(a) What internal
controls and records are necessary?
(1) General. A financial holding company, including a private equity fund controlled
by a financial holding company, that makes investments under this
subpart must establish and maintain policies, procedures, records,
and systems reasonably designed to conduct, monitor, and manage such
investment activities and the risks associated with such investment
activities in a safe and sound manner, including policies, procedures,
records, and systems reasonably designed to—
(i) monitor and assess the carrying
value, market value, and performance of each investment and the aggregate
portfolio;
(ii) identify and
manage the market, credit, concentration, and other risks associated
with such investments;
(iii)
identify, monitor, and assess the terms, amounts and risks arising
from transactions and relationships (including contingent fees or
contingent interests) with each company in which the financial holding
company holds an interest under this subpart;
(iv) ensure the maintenance of corporate
separateness between the financial holding company and each company
in which the financial holding company holds an interest under this
subpart and protect the financial holding company and its depository
institution subsidiaries from legal liability for the operations conducted
and financial obligations of each such company; and
(v) ensure compliance with this part
and any other provisions of law governing transactions and relationships
with companies in which the financial holding company holds an interest under
this subpart (e.g., fiduciary principles or sections 23A and 23B of
the Federal Reserve Act (12 U.S.C. 371c, 371c-1), if applicable).
(2) Availability of records. A financial holding
company must make the policies, procedures, and records required by
paragraph (a)(1) of this section available to the Board or the appropriate
Reserve Bank upon request.
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(b) What periodic reports must be filed? A financial holding company
must provide reports to the appropriate Reserve Bank in such format
and at such times as the Board may prescribe.
(c) Is notice required for the acquisition of companies?
(1) Fulfillment of statutory notice requirement. Except as required in paragraph (c)(2) of this section, no post-acquisition
notice under section 4(k)(6) of the Bank Holding Company Act (12 U.S.C.
1843(k)(6)) is required by a financial holding company in connection
with an investment made under this subpart if the financial holding
company has previously filed a notice under section 225.87 indicating
that it had commenced merchant banking investment activities under
this subpart.
(2) Notice of large individual investments. A financial holding company must provide written notice to the Board
on the appropriate form within 30 days after acquiring more than 5
percent of the voting shares, assets, or ownership interests of any
company under this subpart, including an interest in a private equity
fund, at a total cost to the financial holding company that exceeds
the lesser of 5 percent of the tier 1 capital of the financial holding
company or $200 million.
(3) Qualifying community banking organizations. For purposes of this paragraph (c), a financial holding company
that is a qualifying community banking organization (as defined in
section 217.12 of this chapter) that is subject to the community bank
leverage ratio framework (as defined in section 217.12 of this chapter)
calculates its tier 1 capital (as defined in section 217.2 of this
chapter) in accordance with section 217.12(b) of this chapter.
