[Federal Register Volume 65, Number 54 (Monday, March 20, 2000)]
[Rules and Regulations]
[Pages 14819-14822]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-6610]


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DEPARTMENT OF THE TREASURY

Office of the Under Secretary for Domestic Finance

12 CFR Part 1501

RIN 1505-AA80


Financial Subsidiaries

AGENCY: The Department of the Treasury.

ACTION: Interim final rule with request for comments.

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SUMMARY: The Department of the Treasury (Treasury) is issuing an 
interim final rule to implement the provisions of section 121 of the 
Gramm-Leach-Bliley Act (GLBA) that authorize the Secretary of the 
Treasury (Secretary), in consultation with the Board of Governors of 
the Federal

[[Page 14820]]

Reserve System (Board), to determine whether activities are financial 
in nature or incidental to a financial activity, and therefore 
permissible for a financial subsidiary of a national bank. The interim 
final rule sets forth the procedure whereby a national bank or other 
interested party may request the Secretary to make such a 
determination.

DATES: This interim final rule is effective March 14, 2000. Written 
comments must be submitted on or before May 15, 2000.

ADDRESSES: Please direct written comments to: New Financial Activities 
Request, Office of Financial Institutions Policy, 1500 Pennsylvania 
Avenue, NW, Room SC 37, Washington, DC 20220. Comments also may be 
mailed electronically to [email protected] or 
delivered to the Treasury Department mail room between the hours of 
8:45 a.m. and 5:15 p.m. at the 15th Street entrance to the Treasury 
Building. Members of the public may inspect comments in Room SC 37 of 
the Treasury Department.

FOR FURTHER INFORMATION CONTACT: Joan Affleck-Smith, Director, Office 
of Financial Institutions Policy (202/622-2740); Matthew Green, Senior 
Financial Analyst (202/622-2740), Gerry Hughes, Senior Financial 
Analyst (202/622-2740); Roberta K. McInerney, Assistant General Counsel 
(Banking and Finance) (202/622-0480); or Gary W. Sutton, Senior Banking 
Counsel (202/622-0480).

SUPPLEMENTARY INFORMATION:

Background

    On November 12, 1999, the President signed the GLBA, Public Law 
106-102, 113 Stat. 1338, which comprehensively restructures the 
statutory framework that governs the financial services industry to 
allow affiliations among banks, securities firms, insurance firms and 
other financial companies. Section 121 of the GLBA authorizes national 
banks to acquire control of, or hold an interest in, a new type of 
subsidiary called a ``financial subsidiary.'' The GLBA defines a 
financial subsidiary as a company that is controlled by one or more 
insured depository institutions, other than a subsidiary that engages 
solely in activities that national banks may engage in directly (under 
the same terms and conditions that govern the conduct of these 
activities by national banks) or a subsidiary that a national bank is 
specifically authorized to control by the express terms of a Federal 
statute. A financial subsidiary may engage in specified activities that 
are financial in nature and activities that are incidental to financial 
activities if the national bank and the subsidiary meet certain 
requirements and comply with stated safeguards.
    Under section 121 of the GLBA, an activity is financial in nature 
or incidental to a financial activity if the activity has been defined 
to be financial in nature or incidental to a financial activity for 
bank holding companies pursuant to section 4(k)(4) of the Bank Holding 
Company Act of 1956. The activities already defined to be financial in 
nature that are authorized for a financial subsidiary are listed in 12 
CFR 5.39(e) (65 FR 12905, March 10, 2000). (Certain of these activities 
are further delineated in 12 CFR 225.86 (See the Board's interim rule 
published in the Federal Register of March 17, 2000.).)
    Under section 121 of the GLBA, the Secretary of the Treasury, in 
consultation with the Board, is also authorized to determine that 
additional activities are financial in nature or incidental to a 
financial activity in accordance with subparagraph (B) of section 
121(b)(1). Subparagraph (B) sets forth the procedure that a national 
bank or other party must follow to request the Secretary to determine 
that an activity is financial in nature or incidental to a financial 
activity. This interim regulation further explains those procedures.

Interim Effectiveness of the Rule

    This interim rule is effective on March 14, 2000. Section 553 of 
the Administrative Procedure Act permits agencies to issue a rule 
without public notice and comment when the agency, for good cause, 
finds (and incorporates the finding and a brief statement of reasons 
therefor in the rule issued) that notice and public comment are 
impracticable, unnecessary, or contrary to the public interest. 5 
U.S.C. 553(b)(B). Section 553 also permits agencies to issue a rule 
without delaying its effectiveness for thirty days from publication if 
the agency finds good cause and publishes this finding with the rule. 5 
U.S.C. 553(d)(3).
    Treasury finds that there is good cause for issuing this interim 
rule without notice and public comment and without a delayed effective 
date for the following reason: section 121 of the GLBA, which permits 
national banks through financial subsidiaries to engage in activities 
that are financial in nature, becomes effective on March 11, 2000. Such 
activities include both the activities defined in section 4(k)(4) of 
the Bank Holding Company Act to be financial in nature (subject to 
certain exceptions), and those determined by the Secretary, in 
consultation with the Board, to be financial in nature or incidental to 
a financial activity. It is in the public interest to make this interim 
rule effective immediately, so that national banks and other interested 
parties will know how to request that the Secretary make such a 
determination. Treasury requests comments on all aspects of this 
interim rule and will consider those comments before the rule is 
finalized. However, publishing the rule in interim final form enables 
national banks and other interested parties to seek a determination as 
to whether an activity is financial in nature during this comment 
process.

Section-by-Section Analysis

    The GBLA authorizes the Secretary to determine that activities are 
financial in nature or incidental to financial activities after 
consulting with the Board. Subsection (a) states that a national bank 
or any other interested party may request a determination that a new 
activity is financial in nature.
    A request for a determination that an activity is financial in 
nature must identify and define the activity for which the 
determination is sought. The request must also include specific 
information about what the activity would involve and how it would be 
conducted, and explain in detail why the activity should be considered 
financial in nature or incidental to a financial activity. Importantly, 
the request must provide information that is sufficient to support a 
finding by the Secretary that the activity is financial. The requester 
also must provide any additional information required by the Secretary.
    On receiving a request, the Secretary will provide the Board with a 
copy of the proposal and consult with the Board in accordance with 
section 5136A(b)(1)(B)(i) of the Revised Statutes. The Secretary also 
may request public comment on the proposal. The Secretary will endeavor 
to act on all requests within 60 days of completion of the consultative 
process and the close of the public comment period, if applicable.

Regulatory Flexibility Act Analysis

    Because no notice of proposed rulemaking is required for this 
interim final rule, the Regulatory Flexibility Act (5 U.S.C. 601 et 
seq.) does not apply.

Paperwork Reduction Act

    This regulation is being issued without prior notice and public 
procedure pursuant to the Administrative Procedure Act (5 U.S.C. 553). 
For this reason, the collection of

[[Page 14821]]

information contained in this regulation has been reviewed under the 
requirements of the Paperwork Reduction Act (44 U.S.C. 3507(j)) and, 
pending receipt and evaluation of public comments, approved by the 
Office of Management and Budget (OMB) under control number 1505-0174. 
An agency may not conduct or sponsor, and a person is not required to 
respond to, a collection of information unless it displays a valid 
control number assigned by OMB.
    Comments concerning the collection of information should be 
directed to OMB, Attention: Desk Officer for the Department of the 
Treasury, Office of Information and Regulatory Affairs, Washington, DC, 
20503, with copies to Joan Affleck-Smith, Director, Office of Financial 
Institutions Policy, 1500 Pennsylvania Avenue NW, Room SC 37, 
Washington, DC 20220. Any such comments should be submitted not later 
than May 19, 2000. Comments are specifically requested concerning: 
whether the proposed collection of information is necessary for the 
proper performance of the functions of the Secretary, including whether 
the information will have practical utility; the accuracy of the 
estimated burden associated with the proposed collection of information 
(see below); how to enhance the quality, utility, and clarity of the 
information to be collected; how to minimize the burden of complying 
with the proposed collection of information, including the application 
of automated collection techniques or other forms of information 
technology; and estimates of capital or start-up costs and costs of 
operation, maintenance, and purchase of services to provide 
information.
    The collection of information in this regulation is in 12 CFR 
1501.1. This information is required to request that the Secretary 
determine whether an activity is financial in nature or incidental to a 
financial activity. This information will be used to enable the 
Secretary to evaluate a request for such a determination. The 
collection of information is required to obtain a benefit. The likely 
respondents are national banks.
    Estimated total annual reporting burden: 400 hours.
    Estimated average annual burden hours per respondent: 20 hours.
    Estimated number of respondents: 20.
    Estimated annual frequency of responses: Once.

Executive Order 12866 Determination

    The Department of the Treasury has determined that this rule does 
not constitute a ``significant regulatory action'' for the purposes of 
Executive Order 12866.

List of Subjects in 12 CFR Part 1501

    Administrative practice and procedure, National banks, Reporting 
and recordkeeping requirements.

Authority and Issuance

    For the reasons set forth in the preamble, the Department of the 
Treasury adds a new part 1501 to chapter XV of title 12, to read as 
follows:

PART 1501--FINANCIAL SUBSIDIARIES

Sec.
1501.1   How do you request the Secretary to determine that an 
activity is financial in nature or incidental to a financial 
activity?

    Authority: Section 5136A of the Revised Statutes of the United 
States (12 U.S.C. 24a).


Sec. 1501.1  How do you request the Secretary to determine that an 
activity is financial in nature or incidental to a financial activity?

    (a) Requests regarding activities that may be financial in nature 
or incidental to a financial activity. A national bank or other 
interested party may request the Secretary to determine that an 
activity not defined to be financial in nature or incidental to a 
financial activity in Section 4(k)(4) of the Bank Holding Company Act 
(12 U.S.C. 1843(k)(4)), is financial in nature or incidental to a 
financial activity.
    (b) What information must the request contain? A request submitted 
under this section must be in writing and must:
    (1) Identify and define the activity for which the determination is 
sought, specifically describing what the activity would involve and how 
the activity would be conducted;
    (2) Explain in detail why the activity should be considered 
financial in nature or incidental to a financial activity; and
    (3) Provide information supporting the requested determination and 
any other information required by the Secretary concerning the proposed 
activity.
    (c) What factors will the Secretary take into account in making his 
determination? (1) Section 121 of the Gramm-Leach-Bliley Act (GLBA) 
(Public Law 106-102, 113 Stat. 1373) requires the Secretary to take 
into account the following factors in making his determination:
    (i) The purposes of section 5136A of the Revised Statutes (12 
U.S.C. 24a) and the GLBA;
    (ii) Changes or reasonably expected changes in the marketplace in 
which banks compete;
    (iii) Changes or reasonably expected changes in the technology for 
delivering financial services; and
    (iv) Whether the activity is necessary or appropriate to allow a 
bank and the subsidiaries of a bank to--
    (A) Compete effectively with any company seeking to provide 
financial services in the United States;
    (B) Efficiently deliver information and services that are financial 
in nature through the use of technological means, including any 
application necessary to protect the security or efficacy of systems 
for the transmission of data or financial transactions; and
    (C) Offer customers any available or emerging technological means 
for using financial services or for the document imaging of data.
    (2) Because the Secretary is required to consider the factors in 
paragraph (c)(1) of this section in making his determination, any 
request should address the factors in paragraph (c)(1) of this section. 
The Secretary may also consider other relevant factors.
    (d) What action will the Secretary take after receiving a request? 
(1) Consultation with the Board of Governors of the Federal Reserve 
System (Board). Upon receiving the request, the Secretary will send a 
copy to the Board and consult with the Board in accordance with section 
5136A(b)(1)(B)(i) of the Revised Statutes (12 U.S.C. 
5136A(b)(1)(B)(i)).
    (2) Public notice. The Secretary may, as appropriate and after 
consultation with the Board, publish a description of the proposal in 
the Federal Register with a request for public comment.
    (e) How and when will the Secretary act on a request? In the case 
of each request, the Secretary:
    (1) Will inform the requester of the Secretary's final 
determination regarding the requested activity; and
    (2) Will endeavor to inform the requester of the Secretary's final 
determination within 60 days of completion of both the consultative 
process described in paragraph (d)(1) of this section and the public 
comment period, if any.
    (f) What must a national bank do in order for a financial 
subsidiary to engage in activities that the Secretary has determined 
are financial in nature or incidental to financial activities? Once the 
Secretary determines that an activity is financial in nature or 
incidental to a financial activity (either in accordance with this 
section or after evaluation of a proposal raised by the Board under 
section 5136A(b)(1)(B)(ii) of the Revised Statutes), a financial 
subsidiary may engage in the activity subject to the requirements of 12 
CFR

[[Page 14822]]

part 5 and in accordance with any terms or conditions established by 
the Secretary in connection with authorizing the activity.

    Dated: March 13, 2000.
Gregory A. Baer,
Assistant Secretary for Financial Institutions, Department of the 
Treasury.
[FR Doc. 00-6610 Filed 3-17-00; 8:45 am]
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