Proposed Agency Information Collection Activities; Comment Request (FED proposes to extend – with revisions – the recordkeeping and disclosure requirements imposed on banks that claim exemption from being registered as a broker)

The Board of Governors of the Federal Reserve System (FED) published in the Federal Register its proposal to extend for three years, with revisions, the recordkeeping and disclosure requirements associated with „Regulation R“ which provides exceptions for certain activities conducted by banks from being classified as „broker“ activities under the Securities Exchange Act of 1934. These requirements include, but are not limited to the following:
– the requirement to provide customers with a prospectus, if institutions facilitate transactions involving money market funds, which are not „no-load“, meaning that there are fees associated with them;
– the requirement to keep on record any proof that securities transactions in trust or fiduciary accounts were carried out as part of an institution’s trustee or fiduciary responsibilities;
– the requirement to disclose certain information to customers, if an institution engages in client referral services with third-party brokers;
– the requirement to keep on record any written agreement between the bank and the engaged broker; and
– the requirement to perform and keep on record any necessary information to proof compliance with the „chiefly compensated test“. The test determines whether or not the institution is „chiefly compensated“ for its fiduciary or trust services and thus should be excluded from the requirement to register as a broker. Thereafter, the ratio of relationship compensation to total compensation, either for each trust and fiduciary account or on a bank-wide basis, must equal or exceed 50% or 70% respectively.
Pursuant to the FR statement, the FED proposes to extend the recordkeeping and disclosure requirements for three years with the following amendments:
The FED will additionally require institutions to keep on record information to prove the permissible exclusion of trust or fiduciary accounts held at foreign branches for the benefit of U.S. person from the computation of the „chiefly compensated test“. The bank should thereby maintain records at the foreign branch indicating trust and fiduciary account holders‘ nationality as the exclusion is only permissible as long as such accounts make up less than 10 percent of the total trust or fiduciary accounts at that foreign branch.