Related Organizations

Functionally Regulated Affiliates and Subsidiaries

The Gramm-Leach-Bliley Act reaffirms the OCC’s responsibility for evaluating the consolidated risk profiles of the individual national bank. It also establishes a regulatory framework for certain activities conducted within banks and through "functionally regulated affiliates and subsidiaries" (FRA). GLBA codifies this concept of "functional regulation," which recognizes the roles of the Securities and Exchange Commission, the Commodities Futures Trading Commission, and state insurance commissioners as the primary regulators of securities, commodities, and insurance activities, respectively. As national banks, their subsidiaries, and their affiliates become more involved in providing financial products and services that are functionally regulated, enhanced relationships between the OCC and other financial services regulators are increasingly important.

Although GLBA alters the OCC’s responsibility for FRAs, the OCC remains the primary regulator of national banks, and thus maintains a vital interest in understanding all of the risks affecting national banks. The OCC’s supervisory process will continue to focus on reviewing and assessing the consolidated risk profile of a national bank and its systems for monitoring and controlling risks, including risks posed by FRAs, such as risks that arise from intercompany transactions, reputational exposure from the activities of the FRAs, and compliance with laws under OCC’s jurisdiction. This assessment embraces the OCC’s supervision by risk approach by determining how frequently and extensively risks posed by FRAs should be analyzed. The assessment will be conducted at the bank level, and it is anticipated that, consistent with GLBA, the OCC’s examination of FRAs will be infrequent.

The OCC communicates with the other regulatory agencies that supervise FRAs and functional lines of business within national banks. The OCC continues to develop processes and expand effective lines of communication between the agencies to facilitate the coordination of supervisory activities and the exchange of necessary information. For example, the OCC meets on regularly with the National Association of Insurance Commissioners to discuss the supervision of national bank insurance activities, as well as other relevant issues. In addition, the OCC has formal agreements with 49 state insurance regulators to share supervisory and enforcement information regarding bank insurance activities, as well as consumer complaints.

GLBA establishes new standards limiting the circumstances when the OCC can request reports from FRAs. Examiners first must request needed reports from the functional regulator. If such reports are insufficient or not made available, the OCC may seek reports directly from the FRA but only if they are necessary to assess:

• A material risk to the affiliated national bank;

• Compliance with a federal law the OCC has specific jurisdiction to enforce with respect to the FRA; or

• The system for monitoring and controlling financial and operational risks that may pose a threat to the safety and soundness of the affiliated national bank.

Similar limits apply to the direct examination of an FRA. The OCC may examine an FRA only when:

• There is reasonable cause to believe that the company is engaged in activities that pose a material risk to the affiliated national bank;

• After reviewing relevant reports, the OCC determines that an examination of the FRA is necessary to become adequately informed as to whether the company’s system for monitoring and controlling operational and financial risks poses a threat to the safety and soundness of the affiliated national bank; or

• Based on reports and other information available, there is reasonable cause to believe that the company is not in compliance with federal law which the OCC has specific jurisdiction to enforce against the company, including provisions relating to transactions with affiliates, and the OCC cannot make such determination through examination of the affiliated national bank.

These limits do not apply when the functionally regulated activity is conducted directly by the bank. In that case, the functional regulator is responsible for interpreting and enforcing laws under its jurisdiction, and the activity is also subject to OCC supervision for safety and soundness reasons or because the OCC has separate statutory authority.

GLBA also does not restrict examiners from seeking information on an FRA from the bank or from sources other than the FRA. As a practical matter, OCC examiners can often obtain much of the information needed to assess the risks posed to the bank by FRAs or functionally regulated activities by regularly reviewing existing bank reports and meeting with compliance officers, auditors, risk officers, and other bank personnel.

In the case of FRAs, the examiner should consult with the appropriate deputy comptroller before requesting information from or conducting an examination of an FRA.

Whenever supervisory responsibility for an institution is shared with other regulatory agencies, the examiner-in-charge should follow the guidelines established in the "Bank Supervision Process" booklet of the Comptroller’s Handbook. The OCC office that has supervisory authority for the lead national bank of a multibank holding company, the national bank affiliates of a multibank holding company with a lead state bank, or the lead national bank in a chain banking organization is responsible for coordinating the examinations of affiliated national banks in the organization with other regulatory agencies.

The table in appendix B illustrates the supervisory authority of the financial services regulators.

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