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SIFMA And Financial Services Forum Submit Comments On Federal Reserve Board Control Proposal

Date 15/07/2019

The Securities Industry and Financial Markets Association (SIFMA) and the Financial Services Forum today submitted joint comments on a proposal modifying the rules for determining control of a banking organization, issued by the Board of Governors of the Federal Reserve System (FRB) with the stated goal of simplifying and increasing transparency.

The letter details how the proposal could be adjusted to better meet that goal and ensure U.S. financial markets and banking organizations remain competitive, continue to be positioned to drive innovation and growth and are fully able to meet their customers’ capital markets and asset management needs.

“The FRB should adjust the proposal to facilitate investments in emerging companies and technologies so that U.S. financial markets can remain at the forefront of global innovation in financial services,” the letter stated. “The priority issues we have addressed in this respect — adding flexibility regarding business relationships, allowing typical minority protective rights, and clarifying the treatment of equity — would ensure that banking organizations are able to partner with promising fintech firms and other emerging companies and adapt to evolving market conditions. In addition, the proposal should be adjusted to facilitate customer-driven capital markets and asset management transactions and businesses.”

The letter outlines specific recommendations regarding aspects of the proposal that should be modified to avoid unnecessarily impeding growth and innovation. Specifically, the FRB should:

  • Revise the proposal to facilitate investments in emerging companies and technologies.
    • Provide additional flexibility for a banking organization to have business relationships with companies, particularly emerging companies, in which the banking organization invests. As proposed, the controlling influence test would make it impractical for banking organizations to partner with fintech firms, unnecessarily restraining innovation in the financial sector.
    • Allow investors to utilize typical minority protection rights to ensure the soundness of their investments.
    • Eliminate the “functionally equivalent to equity” test because it does not fit with the proposal’s goal of clarifying the FRB’s framework for evaluating control and, therefore, would inject harmful uncertainty into transactions. The proposed treatment of equity is inappropriate for investments in emerging companies and other startups.
    • Adjust the total equity recalculation requirement because investors could be presumed to control based on third-party actions, which would chill investment.
  • Facilitate customer-driven capital markets and asset management transactions and businesses.
    • Add a presumption of non-control for passive financing vehicles; treating these entities as subsidiaries would cause unnecessary compliance obligations, given that these entities have no management or policies to control..
    • Eliminate the proposal’s presumption of control for entities subject to consolidation under S. generally accepted accounting principles because it would needlessly increase the cost of offering various financing products to customers and could stifle innovation.
    • Revise the investment fund presumptions to avoid impeding the formation of new funds. Specifically, the FRB should revise the presumption to allow a multi-year seeding period and raise the voting equity threshold thereafter.

The letter further details these points and is available here:


 SIFMA is the leading trade association for broker-dealers, investment banks and asset managers operating in the U.S. and global capital markets. On behalf of our industry’s nearly 1 million employees, we advocate for legislation, regulation and business policy, affecting retail and institutional investors, equity and fixed income markets and related products and services. We serve as an industry coordinating body to promote fair and orderly markets, informed regulatory compliance, and efficient market operations and resiliency. We also provide a forum for industry policy and professional development. SIFMA, with offices in New York and Washington, D.C., is the U.S. regional member of the Global Financial Markets Association (GFMA). For more information, visit