[Federal Register Volume 65, Number 247 (Friday, December 22, 2000)]
[Rules and Regulations]
[Pages 80735-80741]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-32747]


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FEDERAL RESERVE SYSTEM

12 CFR Part 225

[Regulation Y; Docket No. R-1078]


Bank Holding Companies and Change in Bank Control

AGENCY: Board of Governors of the Federal Reserve System.

ACTION: Final rule.

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SUMMARY: The Board of Governors of the Federal Reserve System, in 
consultation with the Secretary of the Treasury and after seeking 
public comment, has determined by rule that acting as a finder is an 
activity that is incidental to a financial activity and therefore 
permissible for a financial holding company. The Board's final rule 
amends Subpart I of Regulation Y by adding acting as a finder to the 
list of activities that a financial holding company may conduct using 
the streamlined post-

[[Page 80736]]

transaction notice procedure authorized by the Gramm-Leach-Bliley Act.
    The final rule allows a financial holding company to bring together 
buyers and sellers of products and services for transactions that the 
buyers and sellers themselves negotiate and consummate. The rule 
provides examples of specific services that a financial holding company 
may and may not perform when acting as a finder under the rule. The 
rule also requires a financial holding company that acts as a finder to 
provide appropriate disclosures to distinguish products and services 
that are offered by the financial holding company from those that are 
offered by a third party using the financial holding company's finder 
service.

DATES: Effective January 22, 2001.

FOR FURTHER INFORMATION CONTACT: Scott G. Alvarez, Associate General 
Counsel (202/452-3583), Kieran J. Fallon, Senior Counsel (202/452-
5270), or Adrianne G. Threatt, Senior Attorney (202/452-3554), Legal 
Division; Betsy Cross, Assistant Director (202/452-2574), Division of 
Banking Supervision and Regulation, Board of Governors of the Federal 
Reserve System, 20th Street and Constitution Avenue, N.W., Washington, 
D.C., 20551. For users of Telecommunications Device for the Deaf 
(``TDD''), contact Janice Simms at 202/452-4984.

SUPPLEMENTARY INFORMATION:

Background

    The Gramm-Leach-Bliley Act (Pub. L. 106-102, 113 Stat. 1338 (1999)) 
(``GLB Act'') amended the Bank Holding Company Act (12 U.S.C. Sec. 1841 
et seq.) (``BHC Act'') to allow a bank holding company or foreign bank 
that qualifies as a financial holding company to engage in a broad 
range of activities that the GLB Act defined as financial in nature or 
incidental to a financial activity. The GLB Act also provides that the 
Board, in consultation with the Secretary of the Treasury 
(``Secretary''), may determine that additional activities are financial 
in nature or incidental to a financial activity and, thus, permissible 
for a financial holding company.\1\
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    \1\ See 12 U.S.C. 1843 (k)(2). In determining whether to 
authorize an additional activity, the GLB Act directs the Board to 
consider: (1) the purposes of the GLB and BHC Acts; (2) the changes 
or reasonably expected changes in the marketplace in which financial 
holding companies compete; (3) the changes or reasonably expected 
changes in technology for delivering financial services; and (4) 
whether the proposed activity is necessary or appropriate to allow a 
financial holding company to compete effectively with companies 
seeking to provide financial services in the United States, 
efficiently deliver financial information and services through 
technological means, and offer customers any available or emerging 
technological means for using financial services or for the document 
imaging of data. The Board also may consider other information that 
it considers relevant to its determination.
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    Earlier this year, the Board, after consulting with the Secretary, 
requested public comment on a proposal to determine that acting as a 
finder is an activity that is incidental to a financial activity and, 
therefore, permissible for a financial holding company.\2\ Under the 
proposal, a financial holding company could act as a finder that brings 
together one or more buyers and sellers of any type of products and 
services for transactions that the parties themselves negotiate and 
consummate. The proposed rule noted that the services provided by a 
finder could include: (1) identifying potential parties to a 
transaction, making inquiries as to interest, introducing and referring 
potential parties to each other, and arranging contacts between and 
meetings of interested parties; (2) conveying between interested 
parties expressions of interest, bids, offers, orders, and 
confirmations relating to a transaction; and (3) transmitting 
information concerning products and services to potential parties in 
connection with the activities described in items (1) and (2) above. To 
illustrate some of the services of a finder, the proposed rule included 
examples of specific services that a finder could provide under the 
proposed rule, including hosting an Internet marketplace on the 
finder's web site, hosting the Internet web site of a seller, and 
operating an Internet web site that allows multiple buyers and sellers 
to enter into transactions between themselves.
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    \2\ See 65 FR 47696 (August 3, 2000).
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    The proposed rule also included specific parameters designed to 
ensure that a finder did not engage in any nonfinancial activity. In 
addition, the proposed rule required a finder to use disclosures or 
other means to distinguish the products and services offered by the 
financial holding company from those offered by a third party through 
the finder service.

Overview of Public Comments

    The Board received 18 public comments on the proposal. Commenters 
included financial holding companies and other bank holding companies; 
trade associations representing the banking, securities, and real 
estate industries; a state banking and insurance department; and a law 
firm.
    Nearly all of the commenters supported the proposal. Many of these 
commenters praised the scope of the proposed rule or stated that 
adoption of the proposal would increase the ability of financial 
holding companies to compete effectively with other financial service 
providers in a manner consistent with the purposes of the GLB Act. Some 
commenters that supported the proposal suggested that the Board 
determine acting as finder to be a financial activity, rather than an 
activity that is incidental to a financial activity. Two commenters 
opposed the proposal, contending that it would allow financial holding 
companies to engage in commercial activities and would expose financial 
holding companies to additional risks.
    Commenters also requested that the Board make certain changes to 
the proposed rule. For example, some commenters requested that the 
Board expand, modify, or clarify the examples of permissible finder 
services included in the proposed rule. In addition, while some 
commenters supported the limitations included in the proposed rule on 
the finder activities of financial holding companies, other commenters 
requested that the Board modify or eliminate some of these limitations, 
including the limitations that prevent a financial holding company from 
binding a buyer or seller to a specific transaction, negotiating the 
terms of a specific transaction on behalf of a buyer or seller, or 
engaging in any activity that would cause the company to register or 
obtain a license as a real estate agent or broker. One commenter urged 
that the limitations on real estate agency and brokerage activities be 
retained.
    Some commenters asked the Board to provide additional guidance 
concerning how a financial holding company could comply with the 
disclosure requirements of the proposed rule. A few commenters also 
asked that the Board clarify that the proposed limitations on the 
finder activities do not apply to other activities that a financial 
holding company is authorized to conduct.

Final Rule

    National banks and many state banks are permitted to act and have 
acted as a finder in nonfinancial transactions for many years. 
Opportunities to provide finder services and interest in acting as a 
finder have grown dramatically with advances in technology and the 
increased use of the Internet. Thus, banking organizations, which in 
the past largely have served as a finder by providing statement 
stuffers and other marketing materials of sellers of various products 
and services or by helping to

[[Page 80737]]

identify service providers as an accommodation to customers, have begun 
to explore the opportunity to act as a finder electronically on a 
broader scale. Financial holding companies have argued that acting as a 
finder, particularly electronically, offers increased opportunities for 
financial holding companies to cross sell financial products and 
services or to enhance the attractiveness to customers of the financial 
holding company's own electronic web site. Commenters asserted that 
authorizing FHCs to act as a finder as proposed would facilitate 
competition between FHCs and nonbanking companies to provide customers 
with a wide range of financial services. One commenter stated that the 
new authority particularly would benefit FHCs affiliated with community 
banks, which often are knowledgeable about the business interests of 
third parties with whom they deal. In this way, finder services have 
become incidental to financial activities.
    After carefully reviewing the public comments on the finder 
proposal, the Board has adopted a final rule that provides that acting 
as a finder, as defined in the rule, is an activity that is incidental 
to a financial activity and therefore permissible for financial holding 
companies to conduct. Under the GLB Act, the Board may not determine 
that an activity is financial in nature or incidental to a financial 
activity if the Secretary notifies the Board in writing that the 
Secretary believes the activity is not financial in nature, incidental 
to a financial activity, or otherwise permissible under section 4 of 
the BHC Act. The Secretary must notify the Board of the Secretary's 
determination within 30 days of receiving notice from the Board, or 
within such longer period as the Board may allow under the 
circumstances. The Board has provided the Secretary with notice of the 
proposed activity as required by the GLB Act and the Secretary has 
informed the Board in writing that the Secretary does not object to the 
final rule as adopted.
    The Board has made a number of changes to the rule to respond to 
public comments and to clarify the scope of the proposed rule. These 
changes and the comments on particular aspects of the rule are 
discussed below.

Detailed Description of Final Rule

    The rule adds ``acting as finder'' to the list of activities in 
section 225.86 of Subpart I of the Board's Regulation Y that are 
financial in nature or incidental to a financial activity and, thus, 
permissible for a financial holding company. Bank holding companies and 
foreign banks that qualify as financial holding companies may engage in 
finder activities by using the post-transaction notice procedure 
described in section 225.87 of Regulation Y. Bank holding companies and 
foreign banks that do not qualify as financial holding companies may 
not engage in finder activities under the rule.

Section 225.86(d)(1)(i)--What Is the Scope of Finder Activities?

    The activity of a finder is defined under the rule as bringing 
together one or more buyers and sellers of any product or service for 
transactions that the parties themselves negotiate and consummate. A 
financial holding company may act as a finder under the rule for 
financial and nonfinancial products or services that are offered or 
sold by third-party buyers and sellers.\3\
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    \3\ The Board notes that a financial holding company is 
permitted to act as a finder for financial products and services as 
part of other permissible financial activities. For example, a 
financial holding company may act as a finder in the purchase and 
sale of securities under authority to act as a securities broker 
under Sec. 225.86(a) of Regulation Y, or act as a finder in the 
purchase and sale of insurance products as an insurance agent under 
Sec. 225.86(c) of Regulation Y.
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    As the Board noted in the proposal, the actual services provided by 
a finder in a particular transaction may vary. Under current practices, 
however, finders perform two principal functions--(1) locating and 
matching third parties that are interested in engaging in a business 
transaction between themselves, and (2) acting as a conduit for 
transaction-related information between parties that may be or are 
interested in conducting a business transaction between themselves.
    Accordingly, the final rule provides that the services provided by 
a finder may include--
    (1) Identifying potential parties that may be interested in 
engaging in a transaction between themselves;
    (2) Making inquiries of third parties as to their interest in 
engaging in a transaction with another party;
    (3) Introducing and referring potential parties to each other;
    (4) Arranging contacts and meetings between interested parties;
    (5) Conveying expressions of interests, bids, offers, orders, and 
confirmations relating to a transaction between third parties; and
    (6) Transmitting information concerning products and services to 
potential parties in connection with the activities described in 
paragraphs (1) through (5) above, such as transmitting to a buyer 
information concerning the products and services offered by a seller or 
transmitting to a seller the product preferences of a buyer.
    Some commenters requested that the Board clarify that a finder may 
act through a variety of media, including through electronic means 
(such as the Internet) or non-electronic means. The final rule 
explicitly provides that a finder may act through any means and also 
clarifies that a finder may perform one, all, or any combination of the 
permissible finder services described in the rule.
    A few commenters contended that the Board should expand the rule to 
allow a finder to transmit or exchange any type of information between 
any parties. The final rule authorizes financial holding companies to 
transmit any type of information between potential parties to a 
transaction, including information about the buyer and seller and the 
products and services sought or offered by the buyer or seller, so long 
as the information is related to the proposed transaction. The Board 
believes that it is not appropriate to expand this authority to allow a 
finder to transmit between parties information that is not related to a 
proposed transaction. Allowing financial holding companies to provide 
information without limit goes beyond what is necessary to bring 
transacting parties together and could be interpreted to allow a 
financial holding company to engage in nonfinancial activities, such as 
operating a newspaper.

Section 225.86(d)(1)(ii)--What Are Some Examples of Finder Services?

    As noted above, the proposed rule included examples of specific 
services that a finder may provide under the rule. Commenters generally 
favored the Board's decision to include examples of permissible finder 
services in the rule but were divided on the issue of whether 
additional examples of permissible finder services should be provided. 
A number of commenters requested that the Board modify or clarify 
certain examples included in the proposed rule, and several commenters 
requested assurance that the examples included in the rule were not 
exhaustive.
    In light of these comments, the Board has revised and reorganized 
the examples of permissible finder activities included in the rule to 
illustrate more fully the breadth of the rule. The examples included in 
the final rule illustrate that a finder may:
     Host an electronic marketplace Internet web site that 
provides hypertext or similar links to the web sites of third party 
buyers or sellers;

[[Page 80738]]

     Host the Internet web site of a buyer (or seller) that 
provides information concerning the buyer (or seller) and the products 
or services it seeks to buy (or sell) and allows sellers (or buyers) to 
submit expressions of interest, bids, offers, orders, and confirmations 
relating to such products or services;
     Host the Internet web site of a government or government 
agency that provides information concerning the services or benefits 
made available by the government or government agency, assists persons 
in completing applications to receive such services or benefits from 
the government or agency, and allows persons to transmit their 
applications for services or benefits to the government or agency;
     Operate an Internet web site that allows multiple buyers 
and sellers to exchange information concerning the products and 
services that they are willing to purchase or sell, locate potential 
counterparties for transactions, aggregate orders for goods or services 
with those made by other parties, and enter into transactions between 
themselves; and
     Operate a telephone call center that provides permissible 
finder services.
    The rule states that the examples of permissible finder services 
included in the rule are illustrative and not exclusive. Furthermore, 
while the Board expects that financial holding companies likely will 
engage in finder activities through electronic means, such as over the 
Internet or other electronic networks, a finder may act through any 
means available so long as the activity complies with the requirements 
of the rule. Financial holding companies that are uncertain whether a 
proposed activity is within the scope of the rule may contact Federal 
Reserve staff to discuss the proposal.

Section 225.86(d)(1)(iii)--What Limitations Are Applicable to a 
Financial Holding Company Acting as a Finder?

    The rule prevents a finder from becoming a principal in the 
underlying transaction. In particular, a finder may not negotiate for 
or bind third parties; acquire or take title to, or provide 
distribution services for, products and services offered or sold 
through the finder service; or own or operate real property used to 
manufacture, store, transport, or assemble products offered or sold by 
a third party.
    Several commenters requested that the Board modify or eliminate 
certain of these limitations. For example, some commenters requested 
that the Board remove the restrictions on binding parties or 
negotiating transactions or, alternatively, allow a financial holding 
company to take such actions within parameters established by the buyer 
or seller. A few commenters also contended that the Board should allow 
a finder to acquire an ownership interest in products as a ``riskless 
principal.'' In addition, some commenters asked the Board to confirm 
that the restrictions included in the rule would not prevent a 
financial holding company from operating an electronic exchange that 
provides finder services and that automatically matches bids and offers 
submitted to the exchange, and that these restrictions would not apply 
to the conduct of financial activities that a financial holding company 
is authorized to engage in under other provisions of Regulation Y.
    The Board has carefully reviewed the limitations included in the 
proposed rule in light of the comments received. As a general matter, 
the Board continues to believe that the restrictions included in the 
proposed rule are appropriate to ensure that a finder acts only as an 
intermediary in providing finder services and does not otherwise become 
involved in impermissible commercial activities. The Board recognizes, 
however, that technological developments in communications, computing, 
and the Internet have made the intermediary function more important and 
that further developments in these areas may alter the methods and 
manner of providing finder services. The Board intends to monitor 
future developments in technology, the financial services industry, and 
the market for finder services and to review periodically the limits in 
the rule to determine whether such limits continue to be necessary or 
appropriate.
    For the foregoing reasons, the final rule continues to provide that 
a finder may act only as an intermediary and may not bind any buyer or 
seller to the terms of a specific transaction or negotiate the terms of 
a specific transaction on behalf of a buyer or seller. In response to 
comments, the final rule clarifies that these restrictions do not 
prevent a finder from establishing rules of general applicability 
governing the use and operation of the finder service. These operating 
rules may, for example, establish the parameters under which buyers and 
sellers may submit bids and offers to the finder service and the 
circumstances under which the finder service will match bids and offers 
submitted by buyers and sellers. Similarly, the finder may establish 
rules of general applicability that govern the manner in which buyers 
and sellers bind themselves to the terms of a specific transaction 
entered into through the finder service. Under these provisions, a 
financial holding company may establish and operate an electronic 
exchange that assists buyers and sellers to locate potential 
counterparties, matches buyers and sellers that submit bids and offers 
within specified ranges established by the rules of the exchange, and 
requires buyers and sellers to accept transactions matched through the 
exchange.
    The proposed rule also stated that the proposal did not prevent a 
financial holding company from arranging for buyers that use its finder 
services to receive preferred terms from sellers so long as the terms 
are not negotiated as part of any individual transaction, are made 
available to broad categories of customers, and are provided by the 
seller and not the financial holding company. Commenters generally 
supported this provision and it is retained in the final rule.
    The final rule does not authorize a financial holding company to 
take title to, or acquire or hold an ownership interest in, any product 
or service offered or sold through the finder service or provide 
distribution services for physical products or services offered or sold 
through such service. In addition, a financial holding company may not 
own or operate any real or personal property that is used for the 
purpose of manufacturing, storing, transporting, or assembling physical 
products offered or sold by third parties, or that serves as a physical 
location for the physical purchase, sale, or distribution of products 
or services offered or sold by third parties. These limitations are 
consistent with the limited role of a finder as an intermediary and 
distinguish a finder, for example, from a company that owns or operates 
a physical shopping mall, retail store, a manufacturing plant, a 
product distribution center, or a transport or trucking company.

Acting As a Real Estate Agent or Broker

    The proposed rule did not authorize a financial holding company to 
engage in any activity that would require the company to register or 
obtain a license as a real estate agent or broker under applicable law. 
While some commenters supported this provision, others requested that 
the Board remove the provision from the rule or amend the rule to only 
prohibit financial holding companies from engaging in ``general'' real 
estate agency or brokerage activities under the rule.

[[Page 80739]]

    The Board has not to date determined whether real estate agency or 
brokerage activities are financial in nature or incidental to financial 
activities and, thus, permissible for financial holding companies. The 
Board has received a request to determine that real estate agency and 
brokerage services are financial in nature and separately has requested 
public comment on a proposal that would find those activities to be 
financial in nature or incidental to a financial activity.\4\ 
Accordingly, the final rule retains the limitation that prohibits a 
financial holding company from engaging in activities that require 
licensing or registration as a real estate broker.\5\
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    \4\ Published in the December 21, 2000, issued of the Federal 
Register.
    \5\ One commenter requested that the Board clarify that the rule 
does not preempt any applicable state insurance or mortgage 
solicitation licensing requirements. This rule represents a 
determination that finder activities are permissible activities for 
financial holding companies and does not represent an attempt by the 
Board to preempt applicable state law. This rule does not address 
whether other federal law, such as section 104 of the GLB Act (15 
U.S.C. Sec. 6701), may limit the applicability of state law in 
specific situations.
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Other Authorities Not Affected

    As noted above, several commenters were uncertain whether the 
limits included in the rule applied to or restricted the conduct of 
other financial activities that a financial holding company is 
authorized to conduct. The Board confirms that authorization to act as 
a finder is in addition to, and separate from, the authority that a 
financial holding company has under other provisions of Regulation Y to 
conduct other financial activities. The restrictions contained in 
Sec. 225.86(d)(1)(iii) apply only to the finder activities conducted by 
a financial holding company under Sec. 225.86(d) of Regulation Y. These 
limitations do not restrict or otherwise limit the manner in which a 
financial holding company may conduct other activities that are 
permissible for a financial holding company, such as securities 
brokerage, insurance agency, investment advisory, or leasing 
activities.
    In this regard, a financial holding company that acts as a finder 
for a buyer or seller may also provide the buyer or seller any 
combination of other services that are permissible under Regulation Y 
so long as the finder and other services are provided in accordance 
with any applicable limitations under the rule and Regulation Y. For 
example, a finder for a merchant may, in addition to acting as finder, 
make, acquire, broker, or service loans or other extensions of credit 
to or for the merchant or the merchant's customers; provide the 
merchant with check verification, check guaranty, collection agency and 
credit bureau services; provide financial investment advice to the 
merchant or the merchant's customers within the parameters of 
Regulation Y; act as a certification authority for digital signatures 
and thereby authenticate the identity of persons conducting business 
with the merchant over electronic networks; and process and transmit 
financial, economic, and banking data on behalf of the merchant, such 
as by processing the merchant's accounts receivables and debit and 
credit card transactions, providing the merchant with bill payment and 
billing services, and processing order, distribution, accounting, 
settlement, collection and payment information for the merchant's 
transactions.\6\
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    \6\ See 12 CFR 225.28(b)(1) (extending credit and servicing 
extensions of credit); (b)(2)(iii), (iv), and (v) (credit bureau, 
check guaranty, check verification, collection agency and credit 
bureau services); (b)(6) (financial and investment advice); 12 CFR 
225.86(a)(2) (certification authority for digital signatures); and 
12 CFR 225.28(b)(14), Banc One Corporation, Inc., 83 Federal Reserve 
Bulletin 602 (1997); Royal Bank of Canada, 83 Federal Reserve 
Bulletin 135 (1997); Compagnie Financiere de Paribas, 82 Federal 
Reserve Bulletin 348 (1996) (financial data processing and data 
transmission services).
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    Furthermore, a financial holding company may market and provide its 
own financial products and services in conjunction with acting as a 
finder for buyers and sellers of nonfinancial products and services. 
For example, a financial holding company may use its finder service to 
promote the company's own products and services and, in connection with 
that activity, may negotiate on its own behalf and bind itself to 
transactions.

Section 225.86(d)(1)(iv)--What Disclosures Are Required?

    The proposed rule required a finder to distinguish the products and 
services offered by the financial holding company from the products and 
services offered through the finder service by a third party. A number 
of commenters supported this disclosure requirement as an appropriate 
means of limiting potential customer confusion and reputational risk to 
financial holding companies. Some commenters requested that the Board 
provide additional guidance, such as sample disclosure clauses, 
illustrating how a financial holding company could comply with the 
rule's disclosure requirements.
    The final rule continues to require that a finder distinguish the 
products or services offered by the financial holding company from 
those offered by a third party through the finder service. Because a 
financial holding company may act as a finder for third parties through 
varied technological means and in a wide variety of circumstances, the 
Board has determined not to identify specific disclosures that must or 
could be provided by financial holding companies. The Board expects 
financial holding companies to provide disclosures that, given the 
medium employed and type of buyers and sellers using the service (e.g., 
consumers or corporations), are reasonably designed to ensure that 
users are not led to believe that the financial holding company is 
providing the products or services offered or sold by third parties 
through the finder service. A financial holding company could provide 
such notice by identifying through appropriate means those products or 
services that are offered or sold by the financial holding company 
(with a corresponding notice that all other products or services are 
provided by third parties), or by identifying those products or 
services that are offered and sold by third parties and not by the 
financial holding company. Financial holding companies are encouraged 
to tailor the content and presentation of their disclosures to suit the 
specific type of finder service they are providing. The Board intends 
to monitor the disclosure practices of financial holding companies and 
may provide additional guidance, such as identifying best practices in 
this area, as it gains experience with the finder activities of 
financial holding companies.

Regulatory Flexibility Act

    In accordance with the Regulatory Flexibility Act, the Board is 
required to conduct an analysis of the effect this final rule would 
have on small institutions. The rule authorizes all financial holding 
companies regardless of their size to engage in a new activity--that of 
acting as a finder. Moreover, the rule enables such companies to 
commence the new activity by using the streamlined post-transaction 
notice procedure authorized by the GLB Act, which is the least 
burdensome notice procedure available to a financial holding company. 
This rule therefore should enhance the ability of financial holding 
companies, including small ones, to compete with other providers of 
financial services in the United States and to respond to technological 
and other changes in the marketplace in which financial holding 
companies compete. Moreover, the comments received by the Board did not 
indicate that the rule would impose a

[[Page 80740]]

burden on financial holding companies of any size.

Paperwork Reduction Act

    In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 
3506; 5 CFR 1320 Appendix A.1), the Board reviewed the rule under 
authority delegated to the Board by the Office of Management and Budget 
(``OMB''). The Board may not conduct or sponsor, and an organization is 
not required to respond to, this information collection unless it 
displays a currently valid OMB control number. The OMB control number 
is 7100-0292.
    A financial holding company may engage in the finder activities 
authorized by this rule by providing a post-transaction notice in 
accordance with Sec. 225.87 of Regulation Y. This information is 
mandatory to evidence compliance with the requirements of the GLB Act 
and Regulation Y, and the burden of the post-transaction notice 
requirement was reviewed in connection with the Board's adoption of 
Sec. 225.87.
    In addition, this rule requires a finder to distinguish the 
products and services offered by the financial holding company from 
those offered by a third party through the finder service. Provision of 
such disclosures, although not contained in a submission to the Board, 
does constitute a collection of paperwork under the Paperwork Reduction 
Act. Financial holding companies, of which there are approximately 450, 
are the respondents/recordkeepers. Board staff anticipates that the 
majority of the burden on financial holding companies will be a one-
time burden in the first year a company engages in the finder activity, 
when the financial holding company must develop a mechanism to 
distinguish the products and services offered by the financial holding 
company from those offered by a third party through the finder service. 
The estimated one-time burden to develop such disclosures is one hour. 
Although financial holding companies may update their disclosures 
periodically, this will be a negligible burden on them. It is estimated 
that there will be 50 financial holding companies required to comply 
with the post-transaction notice with an average of 1 update per 
respondent each year. Therefore the total amount of annual burden is 
estimated to be 50 hours.
    Board staff estimates that there would be nominal start up costs 
associated with modifying the operations of the financial holding 
company's finder service to provide this notice. Thus, there is 
estimated to be no annual cost burden over the annual hour burden.
    Because the disclosures would be maintained at and provided by 
financial holding companies and the disclosures are not submitted to 
the Federal Reserve System, no issue of confidentiality arises under 
the Freedom of Information Act. The Board has a continuing interest in 
the public's opinions of its collections of information. At any time, 
comments regarding the burden estimate, or any other aspect of this 
collection of information, including suggestions for reducing the 
burden, may be sent to: Jennifer J. Johnson, Secretary, Board of 
Governors of the Federal Reserve System, 20th and C Streets, NW., 
Washington, DC 20551; and to the Office of Management and Budget, 
Paperwork Reduction Project (7100-0292), Washington, DC 20503.

List of Subjects in 12 CFR Part 225

    Administrative practice and procedure, Banks, Banking, Federal 
Reserve System, Holding companies, Reporting and recordkeeping 
requirements, Securities.

Authority and Issuance

    For the reasons set out in the preamble, the Board amends 12 CFR 
part 225 as follows:

PART 225--BANK HOLDING COMPANIES AND CHANGE IN BANK CONTROL 
(REGULATION Y)

    1. The authority citation for part 225 continues to read as 
follows:

    Authority: 12 U.S.C. 1817(j)(13), 1818, 1828(o), 1831i, 1831p-1, 
1843(c)(8), 1843(k), 1844(b), 1972(l), 3106, 3108, 3310, 3331-3351, 
3907, and 3909.


    2. Section 225.86 is amended by adding a new paragraph (d) to read 
as follows:


Sec. 225.86  What activities are permissible for financial holding 
companies?

* * * * *
    (d) Activities determined to be financial in nature or incidental 
to financial activities by the Board--(1) Acting as a finder--Acting as 
a finder in bringing together one or more buyers and sellers of any 
product or service for transactions that the parties themselves 
negotiate and consummate.
    (i) What is the scope of finder activities? Acting as a finder 
includes providing any or all of the following services through any 
means--
    (A) Identifying potential parties, making inquiries as to interest, 
introducing and referring potential parties to each other, and 
arranging contacts between and meetings of interested parties;
    (B) Conveying between interested parties expressions of interest, 
bids, offers, orders and confirmations relating to a transaction; and
    (C) Transmitting information concerning products and services to 
potential parties in connection with the activities described in 
paragraphs (d)(1)(i)(A) and (B) of this section.
    (ii) What are some examples of finder services? The following are 
examples of the services that may be provided by a finder when done in 
accordance with paragraphs (d)(1)(iii) and (iv) of this section. These 
examples are not exclusive.
    (A) Hosting an electronic marketplace on the financial holding 
company's Internet web site by providing hypertext or similar links to 
the web sites of third party buyers or sellers.
    (B) Hosting on the financial holding company's servers the Internet 
web site of--
    (1) A buyer (or seller) that provides information concerning the 
buyer (or seller) and the products or services it seeks to buy (or 
sell) and allows sellers (or buyers) to submit expressions of interest, 
bids, offers, orders and confirmations relating to such products or 
services; or
    (2) A government or government agency that provides information 
concerning the services or benefits made available by the government or 
government agency, assists persons in completing applications to 
receive such services or benefits from the government or agency, and 
allows persons to transmit their applications for services or benefits 
to the government or agency.
    (C) Operating an Internet web site that allows multiple buyers and 
sellers to exchange information concerning the products and services 
that they are willing to purchase or sell, locate potential 
counterparties for transactions, aggregate orders for goods or services 
with those made by other parties, and enter into transactions between 
themselves.
    (D) Operating a telephone call center that provides permissible 
finder services.
    (iii) What limitations are applicable to a financial holding 
company acting as a finder?
    (A) A finder may act only as an intermediary between a buyer and a 
seller.
    (B) A finder may not bind any buyer or seller to the terms of a 
specific transaction or negotiate the terms of a specific transaction 
on behalf of a buyer or seller, except that a finder may--

[[Page 80741]]

    (1) Arrange for buyers to receive preferred terms from sellers so 
long as the terms are not negotiated as part of any individual 
transaction, are provided generally to customers or broad categories of 
customers, and are made available by the seller (and not by the 
financial holding company); and
    (2) Establish rules of general applicability governing the use and 
operation of the finder service, including rules that--
    (i) Govern the submission of bids and offers by buyers and sellers 
that use the finder service and the circumstances under which the 
finder service will match bids and offers submitted by buyers and 
sellers; and
    (ii) Govern the manner in which buyers and sellers may bind 
themselves to the terms of a specific transaction.
    (C) A finder may not--
    (1) Take title to or acquire or hold an ownership interest in any 
product or service offered or sold through the finder service;
    (2) Provide distribution services for physical products or services 
offered or sold through the finder service;
    (3) Own or operate any real or personal property that is used for 
the purpose of manufacturing, storing, transporting, or assembling 
physical products offered or sold by third parties; or
    (4) Own or operate any real or personal property that serves as a 
physical location for the physical purchase, sale or distribution of 
products or services offered or sold by third parties.
    (D) A finder may not engage in any activity that would require the 
company to register or obtain a license as a real estate agent or 
broker under applicable law.
    (iv) What disclosures are required? A finder must distinguish the 
products and services offered by the financial holding company from 
those offered by a third party through the finder service.
    (2) [Reserved]

    December 19, 2000.
    By order of the Board of Governors of the Federal Reserve 
System.
Jennifer J. Johnson,
Secretary of the Board.
[FR Doc. 00-32747 Filed 12-21-00; 8:45 am]
BILLING CODE 6210-01-P