January 1, 2000

Financial Activities Permitted by the Gramm-Leach-Bliley Financial Modernization Act

6 min

Section 103 of the Gramm-Leach-Bliley Act ("GLB Act") adds a new section 4(k) to the Bank Holding Company Act ("BHC Act") which permits the formation of Financial Holding Companies ("FHCs"), bank holding companies that opt to engage in financial activities rather than only those closely related to banking. FHCs may engage in any activity that the Federal Reserve, in consultation with the Department of the Treasury, has determined by regulation or order to be financial in nature or incidental to financial activities. The Federal Reserve may also permit activities that are complimentary to a financial activity and do not pose a substantial risk to safety and soundness of financial institutions or the financial system generally. (A fundamental question about complimentary activities is whether the Federal Reserve will approve a list of such activities or will authorize them only by order in an individual case, relying on a particular factual context). In addition to authorizing the Federal Reserve to define prospectively activities that are financial in nature, the GLB Act defines certain activities as financial and thus permissible for FHCs.

I. Summary List

The specific financial activities listed in the GLB Act as permissible for FHCs are divided into three categories: those explicitly listed in the Act, those currently permitted in the U.S. under Regulation Y, and those currently permitted offshore for U.S. bank holding companies under Regulation K.

In addition, there are three specific categories of financial activities for the Fed to define in more detail. Finally, the Fed is permitted to allow activities that are "incidental" to financial activities and "complimentary" to financial activities.

A. Explicitly Listed (and largely new) Activities

  • Insurance agency and underwriting
  • Underwriting, dealing and making a market in securities
  • Merchant banking or venture capital
  • Mutual fund activities (advisor, distributor, administrator, seller, sponsor)
  • Securities lending, safeguarding, exchanging
  • Issuing or selling asset-backed securities

B. Previously-Listed U.S. Activities (in Fed's Regulation Y)

  • Lending
  • Lending related (appraisal, check guaranty, collection)
  • Personal and real property leasing
  • Operating nonbank depository institutions
  • Trust activities
  • Financial and investment advising
  • Securities brokerage, riskless principal, private placement
  • Investing in government debt, foreign exchange, futures, bullion & coins
  • Management consulting and counseling
  • Courier services
  • Community redevelopment activities
  • Insurance agency
  • Money orders/travelers checks
  • Data processing (financial and economic data)

C. Additional Offshore Activities (in Fed's Regulation K)

  • Travel agency
  • Underwrite and deal in foreign government debt
  • Pension fund administrator

D. For Fed to Define in Future

  • Safeguard financial assets other than securities
  • Lending, exchanging, transferring, investing for others
  • Providing any device for transferring money or other financial assets
  • Arranging, effecting, facilitating financial transactions for the account of third parties.

E. Any Incidental Activities (Federal Reserve and Department of Treasury Defined)

F. Complimentary Activities (Federal Reserve and Department of Treasury Defined)

II. Detailed Listing of Activities Explicitly Permitted in the GLB Act

A. Specifically Listed Activities: The list of permissible financial activities in the Act in paragraphs (a) to (h) of section 103 of the Act are as follows:

a. Lending, exchanging, transferring, investing for others, or safeguarding money or securities;

b. Acting as principal, agent or broker for life insurance, property and casualty insurance and credit insurance, issuing annuities, providing guarantees;

c. Providing financial, investment or economic advisory services, including advising an investment company or mutual fund;

d. Issuing or selling instruments representing interests in pools of assets that a bank could hold directly, such as loans of all types;

e. Underwriting, dealing or making a market in securities;

f. Merchant banking investments in shares, assets or ownership interests of a company, regardless of whether such investments constitute control of the company engaged in activities not otherwise permissible for FHCs, subject to the following conditions:

  • The acquiring entity must be an affiliate of a securities subsidiary or insurance underwriting subsidiary of a FHC;
  • The shares, assets or other ownership interests are held for a limited period of time with the aim of a sale or disposition on a reasonable basis in accordance with customary underwriting, merchant banking, venture capital or insurance investment activities;
  • The FHC does not routinely manage or operate the company, except as necessary to protect its investment.

B. Prior Reg Y Activities in the U.S. The following is a list of activities contained in the Federal Reserve's Regulation Y, 12 C.F.R. 225.28(b), that the Federal Reserve has determined under Section 4(c)(8) of the BHC Act to be closely related to banking prior to November 12, 1999, the date the GLB Act was signed into law.

(i) extending credit and servicing loans

(ii) activities related to extending credit, including:

  • real estate and personal property appraisal
  • arranging commercial equity financing
  • collection agency services
  • check guaranty services
  • asset management, servicing activities and collection activities
  • acquiring debt in default

(iii) leasing personal or real property, including acting as agent, broker or advisor in leasing

(iv) operating nonbank depository institutions, including:

  • an industrial bank
  • a savings association or thrift that conducts activities permissible for a bank holding company

(v) performing trust company functions, including activities of a fiduciary, agency or custodial nature, as long as the trust company is not a bank

(vi) financial and investment advisory activities:

  • organizing and managing a closed end fund
  • investment advisor to a registered investment company
  • furnishing general economic advice
  • m & a advice
  • advice on foreign exchange, swaps, forwards, options, futures, options on futures
  • educational courses and seminars to consumers on individual financial management matters
  • tax planning and tax preparation services

(vii) agency transactions

  • securities brokerage (including related credit and custody services)
  • riskless principal (secondary market activity on order of customers)
  • private placement services
  • future commission merchant activities
  • transactional services as to swaps and other financial instruments, including a forward contract, option, a future, option on future or similar instrument.

(viii) investment activities as principal

  • underwriting and dealing in government obligations and money market instruments
  • investing and trading as principal in foreign exchange, forward contracts, options, futures, options on futures, swaps, and similar contracts on financial and nonfinancial assets
  • buying and selling bullion and coins of copper, gold, silver, platinum or palladium

  • (ix) management consulting and counseling

    • on any matter to a savings and loan association, commercial bank, savings bank, credit union, industrial loan company, trust company, foreign bank or branch
    • on financial, economic, accounting or audit matter to any company
    • any other management consulting if the revenue derived does not exceed 30% of all revenue derived from management consulting activities
    • employee benefits consulting
    • career counseling services

    (x) support services:

    • courier services
    • printing and selling MICR-encoded items such as found on checks and deposit slips

    (xi) limited insurance agency and underwriting, primarily of credit related insurance, specifically, credit life, credit accident and health and involuntary unemployment insurance

    (xii) community development activities, including financing and investment activities and advisory activities

    (xiii) money orders, savings bond, and travelers check issuance and sale at retail

    (xiv) data processing:

    • financial, economic or bank data
    • incidental hardware offered in conjunction with software designed and marketed for processing of financial data, up to 30% of the cost of any packaged offering
    • excess capacity processing of any data, if the total annual revenue from such sale does not exceed 30% of total annual data services.

    C. Prior Reg K Activities Offshore. Activities that a U.S. bank holding company may engage in outside of the United States pursuant to section 4(c)(13) of the BHC Act and the Federal Reserve's Regulation K, 12 C.F.R. 211.5(d). These activities are in large measure the same as those permitted under Regulation Y for U.S. activities with the following additions:

    • travel agency activities
    • a wider range of management consulting services
    • service activities for affiliates
    • underwriting and dealing in the debt obligations of foreign governments
    • pension fund administrator