(a) Are cross-marketing
activities prohibited?
(1) In general. A depository institution,
including a subsidiary of a depository institution, controlled by
a financial holding company may not—
(i) offer or market, directly or through
any arrangement, any product or service of any company if more than
5 percent of the company’s voting shares, assets, or ownership interests
are owned or controlled by the financial holding company pursuant
to this subpart; or
(ii) allow
any product or service of the depository institution, including any
product or service of a subsidiary of the depository institution,
to be offered or marketed, directly or through any arrangement, by
or through any company described in paragraph (a)(1)(i) of this section.
(2) How are certain subsidiaries treated? For
purposes of paragraph (a)(1) of this section, a subsidiary of a depository
institution does not include a financial subsidiary held in accordance
with section 5136A of the Revised Statutes (12 U.S.C. 24a) or section
46 of the Federal Deposit Insurance Act. (12 U.S.C. 1831w), any company
held by a company owned in accordance with section 25 or 25A of the
Federal Reserve Act (12 U.S.C. 601 et seq.; 12 U.S.C. 611 et seq.), or any company held by a small business investment
company owned in accordance with the Small Business Investment Act
of 1958 (15 U.S.C. 661 et seq.).
(3) How do the
cross marketing restrictions apply to private equity funds? The
restriction contained in paragraph (a)(1) of this section does not
apply to—
(i) portfolio companies held by a private
equity fund that the financial holding company does not control; or
(ii) the sale, offer, or marketing
of any interest in a private equity fund, whether or not controlled
by the financial holding company.
4-058.71
(b) When are companies held under section 4(k)(4)(H)
affiliates under sections 23A and 23B?
(1) Rebuttable
presumption of control. The following rebuttable presumption
of control shall apply for purposes of sections 23A and 23B of the
Federal Reserve Act (12 USC 371c, 371c-1): if a financial holding
company directly or indirectly owns or controls more than 15 percent
of the total equity of a company pursuant to this subpart, the company
shall be presumed to be an affiliate of any member bank that is affiliated
with the financial holding company.
(2) Request to rebut presumption. A
financial holding company may rebut this presumption by providing
information acceptable to the Board demonstrating that the financial
holding company does not control the company.
(3) Presumptions
that control does not exist. Absent evidence to the contrary,
the presumption in paragraph (b)(1) of this section will be considered
to have been rebutted without Board approval under paragraph (b)(2)
of this section if any one of the following requirements are met:
(i) no officer, director,
or employee of the financial holding company serves as a director,
trustee, or general partner (or individual exercising similar functions)
of the company;
(ii) a person
that is not affiliated or associated with the financial holding company
owns or controls a greater percentage of the equity capital of the
portfolio company than the amount owned or controlled by the financial
holding company, and no more than one officer or employee of the holding
company serves as a director or trustee (or individual exercising
similar functions) of the company; or
(iii) a person that is not affiliated
or associated with the financial holding company owns or controls
more than 50 percent of the voting shares of the portfolio company,
and officers and employees of the holding company do not constitute
a majority of the directors or trustees (or individuals exercising
similar functions) of the company.
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(4) Convertible
instruments. For purposes of paragraph (b)(1) of this section,
equity capital includes options, warrants, and any other instrument
convertible into equity capital.
(5) Application of presumption to private
equity funds. A financial holding company will not be presumed
to own or control the equity capital of a company for purposes of
paragraph (b)(1) of this section solely by virtue of an investment
made by the financial holding company in a private equity fund that
owns or controls the equity capital of the company unless the financial
holding company controls the private equity fund as described in section
225.173(d)(4).
(6) Application of sections 23A and 23B to U.S.
branches and agencies of foreign banks. Sections 23A and 23B
of the Federal Reserve Act (12 USC 371c, 371c-1) shall apply to all
covered transactions between each U.S. branch and agency of a foreign
bank that acquires or controls, or that is affiliated with a company
that acquires or controls, merchant banking investments and—
(i) any portfolio company that the
foreign bank or affiliated company controls or is presumed to control
under paragraph (b)(1) of this section; and
(ii) any company that the foreign bank
or affiliated company controls or is presumed to control under paragraph
(b)(1) of this section if the company is engaged in acquiring or controlling
merchant banking investments and the proceeds of the covered transaction
are used for the purpose of funding the company’s merchant banking
investment activities.
