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FED ER AL RESERVE BANK
OF NEW YORK
C ir c u l a r N o .
8974
D e c e m b e r 15, 1980
NONBANKING ACTIVITIES OF FOREIGN BANKS AND
BANK HOLDING COMPANIES
Amendments to Regulations K and Y
To All Branches and Agencies o f Foreign Banks, and Bank Holding
Companies, in the Second Federal Reserve District, and Others Concerned:
The Board of Governors of the Federal Reserve System has announced the adoption of amendments,
effective January 3, 1981, to its Regulation K, “ International Banking Operations,” and to its Regulation Y,
“ Bank Holding Companies and Change in Bank Control,” dealing with the nonbanking activities of
foreign bank holding companies and foreign banks that have banking offices in the United States.
The following is quoted from the text of the Board’ s announcement:
The B oard’ s action implements certain limited exemptions from prohibitions respecting nonbanking
activities o f these institutions. The regulations provide criteria to determine what foreign institutions are eligible
for exemption and what types o f U.S. nonbanking activities may be engaged in by these institutions.
The Board acted after consideration o f comment received on proposals on these subjects published in May.
In view o f modifications to the proposals as adopted, the Board will accept comment on the m odifications
through January 30, 1981.
A foreign institution engaged in banking activities in the United States through a branch, agency, com m er
cial lending com pany or subsidiary bank is subject to the prohibitions on nonbanking activities o f the Bank
H olding Com pany A ct.
The Board ruled that:
1. Foreign organizations, in order to qualify for exemption, are required to be principally engaged in the
banking business outside the United States ( i.e ., more than half o f their business — exclusive o f their
banking business in the U.S. — must be banking and more than half o f their banking business must be
outside the United States).
2. Foreign organizations that fail to qualify for two consecutive years will no longer be entitled to the
exemptions.
3. Foreign organizations that do not qualify under the numerical criteria will have an opportunity to peti
tion the Board for specific determinations as to eligibility for the exemptions.
4. Permissible nonbanking activities in the U.S. will be determined by reference to the four-digit “ establish
ment” category o f the Standard Industrial Classification (SIC).
5. Activities in the United States that are included in Division H o f the SIC (Finance, Insurance and Real
Estate), with certain exceptions, may only be engaged in with specific Board approval under sections
4(c)(8) or 4(c)(9) o f the Bank Holding Com pany Act.
(Over)
The B oard’ s actions were taken under two sections o f the Bank Holding Company Act (2(h) and 4(c)(9))
that relate to exemptions available to foreign banking institutions. Under one section (4(c)(9)) the Board has
discretion to determine the type o f organization that may qualify for exemption and what nonbanking activities
in the U.S. may be exempted. The other section (2(h)) requires Board clarification and interpretation. This pro
vision allows foreign institutions “ principally engaged in the banking business outside the United States” to
engage indirectly in limited nonbanking activities in the United States.
The text o f the B oard’ s notice may be obatined from the Federal Reserve Banks or from the Board’ s
Freedom o f Information O ffice (202-452-3684).
Enclosed — for member banks, branches and agencies of foreign banks in the United States, Edge and
Agreement corporations, and bank holding companies — is a copy of the text of the amendments to
Regulations K and Y. It will be furnished to others upon request directed to the Circulars Division of this
Bank. A printed copy of the amendments, in slip-sheet form, will be sent to you as soon as available.
Questions regarding the amendments may be directed to our Domestic Banking Applications Depart
ment (Tel. No. 212-791-5865).
A n t h o n y M. S o l o m o n ,
P resident.
TITLE 12 - BANKS AND BANKING
CHAPTER II - FEDERAL RESERVE SYSTEM
SUBCHAPTER A - BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
[Reg. K; Docket No. R-0291]
PART 211 - INTERNATIONAL BANKING OPERATIONS
Nonbanking Activities of Foreign Banking Organizations
AGENCY:
Board of Governors of the Federal Reserve System
ACTION:
Final rule.
SUMMARY: Foreign banks that have branches, agencies, or commercial
lending company subsidiaries in the U.S., companies controlling such
foreign banks, and foreign companies that have bank subsidiaries in
the U.S. are subject to the nonbanking prohibitions of the Bank Holding
Company Act (12 U.S.C. 1841 et seg.). That Act also affords exemptions
from the nonbanking prohibitions for qualifying foreign organizations.
The Board has adopted amendments to Regulation K (International Banking
Operations) to implement and interpret these exemptions.
DATE: January 3, 1981. In view of the modifications made to the proposal,
comments will be accepted on the amendments until January 30, 1981.
ADDRESS: Comments, which should refer to Docket No. R-0291, may be
mailed to Theodore E. Allison, Secretary, Board of Governors of the
Federal Reserve System, 20th Street and Constitution Avenue, N.W.,
Washington, D.C. 20551, or delivered to Room B-2223 between 8:45 a.m.
and 5:15 p.m. Comments received may be inspected at Room B-1122 be
tween 8:45 a.m. and 5:15 p.m., except as provided in section 261.6(a)
of the Board's Rules Regarding Availability of Information (12 CFR
§ 261.6(a)).
FOR FURTHER INFORMATION CONTACT: C. Keefe Hurley, Jr., Senior Counsel
(202/452-3269), Kathleen M. O'Day, Attorney (202/452-3786), Legal Division;
or Michael G. Martinson, Senior Financial Analyst, Division of Banking
Supervision and Regulation '2C2/452-3621), Board of Governors of the
Federal Reserve System.
SUPPLEMENTARY INFORMATION: Section 8(a) of the International Banking
Act of 1978 (12 U.S.C. 3101 e : seg.) ("IBA") provides that a foreign
t
bank that does business in the United States through a branch, agency
or commercial lending company shall be subject to the provisions of
the Bank Holding Company Act ("BHCA") in the same manner and to the
same extent as a bank holding company. Companies that own such foreign
banks are also subject to the provisions of the BHCA. Foreign banks
and companies that control U.S. banks are "bank holding companies" and,
therefore, subject to the nonbanking prohibitions of the BHCA.
[Ref. Cir. No. 8974]
-2In order to limit its extraterritorial effect on foreign organi
zations, the BHCA affords these organizations two exemptions from the
nonbanking prohibitions. Section 4(c)(9) grants the Board discretion
to permit a foreign company to engage in any activity or make any in
vestment that the Board determines is in the public interest and not
substantially at variance with the purposes of the BHCA. This exemption
is currently implemented by section 225.4(g) of the Board's Regulation Y
(12 C.F.R. § 225.4(g)). Section 2(h) permits a foreign institution
principally engaged in the banking business outside the United States
to hold shares of foreign nonbanking companies that engage in business
in the United States.
On May 1, 1980, the Board requested public comment on proposed
amendments to Regulation K to implement and interpret these provisions
of the BHCA (45 Fed. Reg. 30082). The period for public comment expired
on July 31, 1980. After consideration of the 29 comments received,
including some representing a number of banks, the Board adopted the
amendments with some modifications to the rules as proposed. These
modifications relate to the definition of "qualifying foreign banking
organization," the test for determining eligibility for qualified status,
and the types of activities that may be engaged in in the United States.
The Board will accept public comment on these modifications to the regu
lation until January 30, 1981. In addition to the changes referred
to above, technical modifications were also made to the proposal.
Qualifying foreign organizations. The Board proposed that
a foreign organization would qualify for the exemption if more than
50 per cent of its worldwide consolidated business were banking and
more than 50 per cent of its banking business were outside the United
States. The Board was of the opinion that this interpretation of "prin
cipally engaged in the banking business outside the U.S." served the
Board's supervisory purposes in ensuring that an organization that
qualified for the exemptions was principally foreign and would serve
as a source of strength to its U.S. banking operations.
Some comments stated that the Board should not impose the
"engaged in banking" test, which is derived from section 2(h), in order
for an organization to qualify for exemptions granted under section
4(c)(9) since there is no statutory requirement for so doing. However,
since the purposes of the two sections are the same and the Board has
the same supervisory objectives in interpreting the exceptions, the
Board has adopted the proposal to require the same test for eligibility
for both exemptive provisions.
One comment strongly objected to the inclusion of U.S. banking
operations in determining whether an organization is principally engaged
in banking. This comment stated that an otherwise ineligible institution
could "bootstrap" itself into qualification for the exemptions by acquisi
tion of a U.S. subsidiary bank. Although the Board believes that this
particular situation could be scrutinized in connection with the approval
procedure under the BHCA, the Board also is of the view that the comment
-3-
has merit from a supervisory standpoint. There may be circumstances
in which an organization that must rely on its U.S. banking business
to qualify under the "principally engaged in banking" test should not
be entitled to the use of the exemptions without closer scrutiny by
the Board. Therefore, the Board has adopted the proposal that, in order
to be considered principally engaged in the banking business outside
the United States, more than half of an organization's worldwide business,
exclusive of its U.S. banking business, must derive from banking outside
the United States. Those organizations that fail to qualify under this
standard may apply for a specific determination of eligibility, described
below. The Board also will accept comment on this amendment from interested
parties.
Definition of "banking business". Under the IBA, a foreign bank with
a U.S. branch or agency is subject to the nonbanking prohibitions of
the BHCA. "Foreign bank" is defined in § 1(b)(7) of the IBA as including,
in addition to companies that engage in the business of banking, "foreign
commercial banks, foreign merchant banks and other foreign institutions
that engage in banking activities usual in connection with the business
of banking in the countries where such foreign institutions are organized."
(Emphasis added). Because this definition includes organizations considered
"banks" by virtue of activities conducted that are usual in connection
with banking activities in their home countries, the Board proposed
to treat as "banking" the activities in section 211.5(d) of Regulation K
(12 CFR 211.5(d)) that have been determined to be usual in connection
with banking or financial operations abroad. This provision occasioned
little comment and therefore is adopted as proposed.
Measurement of banking business. Under the proposed amendments, a foreign
institution would have had to meet two tests in order to qualify for
the nonbanking exemptions: first, more than half of its worldwide business
must be banking; and second, more than half of its banking business
must be outside the U.S. The first test involved a measurement of bank
ing versus nonbanking business; the second, foreign banking versus U.S.
banking.
Under both tests, the foreign banking organization could
choose as its measurement either total assets or total revenues.
The Board recognized that the use of solely assets or solely
revenues provides an imperfect measure for comparing banking and non
banking activities, and therefore adopted a revised test for measuring
relative sizes of an organization's banking and nonbanking business.
On the basis of at least two of three criteria, i.e., assets, revenues,
and net income, an organization must derive more than half of its business,
excluding U.S. banking business, from banking outside the United States.
No assets, revenues or net income of a U.S. bank, branch, agency, com
mercial lending company, or other company engaged in the business of
banking in the U.S. shall be considered as held or derived from outside
the United States. This approach would avoid the bias in favor of one
type of organization over another that using assets or revenues would
produce. The amendment also retains the requirement that more than
half of an organization's worldwide banking business must be derived
from outside the United States. The same criteria described above will
be used to measure foreign and U.S. banking business. Comment will
also be accepted on the criteria used for measuring "banking business."
Measurement of banking and nonbanking business poses problems
primarily because under most accounting conventions the financial state
ments of the two types of organizations are not ordinarily consolidated;
moreover, consolidation occurs at ownership levels above 50 per cent,
while control is assumed at 25 per cent levels of ownership under the
BHCA. The proposed regulation provided that assets and revenues could
be determined on a consolidated or combined basis. The proposal as
adopted leaves it to the foreign organization to choose the level of
ownership (25 or 50 per cent) at which consolidation or combining will
take place.
Change in status and specific determinations of eligibility.
The Board proposed that an organization that failed to qualify under
the test for two consecutive years, as reflected in its annual report
filed with the Board, would lose its eligibility for the exemptions.
Such an organization could apply for a specific determination. Activities
and investments undertaken while a foreign organization qualified for
the exemptions could be retained after the loss of qualified status.
However, activities or investments undertaken after the end of the first
fiscal year in which the organization did not meet the criteria would
not be grandfathered. Such an organization would, in effect, be on
notice of the possible loss of qualified status.
Several comments stated that the uncertainties as to qualifi
cation under the test from year to year would make business planning
difficult. These comments propose that an organization concerned about
the possible future loss of qualification could apply for a specific
determination of eligibility at any time. The Board found that this
procedure would prove useful in administering the regulation and, with
the addition of the procedure for applying for a specific determination
prior to loss of eligibility, adopted the regulation as proposed. As
proposed, other foreign organizations that do not qualify for automatic
exemption may also apply to the Board for determinations on their eligibility.
The Board would exercise this authority under section 4(c)(9)
where application of the qualifying tests would prevent sound and reputable
foreign banks from doing business in the U.S. The Board will examine
the particular facts and circumstances of each case to determine if
granting the exemption is appropriate under § 4(c)(9), and if the Board
determines that a potential for abuse exists, the Board will deny the
exemption or approve the application conditioned in a manner to prevent
the occurrence of such abuses.
Nonbanking activities in the United States — Section 2(h)
permits a foreign organization to engage in activities in the U.S. through
a foreign nonbanking company where the U.S. activities are in the same
general line of business or in a business related to that of the foreign
nonbanking company. The foreign company must be principally engaged
in business outside the U.S. and the exemption may not be used to engage
-5-
in the securities business in the U.S. Banking and financial activities
and activities permissible under section 4(c)(8) of the BHCA may only
be engaged in with the Board’s approval.
It is clear from the legislative history of the IBA that Congress
intended the Board to use the Standard Industrial Classification system
for determining the comparability of U.S. and foreign nonbanking activities.
The SIC system categories are not precise and the Board invited comments
on the feasibility of using the SIC for determining whether U.S. and
foreign nonbanking activities are in the same general lines of business.
The comments on the use of the SIC for determining whether
U.S. activities of an exempt foreign company are in the same line of
business alleged that the 4-digit establishment categories of the
SIC were narrow and overly restrictive. Several suggested that the
Board instead employ the Enterprise SIC which groups businesses together
according to their ownership structure. An enterprise unit consists
of all establishments under common ownership and it is the plurality
contribution in terms of value added to goods and services, of an organi
zation's component establishments that determines its Enterprise SIC
designation. However, because Enterprise SIC units engage in a broader
range of activities than SIC establishment units, use of this measure
of "same general line of business" would similarly allow exempt foreign
companies to engage in a broader range of nonbank activities in the
U.S. In view of the explicit directive in the legislative history of
the IBA and because the 4-digit classification appears to satisfactorily
limit a company's U.S. nonbanking activities consistent with the purposes
of the statute, the Board adopted this part of the regulation as proposed.
In keeping with the intent of section 2(h) to limit U.S. activities
to those types that an exempt company engages in abroad, the Board proposed
that an organization give 60 days prior notification to the Board before
engaging in an activity in the U.S. where the U.S. activity would exceed
the foreign activity in the same 4-digit classification. The comments
noted that this is not required by the statute and would be burdensome
to the foreign banking organizations. It was suggested that the Board
instead use the quarterly reports of U.S. acquisitions to monitor, an
organization's activities. If it became apparent that an organization
is abusing the exemption, for example by undertaking a token activity
abroad solely to engage in the same activity in the U.S., the Board
could require cessation of the U.S. activity. The Board has deleted
the requirement of prior notification and instead will rely on the quarterly
reports submitted by the foreign organizations to monitor their U.S.
activities.
Section 2 (h) requires that a foreign banking organization
must receive the prior approval of the Board before engaging in "banking
or financial operations or types of activities permitted under section
4(c)(8)." The Board proposed that banking or financial operations in
the U.S. would be permitted only where they are the type permitted under
section 4(c)(8) or upon receipt of specific approval by the Board under
section 4(c)(9). The Board also proposed that all activities encompassed
by Division H (Finance, Insurance and Real Estate) of the SIC would
be considered "banking or financial operations" for purposes of the
-6 -
regulation. Comments were highly critical of this approach. Most indicated
that the better interpretation of section 2(h) is that it requires Board
approval only for activities permitted by section 4(c)(8). In effect,
the comments read the phrase "banking or financial operations or types
of activities permitted under section 4(c)(8)" to refer only to section
4(c)(8) activities, and cite in support of this position the technical
language of the statute and the lack of legislative history indicating
that "banking or financial operations" has a meaning independent of
section 4(c)(8) activities. The Board, however, continues to be of
the view that this position conflicts with the legislative history of
the IBA which shows a clear intent to establish competitive equality
between foreign and domestic banking organizations, and would result
in reading the words "banking or financial operations" out of the statute.
In the absence of clear legislative intent to the contrary on this point,
the Board, except as discussed below, has adopted the regulation as
proposed.
With respect to the types of activities that the Board considers
to be "banking or financial operations," the comments were equally critical
of the use of Division H as a general definition. The comments found
the coverage of Division H to be too broad. The Board reexamined the
activities encompassed by Division H and concluded that not all of the
activities included therein are necessarily banking or financing in
nature. At the same time, certain other activities outside the scope
of Division H should be considered banking or financial operations.
In other instances, these activities may be the same type of activity
permitted under section 4(c)(8) and, in order to preserve competitive
equality, should be conducted by foreign organizations only to the extent
allowed domestic banking organizations. In view of these considerations
the Board adopted the proposal to use Division H as a general category
of impermissible (except with Board approval) banking or financial operations
with the exception of certain real estate activities. The Board also
amended the proposal to include within the scope of impermissible activities
certain 4-digit activities found outside Division H of the SIC, including
certain data processing, leasing and management consulting activities.
The Board recognizes that some of the activities included within Division H
may, depending on the circumstances in which the activities are performed,
be primarily commercial as opposed to banking or financial. For example,
the physical development of real estate would not appear to be a banking
or financial activity. A different result would obtain, however, where
that activity is joined with real estate leasing, financing, syndication,
etc. Thus, the Board will consider applications to engage in activities
that are contained in Division H, and may approve an application to
engage in such activities where the facts and circumstances of the case
indicate that the activity would not be banking or financial in nature.
In the proposal published for comment, the Board requested
comment on any interpretive issues concerning the grandfather provisions
of the IBA. Several comments were received and the matter will be addressed
in the near future.
-7-
Pursuant to its authority under the International Banking
Act of 1978 (12 U.S.C. § 3101 et seq. and the Bank Holding Company
)
Act (12 U.S.C. § 1841 et seq.), the Board has amended Regulation K (12
C.F.R. Part 211) and Regulation Y (12 C.F.R. Part 225) as follows:
1.
Section 225.4(g) of Regulation Y is revised to read as
follows:
(g) Foreign banking organizations. In addition to the exemptions
afforded by this Part, a foreign banking organization (as defined in
12 C.F.R. § 211.23) may engage in activities and make investments under
Part 211 (Regulation K).
2.
Regulation K is amended by adding within Subpart B— Foreign
Banking Organizations, new section 211.23, Nonbanking Activities of
Foreign Banking Organizations. New section 211.23 is added as follows:
SUBPART B
*
*
*
*
*
SECTION 211.23— NONBANKING ACTIVITIES OF FOREIGN BANKING ORGANIZATIONS
(a) Definitions. The definitions of section 211.2 in Suppart A apply to this section subject to the following:
(1) "Directly or indirectly" when used in reference
to activities or investments of a foreign banking organization
means activities or investments of the foreign banking organiza
tion or of any subsidiary of the foreign banking organization.
(2) "Foreign banking organization" means a foreign bank
(as defined in section 1(b)(7) of the IBA) that operates a
branch, agency, or commercial lending company subsidiary in
the United States or that controls a bank in the United States;
and a company of which such foreign bank is a subsidiary.
(3) "Subsidiary" means an organization more than 25
per cent of the voting stock of which is held directly or
indirectly by a foreign banking organization or which is otherwise
controlled or capable of being controlled by a foreign banking
organization.
(b) Qualifying foreign banking organizations. Unless specifically
made eligible for the exemptions by the Board, a foreign banking organiza
tion shall qualify for the exemptions afforded by this section only
if, disregarding its United States banking, more than half of its worldwide
business is banking; and more than half of its banking business is
outside the United States. In order to qualify, a foreign banking
organization shall:
-8 -
(1)
meet at least two of the following requirements:
(i)
banking assets held outside the United States^
exceed total worldwide nonbanking assets;
(ii)
revenues derived from the business of banking out
side the United States exceed total revenues derived
from its worldwide nonbanking business;
(iii)
net income derived from the business of banking
outside the United States exceeds total net income derived
from its worldwide nonbanking business; and
(2)
meet at least two of the following requirements:
(i)
banking assets held outside the United States exceed
banking assets held in the United States;
(ii)
revenues derived from the business of banking out
side the United States exceed revenues derived from the business
of banking in the United States;
(iii)
net income derived from the business of banking
outside the United States exceeds net income derived from
the business of banking in the United States.
(c)
Determining assets, revenues, and net income. (1) For
purposes of paragraph (b), the total assets, revenues, and net income
of an organization may be determined on a consolidated or combined
basis. Assets, revenues and net income of companies in which the foreign
banking organization owns 50 per cent or more of the voting shares shall
be included when determining total assets, revenues, and net income.
The foreign banking organization may include assets, revenues, and net
income of companies in which it owns 25 per cent or more of the voting
shares if all such companies within the organization are included;
(2) Assets devoted to, or revenues or net income derived
from, activities listed in section 211.5(d) of this Part shall be con
sidered banking assets, or revenues or net income derived from the
banking business, when conducted within the foreign banking organization
by a foreign bank or its subsidiaries.
1/ None of the direct or indirect assets, revenues, or net income of
a United States subsidiary bank, branch, agency, commercial lending
company, or other company engaged in the business of banking in the
United States shall be considered held or derived from the business
of banking "outside the United States."
-9(d) Loss of eligibility for exemptions. A foreign banking
organization that qualified under paragraph (b) of this section or an
organization that qualified as a "foreign bank holding company" under
section 225.4(g) of Regulation Y (12 C.F.R. § 225.4(g) (1980))— shall
cease to be eligible for the exemptions of this section if it fails
to meet the requirements of paragraph (b) for two consecutive years
as reflected in its Annual Reports (F.R. Y-7) filed with the Board.
A foreign banking organization that ceases to be eligible for the ex
emptions may continue to engage in activities or retain investments
commenced or acquired prior to the end of the first fiscal year for
which its Annual Report reflects nonconformance with paragraph (b).
Activities commenced or investments made after that date shall be
terminated or divested within three months of the filing of the second
Annual Report unless the Board grants consent to continue the activity
or retain the investment under paragraph (e).
(e) Specific determination of eligibility for nonqualifying
foreign banking organizations. A foreign banking organization that
does not qualify under paragraph (b) for the exemptions afforded by
this section, or that has lost its eligibility for the exemptions under
paragraph (d), may apply to the Board for a specific determination of
eligibility for the exemptions. A foreign banking organization may
apply for a specific determination prior to the time it ceases to be
eligible for the exemptions afforded by this section. In determining
whether eligibility for the exemptions would be consistent with the
purposes of the BHCA and in the public interest, the Board shall consider
the history and the financial and managerial resources of the organization;
the amount of its business in the United States; the amount, type and
location of its nonbanking activities; and whether eligibility of the
foreign banking organization would result in undue concentration of
resources, decreased or unfair competition, conflicts of interests,
or unsound banking practices. Such determination shall be subject to
any conditions and limitations imposed by the Board.
(f) Permissible activities and investments. A foreign
banking organization that qualifies under paragraph (b) may:
(1)
States;
Engage in activities of any kind outside the United
(2) Engage directly in activities in the United States
that are incidental to its activities outside the United States;
(3) Own or control voting shares of any company that
is not engaged, directly or indirectly, in any activities
in the United States other than those that are incidental
to the international or foreign business of such company;
"'[F]oreign bank holding company' means a bank holding company organized
under the laws of a foreign country, more than half of whose consolidated
assets are located or consolidated revenues derived, outside the United
States."
(12 C.F.R. § 225.4(g)(iii) (1980)).
~2/
-10-
(4) Own or control voting shares of any company in a
fiduciary capacity under circumstances that would entitle
such shareholding to an exemption under section 4(c)(4) of
the BHCA if the shares were held or acquired by a bank;
(5) Own or control voting shares of a foreign company
that is engaged directly or indirectly in business in the United
States other than that which is incidental to its international
or foreign business, subject to the following limitations:
(i)
more than 50 per cent of the foreign company's
consolidated assets shall be located, and consolidated
revenues derived from, outside the United States;
(ii)
the foreign company shall not engage directly,
nor own or control more than 5 per cent of the voting
shares of a company that engages, in the business of
underwriting, selling, or distributing securities in the
United States except to the extent permitted bank holding
companies;
(iii)
if the foreign company is a subsidiary of the
foreign banking organization, its direct or indirect
activities in the United States shall be subject to the
following limitations:
(A) the foreign company's activities in the
United States shall be the same kind of activities
or related to the activities engaged in directly or
indirectly by the foreign company abroad as measured
by the "establishment" categories of the Standard
Industrial Classification (SIC) (an activity in
the United States shall be considered related to
an activity outside the United States if it con
sists of supply, distribution or sales in furtherance
of the activity);
(B) the foreign company may engage in activities
in the United States that consist of banking or
financial operations, or types of activities per
mitted by regulation or order under section 4(c)(8)
of the BHCA, only with the prior approval of the
Board. Activities within Division H (Finance, In
surance, and Real Estate) of the SIC shall be con
sidered banking or financial operations for this
purpose, with the exception of acting as operators ofnonresidential buildings (SIC 6512), operators of apart
ment buildings (SIC 6513), operators of dwellings other
than apartment buildings (SIC 6514), and operators of
residential mobile home sites (SIC 6515); and operating
title abstract offices (SIC 6541). In addition, the
following activities shall be considered banking or
financial operations and may be engaged in only with the
-11-
approval of the Board under subsection (g): computer
and data processing services (SIC 7372, 7374 and
7379); management consulting (SIC 7392); certain
rental and leasing activities (SIC 7394, 7512, 7513
and 7519); accounting, auditing and bookkeeping
services (SIC 8931); and arrangement of passenger
transportation (SIC 4722).
(g)
Exemptions under section 4(c)(9) of the BHCA. A foreign
organization that is of the opinion that other activities or investments
may, in particular circumstances, meet the conditions for an exemption
under section 4(c)(9) of the BHCA may apply to the Board for such a
determination by submitting to the Reserve Bank of the district in which
its banking operations in the United States are principally conducted
a letter setting forth the basis for that opinion.
(h)
Reports.
(1) The foreign banking organization shall inform the
Board through the organization's Reserve Bank within 30 days after the
close of each quarter of all shares of companies engaged, directly
or indirectly, in activities in the United States that were acquired
during such quarter under the authority of this section. The foreign
banking organization shall also report any direct activities in the
United States commenced during such quarter by a foreign subsidiary
of the foreign banking organization. This information shall (unless
previously furnished) include a brief description of the nature and
scope of each company's business in the United States, including the
4-digit SIC numbers of the activities in which the company engages.
Such information shall also include the 4-digit SIC numbers of the
direct parent of any U.S. company acquired, together with a statement
of total assets and revenues of the direct parent.
(2) If any required information is unknown and not reasonably
available to the foreign banking organization, either because obtaining
it would involve unreasonable effort or expense or because it rests
peculiarly within the knowledge of a company that is not controlled
by the organization, the organization shall (i) give such information
on the subject as it possesses or can reasonably acquire together with
the sources thereof; and (ii) include a statement either showing that
unreasonable effort or expense would be involved or indicating that
the company whose shares were acquired is not controlled by the organi
zation and stating the result of a request for information.
(3) A request for information required by this paragraph
need not be made of any foreign government, or an agency or instrumentality
thereof, if, in the opinion of the organization, such request would
be harmful to existing relationships.
Board of Governors of the Federal Reserve System, December 4,
1980.
[SEAL]
(signed) Theodore E. Allison
Theodore E. Allison
Secretary of the Board
@FedFRASER