4000 - Advisory Opinions
Exemption From Securities Activities Prohibitions
October 6, 1986
Gerald J. Gervino, Senior Attorney
In your recent letter on behalf of your client, ***, a state-chartered, nonmember insured bank ***, you requested a waiver of all or part of the requirements of section 337.4 of our rules and regulations as they may apply to ***, a wholly-owned subsidiary of ***. 12 C.F.R. § 337.4 (1986).
You indicate that *** is engaged in the business of providing investment advisory services to various individuals and entities. However, it does not advise any investment companies that are registered under the Investment Company Act of 1940. 15 USC § 80a-8 (1982). Until 1983-1984, the activities of *** were conducted within ***--as a division of the bank and not as a subsidiary--as an adjunct to the trust and fiduciary management services offered by the bank's trust department. It was reorganized into a separate subsidiary for internal reasons. You request that we waive § 337.4 in its entirety as far as *** is concerned or that we waive the requirement that *** comply with a bona fide subsidiary requirements of the rule.
Section 337.4(b)(ii) of our regulations requires that bank securities subsidiaries be "bona fide" subsidiaries if those subsidiaries conduct securities activities not authorized for the bank under section 16 of the Glass-Steagall Act as made applicable to insured nonmember banks by section 21 of the Glass-Steagall Act. 12 USC §§ 24, 278 (1982). Similarly, banks whose securities activities are confined to activities lawful for the bank are not covered by § 337.4(e) of our regulations. As long as the securities subsidiary is not engaging in a securities activity that is not authorized for the bank, the above two provisions would not apply. You represent that *** is engaged in the business of providing investment advisory services to various individuals and entities. Although you do not specifically so represent, we assume from your letter that *** does not engage in brokerage activities or any other kinds of securities activities in addition to rendering investment advice.
It appears that the rendering of investment advice under the specific circumstances described in your letter will be an authorized power for a bank under section 16 of the Glass-Steagall Act and thus excepted from the prohibitions of section 21 by the latter section's own terms. Thus, based upon your representations and our assumption stated above, *** would not appear to be subject to section 337.4 of our regulations, with one exception.
Section 337.4(h) of our regulations applies whether or not all of the securities subsidiaries activities are permissible for a nonmember bank under section 21 of the Glass-Steagall Act. Section 337.4(h)(4) requires that an insured nonmember bank inform the Regional Director of the FDIC Region in which the bank is located not later than thirty days after December 28, 1984 that the bank has a subsidiary that engages in securities activities. The term "securities activities" in § 337.4(h)(4) is broader than definitions contained elsewhere in the Regulation. Thus, since you appear to have established the subsidiary prior to December 28, 1984, the Regional Director should be immediately notified of the establishment of the securities subsidiary.
We assume this interpretation will satisfy the substance of your request for a waiver under § 337.10 of our regulations. That request will not be sent forward unless renewed.