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F ederal Reserve Bank o f Dallas DALLAS. TEXAS 75222 Circular No. 72-136 July 3, 1972 AMENDMENT TO REGULATION Y (investment or Financial Adviser Activity) MANAGEMENT CONSULTING ACTIVITY DENIED To All Banks, Bank Holding Companies and Otners Concerned in the Eleventh Federal Reserve District: On June 6, 1972, the Board of Governors of the Federal Reserve System announced its denial of applications from two bank holding companies to acquire firms that engage in management con sulting activities. At the same time, the Board decided not to include management consulting on its list of activities in which bank holding companies may engage. The Board had previously indicated that acting as a management consultant was not within the scope of the activities authorized to be conducted by bank holding companies under Section H(c)(8) of the Bank Holding Company Act and that it was then con sidering whether to expand its list of activities to include management consulting. In a related action, the Board adopted a clarifying amendment to Regulation Y which authorizes bank holding companies to act "as investment or financial adviser". A copy of the amendment is printed on the reverse. Yours very truly, P. E. Coldwell, President This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org) BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM BANK HOLDING COMPANIES AMENDMENT TO REGULATION Y f E ffective June 6, 1972, section 225.4(a)(5) is am ended to read as follow s. SE C T IO N 2 2 5 .4 — N O N B A N K IN G A C T IV IT IE S (a) A t v t e c o e yr l t d t b n i g o man ciiis lsl e a e o a k n r a i g o c n r l i g b n s * * * T he follow ing g n r otoln a k . activities have been determ ined by the Board to be so closely related to banking or m anaging or controlling banks as to be a proper incident thereto: * * * * * 1 The term “portfolio investment” as used herein is intended to refer generally to the investment of funds in a “security” as defined in section 2 (1 ) of the Securities Act of 1933 (15 U.S.C. § 77a) or in real property interests, except where the real property is to be used in the trade or business of the person being advised. In furnishing portfolio investment advice, bank holding companies and their subsidiaries shall observe the standards of care and conduct applicable to fiduciaries. 2 This is to be contrasted with “management con sulting” which the Board views as including, but not limited to, the provision of analysis or advice as to a firm’s (i) purchasing operations, such as inventory control, sources of supply, and cost minimization subject to constraints; (ii) production operations, such as quality control, work measurement, product methods, scheduling shifts, time and motion studies, (5) acting as investm ent or financial adviser to the extent o f (i) serving as the advisory com pany for a mortgage or a real estate investm ent trust; (ii) serving as investm ent adviser, as de fined in section 2(a)(20) o f the Investm ent C om pany A ct o f 1940, to an investm ent com pany registered under that Act; (iii) providing portfolio investm ent a d v ic e 1 to any other person; (iv) furnishing general econ om ic inform ation and advice, general econom ic statistical forecasting services and industry stu d ie s;2 and (v) providing financial advice to State and local governm ents, such as with respect to the issuance o f their securities; * * * * * and safety standards; (iii) marketing operations, such as market testing, advertising programs, market de velopment, packaging, and brand development; (iv) planning operations, such as demand and cost pro jections, plant location, program planning, corporate acquisitions and mergers, and determination of long term and short-term goals; (v) personnel operations, such as recruitment, training, incentive programs, employee compensation, and management-personnel relations; (vi) internal operations, such as taxes, corporate organization, budgeting systems, budget control, data processing systems evaluation, and efficiency evaluation; or (vii) research operations, such as product development, basic research, and product design and innovation. The Board has determined that “management consulting” is not an activity that is so closely related to banking or managing or controlling banks as to be a proper incident thereto. t For this Regulation to be complete as amended effective June 6, 1972, retain: 1) Printed Regulation pamphlet as amended effective December 1, 1971. 2) This slip sheet. N o t e .— As an incident to the amendment effective June 6, 1972, footnote 1 in § 2 2 5 .4 (b )(1 ) and footnote 2 in § 225.4(d) are redesignated footnotes 3 and 4, respectively, and the footnotes denoted by two asterisks (* * ) and by three asterisks (* * * ) are deleted.
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