FRB Final Rule: Definitions of "Predominantly Engaged in Financial Activities" and "Significant" Nonbank Financial Company and Bank Holding Company (Pre-Fed. Reg. Version)
Commentary by Scott Cammarn
The Federal Reserve Board is adopting a final rule to establish, for purposes of Dodd-Frank Title I, the following: (i) requirements for determining if a company is "predominantly engaged in financial activities," and (ii) definitions of the terms "significant nonbank financial company" and "significant bank holding company." These terms are relevant to various provisions of Title I, including Section 113 ("Authority to Require Supervision and Regulation of Certain Nonbank Financial Companies"), which authorizes the Financial Stability Oversight Council ("FSOC") to designate a nonbank financial company for supervision by the Board if the Council determines that the nonbank financial company could pose a threat to the financial stability of the United States.
Effective Date: May 6, 2013.
Commentary
The Fed's final regulation generally tracks the proposed regulation (issued in February 2011, and later supplemented in April 2012), but with several modest changes. Of particular note, the Federal Reserve elected not to include physically settled commodities transactions within the scope of "financial in nature," and narrowed somewhat the scope of merchant banking activities deemed "financial in nature." On the other hand, the Federal Reserve persisted in its view that open-end investment companies are engaged in "financial in nature" activities and, thus, are susceptible to being deemed systemically important nonbank financial companies subject to Federal Reserve oversight. While the final regulation pertains solely to the phrase "predominantly engaged in financial in nature activities" as used in Title I, it is possible that the CFTC will incorporate some of the Federal Reserve's analysis when defining the same phrase as it appears in Title VII.