credit (including factoring, issuing letters of credit and accepting drafts) for the company's account or for the account of others.
Activities related to extending credit. Any activity usual in connection with making, acquiring, brokering or servicing loans or other extensions of credit, including the following activities—
(1) Real estate and personal property appraising. Performing appraisals of real estate and tangible and intangible personal property, including securities.
(2) Arranging commercial real estate equity financing. Acting as intermediary for the financing of commercial or industrial income-producing real estate by arranging for the transfer of the title, control, and risk of such a real estate project to one or more investors.
(3) Check-guaranty services. Authorizing a subscribing merchant to accept personal checks tendered by the merchant's customers in payment for goods and services, and purchasing from the merchant validly authorized checks that are subsequently dishonored.
(4) Collection agency services. Collecting overdue accounts receivable, either retail or commercial.
(5) Credit bureau services. Maintaining information related to the credit history of consumers and providing the information to a credit grantor who is considering a borrower's application for credit or who has extended credit to the borrower.
(6) Asset management, servicing, and collection activities. Engaging under contract with a third party in asset management, servicing, and collection 2 of assets of a type that an insured depository institution may originate and own.
(7) Acquiring debt in default. Acquiring debt that is in default at the time of acquisition.
(8) Real estate settlement servicing. Providing real estate settlement services. 3
Leasing personal or real property. Leasing personal or real property or acting as agent, broker, or adviser in leasing such property if—
(1) The lease is on a nonoperating basis; 4
(2) The initial term of the lease is at least 90 days; and
(3) In the case of leases involving real property:
(i) At the inception of the initial lease, the effect of the transaction will yield a return that will compensate the lessor for not less than the lessor's full investment in the property plus the estimated total cost of financing the property over the term of the lease from rental payments, estimated tax benefits, and the estimated residual value of the property at the expiration of the initial lease; and
(ii) The estimated residual value of property for purposes of paragraph (b)(2)(vi)(C)(3)(i) of this section shall not exceed 25 percent of the acquisition cost of the property to the lessor.
Operating nonbank depository institutions— (1) Industrial banking. Owning, controlling, or operating an industrial bank, Morris Plan bank, or industrial loan company that is not a bank for purposes of the BHC Act.
(2) Operating savings associations. Owning, controlling, or operating a savings association.
Trust company functions. Performing functions or activities that may be performed by a trust company (including activities of a fiduciary, agency, or custodial nature), in the manner authorized by federal or state law that is not a bank for purposes of section 2(c) of the BHC Act.
Financial and investment advisory activities. Acting as investment or financial advisor to any person, including (without, in any way, limiting the foregoing):
(1) Serving as investment adviser (as defined in section 2(a)(20) of the Investment Company Act of 1940, 15 U.S.C. 80a-2(a)(20)), to an investment company registered under that act, including sponsoring, organizing, and managing a closed-end investment company;
(2) Furnishing general economic information and advice, general economic statistical forecasting services, and industry studies;
(3) Providing advice in connection with mergers, acquisitions, divestitures, investments, joint ventures, leveraged buyouts, recapitalizations, capital structurings, financing transactions and similar transactions, and conducting financial feasibility studies; 5
(4) Providing information, statistical forecasting, and advice with respect to any transaction in foreign exchange, swaps, and similar transactions, commodities, and any forward contract, option, future, option on a future, and similar instruments;
(5) Providing educational courses, and instructional materials to consumers on individual financial management matters; and
(6) Providing tax-planning and tax-preparation services to any person.
Agency transactional services for customer investments— (1) Securities brokerage. Providing securities brokerage services (including securities clearing and/or securities execution services on an exchange), whether alone or in combination with investment advisory services, and incidental activities (including related securities credit activities and custodial services).
(2) Riskless principal transactions. Buying and selling in the secondary market all types of securities on the order of customers as a “riskless principal” to the extent of engaging in a transaction in which the company, after receiving an order to buy (or sell) a security from a customer, purchases (or sells) the security for its own account to offset a contemporaneous sale to (or purchase from) the customer.
(3) Private placement services. Acting as agent for the private placement of securities in accordance with the requirements of the Securities Act of 1933 (“1933 Act”) and the rules of the Securities and Exchange Commission.
(4) Futures commission merchant. Acting as a futures commission merchant (“FCM”) for unaffiliated persons in the execution, clearance, or execution and clearance of any futures contract and option on a futures contract.
(5) Other transactional services. Providing to customers as agent transactional services with respect to swaps and similar transactions, any transaction described in paragraph (b)(2)(vi)(H) of this section, any transaction that is permissible for a state member bank, and any other transaction involving a forward contract, option, futures, option on a futures or similar contract (whether traded on an exchange or not) relating to a commodity that is traded on an exchange.
Investment transactions as principal— (1) Underwriting and dealing in government obligations and money market instruments. Underwriting and dealing in obligations of the United States, general obligations of states and their political subdivisions, and other obligations that state member banks of the Federal Reserve System may be authorized to underwrite and deal in under 12 U.S.C. 24 and 335, including banker's acceptances and certificates of deposit.
(2) Investing and trading activities. Engaging as principal in:
(i) Foreign exchange;
(ii) Forward contracts, options, futures, options on futures, swaps, and similar contracts, whether traded on exchanges or not, based on any rate, price, financial asset (including gold, silver, platinum, palladium, copper, or any other metal), nonfinancial asset, or group of assets, other than a bank- ineligible security, 6 if: a state member bank is authorized to invest in the asset underlying the contract; the contract requires cash settlement; the contract allows for assignment, termination, or offset prior to delivery or expiration, and the company makes every reasonable effort to avoid taking or making delivery of the asset underlying the contract, or receives and instantaneously transfers title to the underlying asset, by operation of contract and without taking or making physical delivery of the asset; or the contract does not allow for assignment, termination, or offset prior to delivery or expiration and is based on an asset for which futures contracts or options on futures contracts have been approved for trading on a U.S. contract market by the Commodity Futures Trading Commission, and the company makes every reasonable effort to avoid taking or making delivery of the asset underlying the contract, or receives and instantaneously transfers title to the underlying asset, by operation of contract and without taking or making physical delivery of the asset.
(iii) Forward contracts, options, 7 futures, options on futures, swaps, and similar contracts, whether traded on exchanges or not, based on an index of a rate, a price, or the value of any financial asset, nonfinancial asset, or group of assets, if the contract requires cash settlement.
(3) Buying and selling bullion, and related activities. Buying, selling and storing bars, rounds, bullion, and coins of gold, silver, platinum, palladium, copper, and any other metal for the company's own account and the account of others, and providing incidental services such as arranging for storage, safe custody, assaying, and shipment.
Management consulting and counseling activities— (1) Management consulting. Providing management consulting advice: 8
(i) On any matter to unaffiliated depository institutions, including commercial banks, savings and loan associations, savings banks, credit unions, industrial banks, Morris Plan banks, cooperative banks, industrial loan companies, trust companies, and branches or agencies of foreign banks;
(ii) On any financial, economic, accounting, or audit matter to any other company.
(2) Revenues derived from a company's management consulting activities under this paragraph (b)(3)(vi) will not be considered to be financial if the company:
(i) Owns or controls, directly or indirectly, more than 5 percent of the voting securities of the client institution; or
(ii) Allows a management official, as defined in 12 CFR 212.2(h), of the company or any of its affiliates to serve as a management official of the client institution, except where such interlocking relationship is permitted pursuant to an exemption permitted by the Board of Governors.
(3) Up to 30 percent of a nonbank company's revenues related to management consulting services provided to customers not described in paragraph (b)(3)(vi)(I)(1)(i) or regarding matters not described in paragraph (b)(3)(vi)(I)(1)(ii) of this section will be included in the company's financial revenues.
(4) Employee benefits consulting services. Providing consulting services to employee benefit, compensation and insurance plans, including designing plans, assisting in the implementation of plans, providing administrative services to plans, and developing employee communication programs for plans.
(5) Career counseling services. Providing career counseling services to:
(i) A financial organization 9 and individuals currently employed by, or recently displaced from, a financial organization;
(ii) Individuals who are seeking employment at a financial organization; and
(iii) Individuals who are currently employed in or who seek positions in the finance, accounting, and audit departments of any company.
Support services— (1) Courier services. Providing courier services for:
(i) Checks, commercial papers, documents, and written instruments (excluding currency or bearer-type negotiable instruments) that are exchanged among banks and financial institutions; and
(ii) Audit and accounting media of a banking or financial nature and other business records and documents used in processing such media. 10
(2) Printing and selling MICR-encoded items. Printing and selling checks and related documents, including corporate image checks, cash tickets, voucher checks, deposit slips, savings withdrawal packages, and other forms that require Magnetic Ink Character Recognition (MICR) encoding.
Insurance agency and underwriting— (1) Credit insurance. Acting as principal, agent, or broker for insurance (including home mortgage redemption insurance) that is:
(i) Directly related to an extension of credit by the company or any of its subsidiaries; and
(ii) Limited to ensuring the repayment of the outstanding balance due on the extension of credit 11 in the event of the death, disability, or involuntary unemployment of the debtor.
(2) Finance company subsidiary. Acting as agent or broker for insurance directly related to an extension of credit by a finance company 12 that is a subsidiary of a company, if:
(i) The insurance is limited to ensuring repayment of the outstanding balance on such extension of credit in the event of loss or damage to any property used as collateral for the extension of credit; and
(ii) The extension of credit is not more than $10,000, or $25,000 if it is to finance the purchase of a residential manufactured home 13 and the credit is secured by the home; and
(iii) The applicant commits to notify borrowers in writing that: they are not required to purchase such insurance from the applicant; such insurance does not insure any interest of the borrower in the collateral; and the applicant will accept more comprehensive property insurance in place of such single-interest insurance.
(3) Insurance in small towns. Engaging in any insurance agency activity in a place where the company or a subsidiary has a lending office and that:
(i) Has a population not exceeding 5,000 (as shown in the preceding decennial census); or
(ii) Has inadequate insurance agency facilities, as determined by the Board of Governors, after notice and opportunity for hearing.
(4) Insurance-agency activities conducted on May 1, 1982. Engaging in any specific insurance-agency activity 14 if the company, or subsidiary conducting the specific activity, conducted such activity on May 1, 1982, or received approval from the Board of Governors to conduct such activity on or before May 1, 1982. 15 Revenues derived from a company's specific insurance agency activity under this clause will be considered financial only if the company:
(i) Engages in such specific insurance agency activity only at locations: in the state in which the company has its principal place of business (as defined in 12 U.S.C. 1842(d)); in any state or states immediately adjacent to such state; and in any state in which the specific insurance-agency activity was conducted (or was approved to be conducted) by such company or subsidiary thereof or by any other subsidiary of such company on May 1, 1982; and
(ii) Provides other insurance coverages that may become available after May 1, 1982, so long as those coverages insure against the types of risks as (or are otherwise functionally equivalent to) coverages sold or approved to be sold on May 1, 1982, by the company or subsidiary.
(5) Supervision of retail insurance agents. Supervising on behalf of insurance underwriters the activities of retail insurance agents who sell:
(i) Fidelity insurance and property and casualty insurance on the real and personal property used in the operations of the company or its subsidiaries; and
(ii) Group insurance that protects the employees of the company or its subsidiaries.
(6) Small companies. Engaging in any insurance-agency activity if the company has total consolidated assets of $50 million or less. Revenues derived from a company's insurance-agency activities under this paragraph will be considered financial only if the company does not engage in the sale of life insurance or annuities except as provided in paragraphs (b)(3)(vi)(K)(1) and (3) of this section, and does not continue to engage in insurance-agency activities pursuant to this provision more than 90 days after the end of the quarterly reporting period in which total assets of the company and its subsidiaries exceed $50 million.
(7) Insurance-agency activities conducted before 1971. Engaging in any insurance-agency activity performed at any location in the United States directly or indirectly by a company that was engaged in insurance-agency activities prior to January 1, 1971, as a consequence of approval by the Board of Governors prior to January 1, 1971.
Community development activities— (1) Financing and investment activities. Making equity and debt investments in corporations or projects designed primarily to promote community welfare, such as the economic rehabilitation and development of low-income areas by providing housing, services, or jobs for residents.
(2) Advisory activities. Providing advisory and related services for programs designed primarily to promote community welfare.
Money orders, savings bonds, and traveler's checks. The issuance and sale at retail of money orders and similar consumer-type payment instruments; the sale of U.S. savings bonds; and the issuance and sale of traveler's checks.
Data processing. (1) Providing data processing, data storage and data transmission services, facilities (including data processing, data storage and data transmission hardware, software, documentation, or operating personnel), databases, advice, and access to such services, facilities, or databases by any technological means, if the data to be processed, stored or furnished are financial, banking or economic.
(2) Up to 30 percent of a nonbank company's revenues related to providing general purpose hardware in connection with providing data processing products or services described in (b)(2)(vi)(N)(1) of this section will be included in the company's financial revenues.
Administrative services. Providing administrative and other services to mutual funds.
Securities exchange. Owning shares of a securities exchange.
Certification authority. Acting as a certification authority for digital signatures and authenticating the identity of persons conducting financial and nonfinancial transactions.
Employment histories. Providing employment histories to third parties for use in making credit decisions and to depository institutions and their affiliates for use in the ordinary course of business.
Check cashing and wire transmission. Check cashing and wire transmission services.
Services offered in connection with banking services. In connection with offering banking services, providing notary public services, selling postage stamps and postage-paid envelopes, providing vehicle registration services, and selling public transportation tickets and tokens.
Real estate title abstracting.
Engaging, in the United States, in any activity that a bank holding company may engage in outside of the United States; and the Board has determined, under regulations prescribed or interpretations issued pursuant to section 4(c)(13) of the BHC Act of 1956 (12 U.S.C. 1843(c)(13)) to be usual in connection with the transaction of banking or other financial operations abroad. Those activities include—
Providing management consulting services, including to any person with respect to nonfinancial matters, so long as the management consulting services are advisory and do not allow the company to control the person to which the services are provided.
Operating a travel agency in connection with financial services.
Organizing, sponsoring, and managing a mutual fund.
Commercial banking and other banking activities.
Acting as a finder in bringing together one or more buyers and sellers of any product or service for transactions that the parties themselves negotiate and consummate, including providing any or all of the following services through any means—
(1) Identifying potential parties, making inquiries as to interest, introducing, and referring potential parties to each other, and arranging contacts between and meetings of interested parties;
(2) Conveying between interested parties expressions of interest, bids, offers, orders and confirmations relating to a transaction; and
(3) Transmitting information conveying products and services to potential parties in connection with the activities described paragraphs (b)(3)(viii)(A)(1) and (2) of this section.
The following are examples of finder services when done in accordance with paragraphs (b)(3)(viii)(C)-(D) of this section. These examples are not exclusive.
(1) Hosting an electronic marketplace on the company's Internet Web site by providing hypertext or similar links to the Web sites of third party buyers or sellers.
(2) Hosting on the company's servers the Internet Web site of—
(i) A buyer (or seller) that provides information concerning the buyer (or seller) and the products or services it seeks to buy (or sell) and allows sellers (or buyers) to submit expressions of interest, bids, offers, orders and confirmations relating to such products or services; or
(ii) A government or government agency that provides the information concerning the services or benefits made available by government or government agency, assists persons in completing applications to receive such services or benefits from the government or agency, and allows persons to transmit their applications for services or benefits to the government or agency.
(3) Operating an Internet Web site that allows multiple buyers and sellers to exchange information concerning the products and services that they are willing to purchase or sell, locate potential counterparties for transactions, aggregate orders for goods or services with those made by other parties, and enter into transactions between themselves.
(4) Operating a telephone call center that provides permissible finder services.
To be a finder service for purposes of this section, the company providing the service must comply with the following limitations.
(1) A company providing the service may act only as an intermediary between a buyer and a seller.
(2) A company providing the service may not bind any buyer or seller to the terms of a specific transaction or negotiate the terms of a specific transaction on behalf of a buyer or seller, except that the company may—
(i) Arrange for buyers to receive preferred terms from sellers so long as the terms are not negotiated as part of any individual transaction, are provided generally to customers or broad categories of customers, and are made available by the seller (and not by the company); and
(ii) Establish rules of general applicability governing the use and operation of the finder service, including rules that govern the submission of bids and offers by buyers and sellers that use the finder service and the circumstances under which the finder service will match bids and offers submitted by buyers and sellers, and govern the manner in which buyers and sellers may bind themselves to the terms of a specific transaction.
(3) Services provided by a company will not be considered finder services if the company providing the service—
(i) Takes title to or acquires or holds an ownership interest in any product or service offered or sold through the finder service;
(ii) Provides distribution services for physical products or services offered or sold through the finder service;
(iii) Owns or operates any real or personal property that is used for the purpose of manufacturing, storing, transporting, or assembling physical products offered or sold by third parties; or
(iv) Owns or operates any real or personal property that serves as a physical location for the physical purchase, sale or distribution of products or services offered or sold by third parties.
Services provided by a company will not be considered finder services if the company providing such services engages in any activity that would require the company to register or obtain a license as a real estate agent or broker under applicable law.
To be a finder service for purposes of this section, a company providing the service must distinguish the products and services offered by the company from those offered by a third party through the finder service.
Directly, or indirectly acquiring or controlling, whether as principal, on behalf of one or more entities, or otherwise, shares, assets, or ownership interests (including debt or equity securities, partnership interests, trust certificates, or other instruments representing ownership) of a company or other entity, whether or not constituting control of such company or entity, engaged in any activity not financial in nature as defined in this section if:
Such shares, assets, or ownership interests are acquired and held as part of a bona fide underwriting or merchant or investment banking activity, including investment activities engaged in for the purpose of appreciation and ultimate resale or disposition of the investment;
Such shares, assets, or ownership interests are held for a period of time to enable the sale or disposition thereof on a reasonable basis consistent with the financial viability of the activities described in paragraph (b)(3)(ix)(A) of this section; and
During the period such shares, assets, or ownership interests are held, the company does not routinely manage or operate such company or entity except as may be necessary or required to obtain a reasonable return on investment upon resale or disposition.
Directly or indirectly acquiring or controlling, whether as principal, on behalf of one or more entities, or otherwise, shares, assets, or ownership interests (including debt or equity securities, partnership interests, trust certificates or other instruments representing ownership) of a company or other entity, whether or not constituting control of such company or entity engaged in any activity not financial in nature as defined in this section if—
Such shares, assets, or ownership interests are acquired and held by an insurance company that is predominantly engaged in underwriting life, accident and health, or property and casualty insurance (other than credit-related insurance) or providing and issuing annuities;
Such shares, assets, or ownership interests represent an investment made in the ordinary course of business of such insurance company in accordance with relevant State law governing such investments; and
During the period such shares, assets, or ownership interests are held, the company does not routinely manage or operate such company except as may be necessary or required to obtain a reasonable return on investment.
Lending, exchanging, transferring, investing for others, or safeguarding financial assets other than money or securities.
Providing any device or other instrumentality for transferring money or other financial assets.
Arranging, effecting, or facilitating financial transactions for the account of third parties.
Ownership or control of one or more depository institutions.
The term “recommending agencies” means—
The Board of Governors and the Securities and Exchange Commission in consultation with the FDIC, for a company;
That is a broker or a dealer; or
Whose largest U.S. subsidiary is a broker or a dealer;
The Board of Governors and the Director of the Federal Insurance Office in consultation with the FDIC, for a company that is an “insurance company”, or whose largest U.S. subsidiary is an insurance company, as that term is defined in section 201(a)(13) of the Dodd-Frank Act; 16 and
The Board of Governors and the FDIC, for any other company.
The term “total consolidated revenues” means the total gross revenues of the company and all entities subject to consolidation by the company for a fiscal year.
Effect of other authority. Any activity described in paragraph (b)(2) of this section is considered financial in nature or incidental thereto for purposes of this section regardless of whether—
A bank holding company (including a financial holding company or a foreign bank) may be authorized to engage in the activity, or own or control shares of a company engaged in such activity, under any other provisions of the BHC Act or other Federal law including, but not limited to, section 4(a)(2), section 4(c)(5), section 4(c)(6), section 4(c)(7), section 4(c)(9), or section 4(c)(13) of the BHC Act (12 U.S.C. 1843(a)(2), (c)(5), (c)(6), (c)(7), (c)(9), or (c)(13)) and the Board of Governors' implementing regulations; or
Other provisions of Federal or state law or regulations prohibit, restrict, or otherwise place conditions on the conduct of the activity by a bank holding company (including a financial holding company or foreign bank) or bank holding companies generally.
Rule of construction. Revenues derived from an investment by the company in an entity whose financial statements are not consolidated with those of the company will be treated as revenues derived from financial activities, unless such treatment is not appropriate based on information that the recommending agencies or the Secretary, have at the time a written recommendation or determination is made under section 203 of the Dodd-Frank Act.
Notes, amendments, and revision history
Amendments
[78 FR 34731, June 10, 2013]
Authority
Authority: 12 U.S.C. 5385(h); 12 U.S.C. 5389; 12 U.S.C. 5390(s)(3); 12 U.S.C. 5390(b)(1)(C); 12 U.S.C. 5390(a)(7)(D); 12 U.S.C. 5381(b); 12 U.S.C. 5390(r); 12 U.S.C. 5390(a)(16)(D).
Source
Source: 76 FR 4215, Jan. 25, 2011, unless otherwise noted.
Amendments
[78 FR 34731, June 10, 2013]