Skip to content

Closing a Loophole: The Federal Reserve’s Proposal on when a Company is “Predominantly Engaged in Financial Activities”

April 12, 2012

On April 2nd, the Federal Reserve Board requested comment on a proposed amendment to its Notice of Proposed Rulemaking (“NPR”) issued February 11, 2011 that would establish requirements for determining whether a company is “predominantly engaged in financial activities,” and can therefore be subject to additional supervision and prudential standards.

Under Title 1 of the Dodd-Frank Act, a company generally can be designated for Board supervision by the Financial Stability Oversight Council only if 85 percent or more of the company’s revenues or assets are related to activities that are financial in nature under the Bank Holding Company Act (“BHCA”). Some commenters to the February 2011 NPR asked whether BHCA conditions on how financial activities are conducted (as opposed to the financial activity itself), should be considered in defining financial activities for purposes of Title I. 

In particular, commenters asked whether BHCA safety and soundness requirements should be part of the consideration. These commenters noted that some firms (namely, investment companies), could be excluded from consideration for additional supervision simply because they do not have to comply with the same conduct requirements as bank holding companies.

The proposed amendment would close that loophole.

And to insure that its intent is clear, the Board included a proposed appendix to the amendment. The appendix lists the activities that would be considered to be financial activities as of April 2, 2012, and which would therefore be counted towards the 85 percent threshold. Those activities are:

  • Lending, exchanging, transferring, investing for others, or safeguarding money and securities;
  • Insurance activities;
  • Financial, investment, and economic advisory services;
  • Securitizing;
  • Underwriting, dealing, and market making;
  • Extending credit and servicing loans;
  • Activities related to extending credit (eg: appraisals, collection services, and brokerage);
  • Leasing;
  • Operating non-bank depositories;
  • Trust company functions;
  • Financial and investment advisory services;
  • Agency transactional services;
  • Investment transactions as principal;
  • Management consulting and counseling activities;
  • Courier services and printing and selling MICR-encoded items;
  • Insurance agency and underwriting;
  • Community development activities;
  • Money orders; savings bonds, and traveler’s checks;
  • Data processing;
  • Mutual fund advisory services;
  • Owning shares of a securities exchange;
  • Certification services;
  • Providing employment histories;
  • Check-cashing and wire-transmission services;
  • Postage, vehicle registration, and public transportation services;
  • Real estate title abstracting;
  • Management consultant services;
  • Travel agency;
  • Mutual fund activities;
  • Merchant banking; and
  • Lending, safeguarding, exchanging, and investing for others with respect to financial assets other than money and securities.

Comments on the proposed amendment must be submitted by May 25, 2012. View the proposed amendment here.

No comments yet

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: