The Federal Reserve Board’s Regulation OO, Supervised Securities Holding Company Registration
On June 4th, the Federal Reserve Board published a new final rule, Regulation OO, implementing Section 618 of the Dodd-Frank Act. The new rule provides a mechanism by which a non-bank company owning a U.S. registered securities broker-dealer who is subject to a foreign country’s comprehensive consolidated supervision requirement, can comply with that requirement.
New Regulation OO allows interested qualifying firms to register with the Federal Reserve Board as a supervised securities holding company (“SSHC”) and be subject to Board supervision. It outlines the requirements that a securities holding company must satisfy to make an effective election, including filing the appropriate form with the responsible Reserve Bank, providing all additional required information, and satisfying the statutory waiting period of 45 days, or such shorter period the Board determines is appropriate.
While registration as a SSHC is discretionary, firms who do so will be subject to the full examination, supervision, and enforcement regime applicable to a registered bank holding company, including capital requirements set by the Board (although the statute allows the Board to modify its capital rules to account for differences in activities and structure of securities holding companies and bank holding companies). The primary difference in regulatory frameworks between securities holding companies and bank holding companies is that the restrictions on nonbanking activities that apply to bank holding companies will not apply to securities holding companies.
To register as a SSHC, a firm must answer questions relating to its organizational structure, capital structure, and financial condition. Specifically, firms must submit: (1) an organization chart for the securities holding company showing all subsidiaries; (2) the name, asset size, general activities, place of incorporation, and ownership share held by the securities holding company for each of the securities holding company’s direct and indirect subsidiaries that comprise 1 percent or more of the securities holding company’s worldwide consolidated assets; (3) a list all persons (natural as well as legal) in the upstream chain of ownership of the securities holding company who, directly or indirectly, own 5 percent or more of the voting shares of the securities holding company; (4) the biographical information for the senior officers and directors with decision-making authority for the securities holding company; (5) the most recent quarterly and annual reports for the securities holding company and certain subsidiaries; (6) income statements, balance sheets, and audited GAAP statements showing separately each principal source of revenue and expense, through the end of the most recent fiscal quarter and for the past two fiscal years; (7) a description of the methods used by the securities holding company to monitor and control its operations (e.g., through internal reports and internal audits); (8) a description of the bank regulatory system that exists in the home country of any of the securities holding company’s foreign bank subsidiaries; and (9) a description of any other regulatory capital framework to which the securities holding company is subject.
Regulation OO goe effective July 20, 2012.