The American Banking Association ("ABA"), SIFMA and the Institute of International Bankers ("IIB") made recommendations (see here, here and here) regarding a proposal (the "proposal") by the Federal Reserve Board ("FRB") to modify its regulations for determining "whether a company has the ability to exercise a controlling influence" on another company under the Bank Holding Company Act and the Home Owners' Loan Act.

As previously covered, the FRB-proposed revisions are intended to give bank holding companies, savings and loan holding companies, depository institutions, investors and the public a better understanding of the circumstances that the FRB considers most relevant when evaluating controlling influence.

ABA expressed its support for the proposal, saying it will provide a template for control determinations that will give investors the resources to gauge investment strategies subject to the Bank Holding Company Act or the Home Owners' Loan Act regulatory scheme. Additionally, the ABA said that the proposal would provide more opportunities for private investment in the banking industry, as well as give banking organizations the chance to invest in FinTech and other companies that support growth in the business of banking. However, the ABA noted, certain aspects of the proposal would impede the FRB's ability to improve supervision and cost reductions in agency supervision and industry compliance.

SIFMA recommended that the proposal be amended to (i) facilitate investments in newly emerging companies and technologies and (ii) encourage customer-driven capital markets and asset management transactions and businesses.

The IIB advised the FRB to:

  • revise the proposed framework to include safe harbors in the instance that non-controlling investments are made both domestically and abroad;
  • not include consolidation under financial accounting standards, such as the U.S. General Accepted Accounting Principles (GAAP), in other jurisdictions in response to presumption of control due to equity accounting;
  • clarify that only common equity interests in variable interest entities are "ownership interests" for intermediate holding company purposes should the FRB include a presumption of control over entities subject to accounting consolidation;
  • remedy the "flawed" methodology for calculating a company's total equity investment;
  • permit a multi-year seeding period for both investment funds and foreign funds under the presumptions of control;
  • provide the treatment that a registered investment company would receive to foreign funds authorized to offer and sell ownership interests to retail investors;
  • subject private funds to the 24.9 percent post-seeding threshold should they meet certain corporate governance standards;
  • not treat shares of nonbanking companies as being controlled by or attributed to the fiduciary if they are held in a fiduciary capacity for the benefit of third parties;
  • prevent contractual provisions ensuring rule compliance from triggering a presumption of control; and
  • confirm that prospective investments must comply with the final rule only if they are made after the rule's effective date.

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