[Federal Register Volume 69, Number 214 (Friday, November 5, 2004)]
[Rules and Regulations]
[Pages 64478-64482]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-24735]
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DEPARTMENT OF THE TREASURY
Office of the Comptroller of the Currency
12 CFR Part 5
[Docket No. 04-23]
RIN 1557-AC81
Rules, Policies, and Procedures for Corporate Activities; Annual
Report on Operating Subsidiaries
AGENCY: Office of the Comptroller of the Currency, Treasury.
ACTION: Final rule.
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SUMMARY: The Office of the Comptroller of the Currency (OCC) is
amending 12 CFR part 5 to require a national bank to file an Annual
Report on Operating Subsidiaries (Annual Report) with the OCC. The
Annual Report will identify the national bank's operating subsidiaries
that do business directly with consumers and that are not functionally
regulated. The Annual Report will include certain information about
each operating subsidiary, such as the name of the operating
subsidiary, its location and contact information, and the operating
subsidiary's lines of business. The OCC will make this information
available to the public on its Web site at http://www.occ.gov in order
to assist consumers in identifying entities that are national bank
operating subsidiaries.
DATES: Effective Date: December 6, 2004.
FOR FURTHER INFORMATION CONTACT: Stuart E. Feldstein, Assistant
Director, Legislative and Regulatory Activities, (202) 874-5090;
Patrick T. Tierney, Attorney, Legislative and Regulatory Activities,
(202) 874-5090; or Stephen A. Lybarger, Director of Licensing
Activities, (202) 874-5060, Office of the Comptroller of the Currency,
250 E Street, SW., Washington, DC 20219.
SUPPLEMENTARY INFORMATION:
Background
On March 25, 2004, the OCC published a notice of proposed
rulemaking (NPRM) (69 FR 15260) in the Federal Register to require each
national bank to file an Annual Report on Operating Subsidiaries
(Annual Report) with the OCC. The Annual Report identifies the bank's
operating subsidiaries that do business directly with consumers and are
not functionally regulated \1\ as defined in section 5(c)(5) of the
Bank Holding Company Act of 1956, as amended (12 U.S.C. 1844(c)(5)).
The NPRM required a national bank to provide information including the
name of each operating subsidiary, its location and contact
information, and the operating subsidiary's lines of business. The NPRM
also discussed how the OCC would make the information available to the
public on its Web site.
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\1\ A subsidiary is a ``functionally regulated'' subsidiary if
under section 5(c)(5) of the Bank Holding Company Act of 1956, as
amended, it is a broker or dealer that is registered under the
Securities Exchange Act of 1934; a registered investment adviser,
properly registered by or on behalf of either the Securities and
Exchange Commission or any State, with respect to the investment
advisory activities of such investment adviser and activities
incidental to such investment advisory activities; an investment
company that is registered under the Investment Company Act of 1940;
an insurance company, with respect to insurance activities of the
insurance company and activities incidental to such insurance
activities, that is subject to supervision by a State insurance
regulator; or an entity that is subject to regulation by the
Commodity Futures Trading Commission, with respect to the
commodities activities of such entity and activities incidental to
such commodities activities. See 12 U.S.C. 1844(c)(5)(B)(i)-(v).
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Overview of Comments Received
The NPRM comment period closed on April 26, 2004, and we received
15 comments. Commenters included national banks, state agencies,
banking trade associations, a realtor trade association, and community
groups. The majority of the commenters expressing a view generally
supported the NPRM.\2\ Several commenters offered specific suggestions
for refining the information contained in the Annual Report. A summary
of the comments and a description of the final rule follow.
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\2\ Three commenters asserted objections to the OCC's previous
rules relating to visitorial powers and preemption. See 69 FR 1895
(visitorial powers) and 69 FR 1904 (preemption) (Jan. 13, 2004).
These comments are beyond the scope of the current rulemaking, and,
accordingly we do not address them here. One commenter noted that
many states have laws that require operating subsidiaries to provide
consumers with information about where to direct questions and
complaints, including the appropriate state supervisory authority.
This commenter asserted that the proposal would preempt these types
of state disclosure requirements. We note that this final rule is an
administrative reporting requirement and has no independent
preemptive effect on state or local disclosure requirements.
Questions about the applicability of such requirements are governed
by the OCC's final preemption rule and Federal judicial preemption
precedents.
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Summary of Comments and OCC Response
Filing Requirement (Sec. 5.34(e)(6)(i))
The NPRM required each national bank to prepare and file with the
OCC an Annual Report for each of its operating subsidiaries that are
not functionally regulated within the meaning of section 5(c)(5) of the
Bank Holding Company Act of 1956, as amended (12 U.S.C. 1844(c)(5)) and
that do business directly with consumers in the United States. The NPRM
stated that an operating subsidiary ``does business directly with
consumers'' if it provides products or services to individuals to be
used primarily for personal, family, or household purposes.
Several commenters suggested revisions to, or sought clarification
of, the proposed filing requirement. For example, one commenter
suggested that the final rule should not apply to an operating
subsidiary that provides products or services to commercial entities
and only incidentally to consumers. We agree with the commenter that a
business transaction with a consumer that is not otherwise part of the
bank's ordinary course of business should not trigger this reporting
requirement. Therefore, the final rule provides that a national bank
operating subsidiary does business with consumers in the United States
if, in the ordinary course of its business, it provides products or
services to individuals to be used primarily for personal, family, or
household purposes. Thus, for example, an operating subsidiary is not
covered by this reporting requirement when it is engaged in the
business of leasing
[[Page 64479]]
equipment or other property to businesses, and, as an accommodation,
leases a piece of equipment to an officer or director of a company.
Another commenter questioned whether the reporting requirement
would apply to a second-tier subsidiary that does business directly
with consumers where the first-tier operating subsidiary does not. The
OCC confirms that the reporting requirement applies to the second-tier
operating subsidiary in this example. The final rule covers any
operating subsidiary of a national bank that is not functionally
regulated and does business directly with consumers.
One commenter asked for clarification as to whether a national bank
must include on its Annual Report an operating subsidiary that only
engages in the business of servicing consumer mortgage loans, where the
operating subsidiary is not involved with the initial credit decisions
or funding of any loans. The final rule's definition of ``doing
business directly with consumers'' includes providing products or
services to consumers. Since an operating subsidiary that engages
solely in mortgage servicing provides services for consumers (e.g., pay
off information, payment processing and accounting, customer service,
escrow administration), a national bank must include this type of
operating subsidiary on its Annual Report.
A few commenters suggested that national banks should also report
information on operating subsidiaries that are functionally regulated
by another state or federal regulatory agency. The Gramm-Leach-Bliley
Act of 1999 put in place a framework for the functional regulation of
bank subsidiaries and affiliates by amending section 5(c) of the Bank
Holding Company Act of 1956 (12 U.S.C. 1844(c)) and adding section 45
to the Federal Deposit Insurance Act (12 U.S.C. 1831v).\3\ Under that
framework, another regulatory agency has primary supervisory authority
over a national bank's functionally regulated subsidiary. For example,
a state insurance regulator would have supervisory authority in the
case of a subsidiary that sells insurance products. In this example,
the state insurance regulator is the appropriate agency to receive
consumer complaints.
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\3\ The amendments to section 5(c) of the Bank Holding Company
Act set out, among other things, the limited circumstances when
reports may be required from, and examinations can be made of, a
functionally regulated subsidiary. Section 45 imposes certain limits
on the OCC's authority to examine, or require reports from,
subsidiaries that are ``functionally regulated.''
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The OCC continues to believe that the agency with primary
supervisory authority should be the consumer's first point of contact
for any complaints. Thus, a national bank need not include on the
Annual Report information about any functionally regulated operating
subsidiary that engages only in functionally regulated activities that
are regulated by a primary supervisor other than the OCC. However, in
order to assist consumers in locating information concerning
functionally regulated subsidiaries and other entities that may be
regulated by other State or Federal supervisory authorities, the OCC
plans to provide contact information for these other regulators on its
public Web site.
Another commenter recommended that the final rule permit a national
bank to file an Annual Report on any number of operating subsidiaries
even if the rule does not require the filing of information about
operating subsidiaries that are functionally regulated by another
agency or that do not do business directly with consumers. We believe
that, at this time, a national bank should only file the required
information for its operating subsidiaries that are expressly covered
by the rule. Focusing only on those operating subsidiaries that do
business directly with consumers will minimize confusion and better
assist customers in identifying whether the entity they are doing
business with is related to a national bank.
Information Required (Sec. 5.34(e)(6)(ii))
The NPRM required the Annual Report to contain:
The name and charter number of the parent national bank;
The name, mailing address (including the street address or
post office box, city, state, and zip code), and telephone number of
the operating subsidiary;
The principal place of business of the operating
subsidiary, if different from its reported mailing address; and
The lines of business in which the operating subsidiary is
engaged by designating the appropriate code contained in appendix B
(Federal Reserve Board Activity Codes) to the General Instructions for
filing the Report of Changes in Organizational Structure, Form FR Y-10.
If the operating subsidiary is engaged in an activity not set forth in
this list, the national bank would use the code 0000 and provide a
brief description of the activity.
One commenter suggested that the OCC include, in addition to the
name of the operating subsidiary, any ``doing business as'' (dba),
abbreviated, or trade names. We agree that this change would remove
confusion and help direct consumers to the appropriate entity.
Therefore, the final rule requires that national banks report an
operating subsidiary's name, including any dba, abbreviated, or trade
names that are used to identify the operating subsidiary when it does
business directly with consumers.
Another commenter suggested that the OCC require national banks to
list in the Annual Report all the locations where an operating
subsidiary's transactions occur or where it conducts business. Given
consumers' increasing use of electronic channels for obtaining and
using financial services, such as by telephone and the Internet, the
physical location of an operating subsidiary's offices is not
necessarily related to the number or location of the consumers with
whom it does business. Accordingly, we believe this information is not
likely to be helpful to consumers who want to know where to file a
complaint.
Two commenters addressed the use of the Federal Reserve Board
Activity Codes to identify operating subsidiary activities. One
commenter suggested that the NPRM would limit paperwork burden if the
OCC obtained operating subsidiary information from the Board of
Governors of the Federal Reserve System (Federal Reserve Board) as that
information is reported on the Form FR Y-10. Another commenter wrote
that the FR Y-10 code list is insufficient to describe the range of
activities authorized by the OCC for national bank operating
subsidiaries. The commenter suggested that it would be more appropriate
for the OCC to use a coding system derived from the list of activities
that are eligible for notice procedures under 12 CFR 5.34(e)(5)(v). As
we next describe, we have revised the regulation so that the reporting
codes will align better with the range of activities permissible for
national bank operating subsidiaries. We continue to believe, however,
that the use of standardized reporting codes, rather than codes
tailored only to the national banking system, is preferable because it
avoids the burden on banks of reporting the same information in
different ways for different reports.
The Federal Reserve Board recently replaced its FR Y-10 activity
code list with the North American Industry Classification System codes
(NAICS) relevant to the banking industry to describe organizational
activities.\4\
[[Page 64480]]
National banks are likely to be familiar with the NAICS codes since
they are required for reporting changes in organizational structure to
the Federal Reserve Board, reported by national banks that file the
OCC's Shared Credit Review Report, and used by many national banks to
identify collateral or for internal business analysis and planning. In
addition, these NAICS codes are usually more specific and thus more
accurately describe permissible activities of national bank operating
subsidiaries. This should make activity information more meaningful to
consumers. In addition, national banks that are part of a holding
company that is required to file Form FR Y-10 to report changes in
operating subsidiary activities will be able to use much of the same
information in filing their operating subsidiary report with the OCC.
Accordingly, the final rule requires national banks to report the lines
of business in which an operating subsidiary is doing business directly
with consumers by designating the appropriate NAICS code listed in
appendix B to the Federal Reserve Board's form FR Y-10, Report of
Changes in Organizational Structure.
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\4\ NAICS is a system for classifying establishments by type of
economic activity. Its purposes are to facilitate the collection,
tabulation, presentation, and analysis of data relating to
establishments, and to promote uniformity and comparability in the
presentation and analysis of statistical data describing the
economy. Federal statistical agencies use NAICS to collect or
publish data by industry. NAICS also is used widely by State
agencies, trade associations, private businesses, and other
organizations. NAICS activity codes that are relevant to the banking
industry for describing organizational activities are available on
the OCC Web site at http://www.occ.gov.
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In a few circumstances, the NAICS may not contain a code that
describes a particular operating subsidiary activity. The proposal
permitted a national bank to code as 0000 and include a brief
description for other activities not included in the FR Y-10 activity
code list. The final rule retains this provision, but now allows use of
the 0000 code where the activity is not appropriately covered by a
NAICS code. The OCC also will provide a link on its public Web site to
the FR Y-10 data reported to the Federal Reserve Board so that
consumers can check information on national bank operating subsidiaries
that are part of a bank holding company structure for a change in
status after the information is reported to the OCC.
Filing Time Frames and Availability of Information (Sec.
5.34(e)(6)(iii))
The NPRM required national banks to file their Annual Reports with
information current as of March 31st of the year in which the report is
filed and to submit this information before July 1st of each
corresponding calendar year. One commenter suggested that the timing of
the filing requirement should be based on a national bank's fiscal
year, which would correspond to certain Federal Reserve Board and
Securities and Exchange Commission filings.
The OCC believes that aligning the timeframe of this filing
requirement closely with the Call Report filing requirements reduces
compliance burden. Therefore, the final rule requires national banks to
file their Annual Reports by January 31st and to include information as
of December 31st of the immediate prior year. Thus, the first report
will be due January 31, 2005, for information as of December 31, 2004.
A national bank may submit the Annual Report electronically or in
another format prescribed by the OCC. The OCC plans to issue guidance
to national banks and Federal branches and agencies that will provide
more specific information for filing the Annual Report. The OCC will
make available to the public the information contained in the Annual
Report on its Web site at http://www.occ.gov.
We also note that a national bank may not submit partial
information in the Annual Report to update information contained in
prior reports. The Annual Report represents a complete list of the
required information for each operating subsidiary that is not
functionally regulated and that does business directly with consumers.
A national bank must include in its Annual Report all of the required
information for each covered operating subsidiary. The OCC will replace
the information every year in its entirety.
A few commenters expressed concern that consumers may have
difficulty locating the information contained in the Annual Report on
the OCC public Web site at http://www.occ.treas.gov, particularly if
they are not aware that the OCC is a bureau of the United States
Department of the Treasury. In response to this comment, the OCC has
acquired the http://www.occ.gov Web address and has taken steps to
acquire other similar Web addresses. This should provide easier access
to the OCC's public Web site. In addition, as discussed previously, we
intend to enhance the OCC's Web site to assist consumers in finding
information about entities that are regulated by other State and
Federal agencies. Further, the OCC is considering several options to
enhance consumer awareness of the OCC's Customer Assistance Group \5\
such as by use of notices, advertising vehicles, and technological
solutions. The OCC expects to begin implementing this consumer
information program in 2005.
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\5\ The OCC Customer Assistance Group (CAG) answers questions,
offers guidance, and assists consumers in resolving complaints about
national banks and their subsidiaries. You can reach one of the OCC
Customer Assistance Specialists by calling our toll free number, 1-
800-613-6743, or sending an e-mail to
[email protected]. Since e-mail is not necessarily
secure against interception, the OCC asks that consumers not include
sensitive information of a personal or confidential nature--such as
your bank account, credit card, or social security number-- in their
e-mails to the CAG.
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Description of Final Rule
This final rule specifies the Annual Report filing requirement,
information reported, filing time frames, and public availability of
the information. This final rule requires each national bank to prepare
and file with the OCC an Annual Report for each of its operating
subsidiaries that (1) is not functionally regulated and (2) does
business directly with consumers in the United States. An operating
subsidiary, or any subsidiary thereof, ``does business directly with
consumers'' if, in the ordinary course of its business, it provides
products or services to individuals to be used primarily for personal,
family, or household purposes.
The final rule requires an Annual Report to contain the following
information:
The name and charter number of the parent national bank;
The name (including any ``dba,'' abbreviated names, or
trade names that are used to identify the operating subsidiary when it
does business directly with consumers), mailing address (which includes
the street address or post office box, city, state, and zip code), e-
mail address (if any), and telephone number of the operating
subsidiary;
The principal place of business of the operating
subsidiary, if different from the mailing address; and
The lines of business in which the operating subsidiary is
doing business directly with consumers by designating the appropriate
code contained in appendix B (NAICS Activity Codes for Commonly
Reported Activities) to the Federal Reserve Board's Instructions for
Preparation of Report of Changes in Organizational Structure, Form FR
Y-10, which appears on the OCC's Web site at http://www.occ.gov. If the
operating subsidiary is engaged in an activity not set forth in this
list, the national bank should use the code 0000 and provide a brief
description of the activity.
This final rule contains specific filing time frames. Each national
bank's
[[Page 64481]]
Annual Report will contain information current as of December 31st for
each year the report is filed. A national bank must submit its first
report to the OCC on or before January 31, 2005, and on or before
January 31st each year thereafter. A national bank may submit its
Annual Report electronically or in another format prescribed by the
OCC. The OCC plans to issue guidance to national banks and Federal
branches and agencies that will provide more specific information for
filing the Annual Report. The OCC will make available to the public the
information contained in the Annual Report on its Web site at http://www.occ.gov.
Regulatory Flexibility Act Analysis
Pursuant to section 605(b) of the Regulatory Flexibility Act, 5
U.S.C. 605(b) (RFA), the regulatory flexibility analysis otherwise
required under section 604 of the RFA is not required if the agency
certifies that the rule will not have a significant economic impact on
a substantial number of small entities and publishes its certification
and a short, explanatory statement in the Federal Register along with
its rule.
Pursuant to section 605(b) of the RFA, the OCC hereby certifies
that this rulemaking will not have a significant economic impact on a
substantial number of small entities. The OCC has reviewed the impact
this final rule will have on small national banks. ``Small national
banks'' are those banks with less than $150 million in total assets.
Based on that review, the OCC certifies that the final rule will not
have a significant economic impact on a substantial number of small
entities. This final rule imposes a minimal annual reporting
requirement only on national banks with operating subsidiaries that do
business directly with consumers. The OCC is providing an option for
institutions to report this information to the OCC electronically. The
economic impact of this final rule on national banks, regardless of
size, is not expected to be significant. Accordingly, a regulatory
flexibility analysis is not needed.
Executive Order 12866
The OCC has determined that this final rule is not a significant
regulatory action under Executive Order 12866.
Unfunded Mandates Reform Act of 1995
Section 202 of the Unfunded Mandates Reform Act of 1995, Pub. L.
104-4 (2 U.S.C. 1532) (Unfunded Mandates Act), requires that an agency
prepare a budgetary impact statement before promulgating any rule
likely to result in a Federal mandate that may result in the
expenditure by State, local, and tribal governments, in the aggregate,
or by the private sector of $100 million or more in any one year. If a
budgetary impact statement is required, section 205 of the Unfunded
Mandates Act also requires an agency to identify and consider a
reasonable number of regulatory alternatives before promulgating a
rule. The OCC has determined that this final rule will not result in
expenditures by State, local, and tribal governments, or by the private
sector, of $100 million or more in any one year. Accordingly, this
final rule is not subject to section 202 of the Unfunded Mandates Act.
Paperwork Reduction Act
The Office of Management and Budget (OMB), pursuant to the
requirements of the Paperwork Reduction Act, approved the paperwork
burden associated with the final rule under OMB control number 1557-
0014.
Executive Order 13132
The OCC has determined that this final rule does not have any
Federalism implications, as required by Executive Order 13132.
List of Subjects in 12 CFR Part 5
Administrative practice and procedure, National banks, Reporting
and recordkeeping requirements, Securities.
Authority and Issuance
0
For the reasons set forth in the preamble, part 5 of chapter I of title
12 of the Code of Federal Regulations is amended as follows:
PART 5--RULES, POLICIES, AND PROCEDURES FOR CORPORATE ACTIVITIES
0
1. Revise the authority citation for part 5 to read as follows:
Authority: 12 U.S.C. 1 et seq., 93a, 215a-2, 215a-3, 481, and
section 5136A of the Revised Statutes (12 U.S.C. 24a).
0
2. In Sec. 5.34, a new paragraph (e)(6) is added to read as follows:
Sec. 5.34 Operating subsidiaries.
* * * * *
(e)(6) Annual Report on Operating Subsidiaries--(i) Filing
requirement. Each national bank shall prepare and file with the OCC an
Annual Report on Operating Subsidiaries containing the information set
forth in paragraph (e)(6)(ii) of this section for each of its operating
subsidiaries that:
(A) Is not functionally regulated within the meaning of section
5(c)(5) of the Bank Holding Company Act of 1956, as amended (12 U.S.C.
1844(c)(5)); and
(B) Does business directly with consumers in the United States. For
purposes of paragraph (e)(6) of this section, an operating subsidiary,
or any subsidiary thereof, does business directly with consumers if, in
the ordinary course of its business, it provides products or services
to individuals to be used primarily for personal, family, or household
purposes.
(ii) Information required. The Annual Report on Operating
Subsidiaries must contain the following information for each covered
operating subsidiary listed:
(A) The name and charter number of the parent national bank;
(B) The name (include any ``dba'' (doing business as), abbreviated
names, or trade names used to identify the operating subsidiary when it
does business directly with consumers), mailing address (include the
street address or post office box, city, state, and zip code), e-mail
address (if any), and telephone number of the operating subsidiary;
(C) The principal place of business of the operating subsidiary, if
different from the address provided pursuant to paragraph (e)(6)(ii)(B)
of this section; and
(D) The lines of business in which the operating subsidiary is
doing business directly with consumers by designating the appropriate
code contained in appendix B (NAICS Activity Codes for Commonly
Reported Activities) to the Instructions for Preparation of Report of
Changes in Organizational Structure, Form FR Y-10, a copy of which is
set forth on the OCC's Web site at http://www.occ.gov. If the operating
subsidiary is engaged in an activity not set forth in this list, a
national bank shall report the code 0000 and provide a brief
description of the activity.
(iii) Filing time frames and availability of information. Each
national bank's Annual Report on Operating Subsidiaries shall contain
information current as of December 31st for the year prior to the year
the report is filed. The national bank shall submit its first Annual
Report on Operating Subsidiaries (for information as of December 31,
2004) to the OCC on or before January 31, 2005, and on or before
January 31st each year thereafter. The national bank may submit the
Annual Report on Operating Subsidiaries electronically or in another
format prescribed by the OCC. The OCC will make available to the public
the information contained in the Annual
[[Page 64482]]
Report on Operating Subsidiaries on its Web site at http://www.occ.gov.
Dated: October 29, 2004.
Julie L. Williams,
Acting Comptroller of the Currency.
[FR Doc. 04-24735 Filed 11-4-04; 8:45 am]
BILLING CODE 4810-33-P