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Friday, August 1, 2014

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How to Provide Notice of GLB-Related Activities

Detailed below are questions and answers that staff throughout the Federal Reserve System have considered since the enactment of the legislation. Please consult your legal counsel before making decisions related to the Gramm-Leach-Bliley Act. PDF Icon External Link

Permissible Activities

Does the Act authorize FHCs to engage in commercial activities?

The Act does not generally authorize FHCs to engage in commercial activities. However, the Act authorizes FHCs to engage in activities with commercial characteristics, such as complementary activities, merchant banking, and, during a specified divestiture period, a limited amount of commercial activity by nonbanking companies that become FHCs.1

In accordance with the Act, in what activities may a financial subsidiary of a national bank engage?

A national bank may own or control a subsidiary that engages, as principal or agent, in activities that are not permissible for national banks to engage in directly. National banks may apply with the OCC to engage in such activities through a "financial subsidiary." A financial subsidiary of a national bank may engage in all section 4(k) activities except insurance underwriting, providing or issuing annuities as principal, real estate investment and development, and merchant banking. 2

Can state member banks engage in activities authorized for financial subsidiaries?

A state member bank may own or control a subsidiary that engages in activities as principal that would be permissible for a national bank to conduct through a financial subsidiary, if they comply with the conditions and limitations applicable to national banks. 3 On March 10, 2000, the Federal Reserve Board issued an interim rule permitting qualifying state member banks to establish financial subsidiaries and thereby engage in activities that have been determined to be financial in nature or incidental to financial activities. 4

Notices

What notice to the Federal Reserve Board is required for an FHC to engage in activities that are financial in nature?

An FHC that proposes to engage in a section 4(k) activity, or acquires control or shares of a company engaged in any section 4(k) activity, is required to provide written notice to the appropriate Federal Reserve Bank within 30 calendar days after the commencement of the activities or after the acquisition. The notice should describe the activity or identify the name of the company acquired and describe its activities. The FR Y-6A External Link and FR Y-7A External Link will be used for the thirty day post-commencement notice of activities.

What approval by the Federal Reserve Board is required for an FHC to engage in complementary activities?

An FHC may engage in any nonfinancial activity that the Federal Reserve Board determines is complementary to financial activities and does not pose a substantial risk to the safety and soundness of depository institutions or the financial system. Notice is required 60 days prior to engaging in complementary activities. 5

What is the divestiture period for impermissible commercial holdings of a nonbanking company that becomes an FHC?

When a nonbanking company predominately engaged in financial activities becomes an FHC, the organization has up to 10 years to divest its impermissible commercial holdings. However, the FHC may apply to the Federal Reserve Board to receive approval for the possibility of a 5-year extension. 6

How does the Act affect a BHC that does not elect to become an FHC?

Permissible nonbanking activities for BHCs that do not elect to become FHCs remain the same. BHCs will be limited to engaging in activities that the Federal Reserve Board has determined to be closely related to banking under section 4(c)(8) of the BHC Act. 7

1 §103.
2§§121(a)and 122.
3§121(d).
465 F.R. 14810 (March 20, 2000)
5§103(c)
6§103.
7Gramm-Leach-Bliley Act, §§102, 201, 202, and 217.