On October 19, 2016, the US Federal Reserve Board issued letters to two banks, granting relief from certain US risk committee requirements under Regulation YY in light of certain home country corporate governance requirements and practices of the banks involved. Regulation YY requires foreign banking organizations with combined US assets of more than $50 billion but US nonbranch assets of less than $50 billion to establish a US risk committee as a committee of the global board of directors, on a standalone basis, or as a joint committee with its enterprise-wide risk committee. One member of the committee must not be an officer or employee of the company or its affiliates (or an immediate family member of a person who is an executive officer of the company or its affiliates).
The Federal Reserve Board authorized Sumitomo Mitsui Financial Group, Inc. to establish a US risk committee consisting of management officials from its home office and US operations as well as two independent members who are not currently affiliated with any Sumitomo entity. Among other conditions, the minutes of each US risk committee meeting and the materials used for such meetings will be reported to each member of the Sumitomo board of directors, and any member of the US risk committee may escalate any matter within the responsibilities of the US risk committee to the attention of the Sumitomo board of directors by notifying any member or members of such board.
The Federal Reserve Board authorized Rabobank to meet the US risk committee requirement by establishing a virtual North American board of directors. Rabobank, which has an executive board and a supervisory board, demonstrated to the Federal Reserve Board that it would not be able to maintain a risk committee at the board of directors level because these members would be prohibited under Dutch law from fulfilling their responsibilities as required by Regulation YY. In addition, Rabobank noted that none of executive board members would be considered independent for purposes of Regultion YY, meaning that its existing enterprise-wide risk committee of its executive board would not meet the requirements of Regulation YY. The virtual North American board of directors includes a US risk committee that includes two members of the executive board and one independent member who is not a member of the executive board or supervisory board. The US risk committee charter includes clear, direct reporting lines from the US risk committee to the risk management committee group of the executive board. Based on these and other considerations, the Federal Reserve Board found that this approach was consistent with the US risk committee requirements of Regulation YY.
The Federal Reserve Board's letters are available at: https://www.federalreserve.gov/bankinforeg/regulation-yy-foreign-bankingorganization-requests.htm.
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