(a) Program requirement. Each banking entity (other than a banking entity with limited trading
assets and liabilities or a qualifying foreign excluded fund under
sections 248.6(f) or 248.13(d)) shall develop and provide for the
continued administration of a compliance program reasonably designed
to ensure and monitor compliance with the prohibitions and restrictions
on proprietary trading and covered fund activities and investments
set forth in section 13 of the BHC Act and this part. The terms, scope,
and detail of the compliance program shall be appropriate for the
types, size, scope, and complexity of activities and business structure
of the banking entity.
(b) Banking
entities with significant trading assets and liabilities. With
respect to a banking entity with significant trading assets and liabilities,
the compliance program required by paragraph (a) of this section,
at a minimum, shall include:
(1) Written policies and procedures reasonably designed to document,
describe, monitor and limit trading activities subject to subpart
B (including those permitted under sections 248.3 to 248.6 of subpart
B), including setting, monitoring and managing required limits set
out in section 248.4 and section 248.5, and activities and investments
with respect to a covered fund subject to subpart C (including those
permitted under sections 248.11 through 248.14 of subpart C) conducted
by the banking entity to ensure that all activities and investments
conducted by the banking entity that are subject to section 13 of
the BHC Act and this part comply with section 13 of the BHC Act and
this part;
(2) A system of internal
controls reasonably designed to monitor compliance with section 13
of the BHC Act and this part and to prevent the occurrence of activities
or investments that are prohibited by section 13 of the BHC Act and
this part;
(3) A management framework
that clearly delineates responsibility and accountability for compliance
with section 13 of the BHC Act and this part and includes appropriate
management review of trading limits, strategies, hedging activities,
investments, incentive compensation and other matters identified in
this part or by management as requiring attention;
(4) Independent testing and audit of the
effectiveness of the compliance program conducted periodically by
qualified personnel of the banking entity or by a qualified outside
party;
(5) Training for trading
personnel and managers, as well as other appropriate personnel, to
effectively implement and enforce the compliance program; and
(6) Records sufficient to demonstrate compliance
with section 13 of the BHC Act and this part, which a banking entity
must promptly provide to the Board upon request and retain for a period
of no less than 5 years or such longer period as required by the Board.
(c) CEO attestation. The CEO of a banking entity that has significant trading assets
and liabilities must, based on a review by the CEO of the banking
entity, attest in writing to the Board, each year no later than March
31, that the banking entity has in place processes to establish, maintain,
enforce, review, test and modify the compliance program required by
paragraph (b) of this section in a manner reasonably designed to achieve
compliance with section 13 of the BHC Act and this part. In the case
of a U.S. branch or agency of a foreign banking entity, the attestation
may be provided for the entire U.S. operations of the foreign banking
entity by the senior management officer of the U.S. operations of
the foreign banking entity who is located in the United States.
(d) Reporting requirements under appendix
A to this part.
(1)
A banking entity (other than a qualifying foreign excluded fund under
section 248.6(f) or 248.13(d)) engaged in proprietary trading activity
permitted under subpart B shall comply with the reporting requirements
described in appendix A to this part, if:
(i) The banking entity has significant
trading assets and liabilities; or
(ii) The Board notifies the banking entity in writing that it must
satisfy the reporting requirements contained in appendix A to this
part.
(2) Frequency
of reporting: Unless the Board notifies the banking entity in writing
that it must report on a different basis, a banking entity subject
to appendix A to this part shall report the information required by
appendix A for each quarter within 30 days of the end of the quarter.
(e) Additional documentation
for covered funds. A banking entity with significant trading
assets and liabilities (other than a qualifying foreign excluded fund
under section 248.6(f) or 248.13(d)) shall maintain records that include:
(1) Documentation of the
exclusions or exemptions other than sections 3(c)(1) and 3(c)(7) of
the Investment Company Act of 1940 relied on by each fund sponsored
by the banking entity (including all subsidiaries and affiliates)
in determining that such fund is not a covered fund;
(2) For each fund sponsored by the banking
entity (including all subsidiaries and affiliates) for which the banking
entity relies on one or more of the exclusions from the definition
of covered fund provided by sections 248.10(c)(1), 248.10(c)(5), 248.10(c)(8),
248.10(c)(9), or 248.10(c)(10) of subpart C, documentation supporting
the banking entity’s determination that the fund is not a covered
fund pursuant to one or more of those exclusions;
(3) For each seeding vehicle described
in section 248.10(c)(12)(i) or (iii) of subpart C that will become
a registered investment company or SEC-regulated business development
company, a written plan documenting the banking entity’s determination
that the seeding vehicle will become a registered investment company
or SEC-regulated business development company; the period of time
during which the vehicle will operate as a seeding vehicle; and the
banking entity’s plan to market the vehicle to third-party investors
and convert it into a registered investment company or SEC-regulated
business development company within the time period specified in section
248.12(a)(2)(i)(B) of subpart C;
(4) For any banking entity that is, or is controlled directly or
indirectly by a banking entity that is, located in or organized under
the laws of the United States or of any State, if the aggregate amount
of ownership interests in foreign public funds that are described
in section 248.10(c)(1) of subpart C owned by such banking entity
(including ownership interests owned by any affiliate that is controlled
directly or indirectly by a banking entity that is located in or organized
under the laws of the United States or of any State) exceeds $50 million
at the end of two or more consecutive calendar quarters, beginning
with the next succeeding calendar quarter, documentation of the value
of the ownership interests owned by the banking entity (and such affiliates)
in each foreign public fund and each jurisdiction in which any such
foreign public fund is organized, calculated as of the end of each
calendar quarter, which documentation must continue until the banking
entity’s aggregate amount of ownership interests in foreign public
funds is below $50 million for two consecutive calendar quarters;
and
(5) For purposes of paragraph
(e)(4) of this section, a U.S. branch, agency, or subsidiary of a
foreign banking entity is located in the United States; however, the
foreign bank that operates or controls that branch, agency, or subsidiary
is not considered to be located in the United States solely by virtue
of operating or controlling the U.S. branch, agency, or subsidiary.
(f) Simplified programs for
less active banking entities.
(1) Banking entities
with no covered activities. A banking entity that does not engage
in activities or investments pursuant to subpart B or subpart C (other
than trading activities permitted pursuant to section 248.6(a) of
subpart B) may satisfy the requirements of this section by establishing
the required compliance program prior to becoming engaged in such
activities or making such investments (other than trading activities
permitted pursuant to section 248.6(a) of subpart B).
(2) Banking entities
with moderate trading assets and liabilities. A banking entity
with moderate trading assets and liabilities may satisfy the requirements
of this section by including in its existing compliance policies and
procedures appropriate references to the requirements of section 13
of the BHC Act and this part and adjustments as appropriate given
the activities, size, scope, and complexity of the banking entity.
(g) Rebuttable presumption
of compliance for banking entities with limited trading assets and
liabilities.
(1) Rebuttable presumption. Except as otherwise
provided in this paragraph, a banking entity with limited trading
assets and liabilities shall be presumed to be compliant with subpart
B and subpart C of this part and shall have no obligation to demonstrate compliance
with this part on an ongoing basis.
(2) Rebuttal of presumption. If upon
examination or audit, the Board determines that the banking entity
has engaged in proprietary trading or covered fund activities that
are otherwise prohibited under subpart B or subpart C of this part,
the Board may require the banking entity to be treated under this
part as if it did not have limited trading assets and liabilities.
The Board’s rebuttal of the presumption in this paragraph must be
made in accordance with the notice and response procedures in paragraph
(i) of this section.
(h) Reservation of authority. Notwithstanding any other provision
of this part, the Board retains its authority to require a banking
entity without significant trading assets and liabilities to apply
any requirements of this part that would otherwise apply if the banking
entity had significant or moderate trading assets and liabilities
if the Board determines that the size or complexity of the banking
entity’s trading or investment activities, or the risk of evasion
of subpart B or subpart C of this part, does not warrant a presumption
of compliance under paragraph (g) of this section or treatment as
a banking entity with moderate trading assets and liabilities, as
applicable. The Board’s exercise of this reservation of authority
must be made in accordance with the notice and response procedures
in paragraph (i) of this section.
(i) Notice and response procedures.
(1) Notice. The Board will notify the banking entity in writing of any determination
requiring notice under this part and will provide an explanation of
the determination.
(2) Response. The banking entity may respond
to any or all items in the notice described in paragraph (i)(1) of
this section. The response should include any matters that the banking
entity would have the Board consider in deciding whether to make the
determination. The response must be in writing and delivered to the
designated Board official within 30 days after the date on which the
banking entity received the notice. The Board may shorten the time
period when, in the opinion of the Board, the activities or condition
of the banking entity so requires, provided that the banking entity
is informed of the time period at the time of notice, or with the
consent of the banking entity. In its discretion, the Board may extend
the time period for good cause.
(3) Waiver. Failure to respond within
30 days or such other time period as may be specified by the Board
shall constitute a waiver of any objections to the Board’s determination.
(4) Decision. The Board will notify the banking entity of the decision in writing.
The notice will include an explanation of the decision.
