BOARD OF GOVERNORS
FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 20551
DIVISION OF BANKING
SUPERVISION AND REGULATION
SR 90-1 (IB)
January 2, 1990
TO THE OFFICERS IN CHARGE OF SUPERVISION
AT EACH FEDERAL RESERVE BANK
SUBJECT: Examination of State Branches and Agencies of Foreign Banks for Compliance with Regulations Related to Government Securities Activities
Under the Government Securities Act of 1986, the Federal Reserve System is assigned responsibility for supervising the government securities dealer or government securities broker operations of a state branch or state agency of a foreign bank. The same supervisory responsibility is mandated for examination for compliance with Title II of the Act which applies to any depository institution, including state branches and agencies of foreign banks, that holds government securities for customers as fiduciary, custodian or otherwise.
All State branches or state agencies of foreign banks that conduct government securities dealer or government securities broker operations are required to file notices of such activities with the Federal Reserve unless they meet certain conditional exceptions contained in the Treasury Department regulations. (17 CFR Ch. IV, Sec. 400, et seq.) In particular, a branch or agency is not required to file if all the customers with or on behalf of whom it engages in government securities transactions are foreign governments, agencies, corporations or persons who reside or have their principal place of business outside the U.S. (17 CFR 401.6). It is likely that most branches and agencies may confine their activities in this regard to non-citizens who are non-residents of the United States. Also, a branch or agency, like any other depository institution, would not be required to file solely because it enters into repurchase transactions with customers (17 CFR 401.4(a)(2)). These exemptions are conditioned in both instances upon the branch or agency complying with Part 450 of the Treasury Department regulations concerning custodial holdings of government securities.
One uninsured state agency and three uninsured branches of foreign banks have filed notices with the Board that they are government securities brokers or dealers. It is not known how many other state branches or agencies, insured or uninsured, are engaged in activities that would require them to file as a government securities broker or dealer, except for the conditional exceptions noted above. In any case, it seems probable that many branches or agencies of foreign banks may be required to comply with Part 450 of the Treasury Department regulations, either because of the conditional exemptions or because they may otherwise hold government securities for customers.
In order to discharge the Federal Reserve's responsibilities under the Government Securities Act, the following agreements and procedures have been developed:
- Insured Branches.
Since the FDIC has responsibility for the general supervision and examination of insured branches of foreign banks, we have reached an agreement with the FDIC to conduct joint examinations of the government securities dealer or broker operations of an insured branch of a foreign bank that has notified us that it is a government securities dealer or broker. Further, the FDIC has agreed that it would review all other insured branches for compliance with Treasury Department regulations under the Government Securities Act during the course of its regular examination. The FDIC has agreed to notify us of any potential violations of the Government Securities Act regulations that may warrant supervisory action.
- Uninsured Branches.
It will be expected that whenever a Reserve Bank conducts an examination of an uninsured branch or agency of a foreign bank for compliance with the Bank Secrecy Act, it will, at the same time, examine for compliance with the Government Securities Act regulations. Similar to the procedures set forth in SR 88-13(IB) (May 6, 1988), a Reserve Bank can rely on examinations conducted by State regulatory authorities, provided the State regulatory authority agrees to notify us of any potential violations that may warrant supervisory action.
Examination procedures relating to government securities activities were enclosed with SR 87-37 (SA), dated November 6, 1987. Part I of those examination procedures contains a list of preliminary questions designed to provide information concerning the nature and scope of government securities activities performed by the institution. The responses to these questions should enable the examiner to determine which of the examination procedures and checklists to use in further checking for compliance.
If you have any questions concerning this matter, please call Susan Meyers or Mike Schoenfeld, ((202)452-2781) or me ((202)452-2782).
Robert S. Plotkin
CROSS REFERENCE: SR 88-13-(IB) (5-6-88)
SR 87-37 (SA) (11-6-87)
SR 88-26 (SA) (9-12-88)
SR letters | 1990