PART 242—DEFINITIONS RELATING TO TITLE I OF THE DODD-FRANK ACT (REGULATION PP) Authority: 12 U.S.C. 5311. Source: 78 FR 20776, Apr. 5, 2013, unless otherwise noted. § 242.1 Authority and purpose. (a) Authority. (b) Purpose. (2) This part defines the terms “significant nonbank financial company” and “significant bank holding company” as provided in section 102(a)(6) of the Dodd-Frank Act for purposes of— (i) Section 113 of the Dodd-Frank Act (12 U.S.C. 5323) relating to the designation of nonbank financial companies by the Financial Stability Oversight Council (Council) for supervision by the Board; and (ii) Section 165(d)(2) of the Dodd-Frank Act (12 U.S.C. 5365(d)(2)) relating to the credit exposure reports required to be filed by— (A) A nonbank financial company supervised by the Board; and (B) A bank holding company or foreign bank subject to the Bank Holding Company Act (BHC Act) (12 U.S.C. 1841 et seq. [78 FR 20776, Apr. 5, 2013, as amended at 84 FR 59096, Nov. 1, 2019] § 242.2 Definitions. For purposes of this part, the following definitions shall apply: Applicable accounting standards. (1) U.S. generally accepted accounting principles (GAAP), if the company uses GAAP in the ordinary course of its business in preparing its consolidated financial statements; (2) International Financial Reporting Standards (IFRS), if the company uses IFRS in the ordinary course of its business in preparing its consolidated financial statements, or (3) Such other accounting standards that the Council, with respect to the definition of a nonbank financial company for purposes of Title I of the Dodd-Frank Act (other than with respect to the definition of a significant nonbank financial company), or the Board, with respect to the definition of a significant nonbank financial company, determines are appropriate on a case-by-case basis. Foreign nonbank financial company. (1) Incorporated or organized in a country other than the United States; and (2) Predominantly engaged in (including through a branch in the United States) financial activities as defined in § 242.3 of this part. Nonbank financial company. Nonbank financial company supervised by the Board. State. U.S. nonbank financial company. (1) Is incorporated or organized under the laws of the United States or any State; (2) Is predominantly engaged in financial activities as defined in § 242.3 of this part; and (3) Is not— (i) A bank holding company; (ii) A Farm Credit System institution chartered and subject to the provisions of the Farm Credit Act of 1971 (12 U.S.C. 2001 et seq. (iii) A national securities exchange (or parent thereof), clearing agency (or parent thereof, unless the parent is a bank holding company), security-based swap execution facility, or security-based swap data repository that, in each case, is registered with the Securities and Exchange Commission as such; or (iv) A board of trade designated as a contract market (or parent thereof), a derivatives clearing organization (or parent thereof, unless the parent is a bank holding company), a swap execution facility, or a swap data repository that, in each case, is registered with the Commodity Futures Trading Commission as such. § 242.3 Nonbank companies “predominantly engaged” in financial activities. (a) In general. (1) The consolidated annual gross financial revenues of the company in either of its two most recently completed fiscal years represent 85 percent or more of the company's consolidated annual gross revenues (as determined in accordance with applicable accounting standards) in that fiscal year; (2) The consolidated total financial assets of the company as of the end of either of its two most recently completed fiscal years represent 85 percent or more of the company's consolidated total assets (as determined in accordance with applicable accounting standards) as of the end of that fiscal year; or (3) The Council, with respect to the definition of a nonbank financial company for purposes of Title I of the Dodd-Frank Act (other than with respect to the definition of a significant nonbank financial company), or the Board, with respect to the definition of a significant nonbank financial company, determines, based on all the facts and circumstances, that— (i) The consolidated annual gross financial revenues of the company represent 85 percent or more of the company's consolidated annual gross revenues; or (ii) The consolidated total financial assets of the company represent 85 percent or more of the company's consolidated total assets. (b) Consolidated annual gross financial revenues. (1) Activities that are financial in nature; or (2) The ownership, control, or activities of an insured depository institution or any subsidiary of an insured depository institution. (c) Consolidated total financial assets. (1) Activities that are financial in nature; or (2) The ownership, control, or activities of an insured depository institution or any subsidiary of an insured depository institution. (d) Activities that are financial in nature In general. (2) Effect of other authority. (i) A bank holding company (including a financial holding company or a company that is, or is treated in the United States as, a bank holding company) may be authorized to engage in the activity, or own or control shares of a company engaged in such activity, under any other provisions of the BHC Act or other Federal law including, but not limited to, section 4(a)(2), section 4(c)(5), section 4(c)(6), section 4(c)(7), section 4(c)(9), or section 4(c)(13) of the BHC Act (12 U.S.C. 1843(a)(2), (c)(5), (c)(6), (c)(7), (c)(9), or (c)(13)) and the Board's implementing regulations; or (ii) Other provisions of Federal or state law or regulations prohibit, restrict, or otherwise place conditions on the conduct of the activity by a bank holding company (including a financial holding company or a company that is, or is treated in the United States, as a bank holding company) or bank holding companies generally. (e) Rules of construction. (1) Unconsolidated investments. (ii) A company may seek to rebut the presumption described in paragraph (e)(1)(i) of this section by providing evidence to the Council, with respect to the definition of a nonbank financial company for purposes of Title I of the Dodd-Frank Act (other than with respect to the definition of a significant nonbank financial company), or the Board, with respect to the definition of a significant nonbank financial company, that the shares or ownership interests are not held in connection with a bona fide merchant or investment banking activity, are not held in connection with the activity of investing for others, do not represent an investment in an entity engaged in activities that are financial in nature as defined in the appendix, or are not otherwise related to a financial activity. (2) Accounts receivable. (ii) A company may seek to rebut the presumption described in paragraph (e)(2)(i) of this section by providing evidence to the Council, with respect to the definition of a nonbank financial company for purposes of Title I of the Dodd-Frank Act (other than with respect to the definition of a significant nonbank financial company), or the Board, with respect to the definition of a significant nonbank financial company, that the account receivable is not related to a financial activity. (3) Goodwill. (4) Cash and cash equivalents. (ii) Cash equivalents are assets related to a financial activity. (5) Intangible assets. § 242.4 Significant nonbank financial companies and significant bank holding companies. For purposes of Title I of the Dodd-Frank Act, the following definitions shall apply: (a) Significant nonbank financial company. (1) Any nonbank financial company supervised by the Board; and (2) Any other nonbank financial company that had $100 billion or more in total consolidated assets (as determined in accordance with applicable accounting standards) as of the end of its most recently completed fiscal year. (b) Significant bank holding company. [84 FR 59096, Nov. 1, 2019] Appendix A to Part 242—Financial Activities for Purposes of Title I of the Dodd-Frank Act (a) Lending, exchanging, transferring, investing for others, or safeguarding money or securities. (b) Insuring, guaranteeing, or indemnifying against loss, harm, damage, illness, disability, or death, or providing and issuing annuities, and acting as principal, agent, or broker for purposes of the foregoing, in any state. (c) Providing financial, investment, or economic advisory services, including advising an investment company (as defined in section 3 of the Investment Company Act of 1940). (d) Issuing or selling instruments representing interests in pools of assets permissible for a bank to hold directly. (e) Underwriting, dealing in, or making a market in securities. (f) Engaging in any activity that the Board has determined to be so closely related to banking or managing or controlling banks as to be a proper incident thereto, which include— (1) Extending credit and servicing loans. (2) Activities related to extending credit. (i) Real estate and personal property appraising. (ii) Arranging commercial real estate equity financing. (iii) Check-guaranty services. (iv) Collection agency services. (v) Credit bureau services. (vi) Asset management, servicing, and collection activities. 1 1 (vii) Acquiring debt in default. (viii) Real estate settlement servicing. 2 2 (3) Leasing personal or real property. (i) The lease is on a nonoperating basis; 3 3 (ii) The initial term of the lease is at least 90 days; and (iii) In the case of leases involving real property: (A) At the inception of the initial lease, the effect of the transaction will yield a return that will compensate the lessor for not less than the lessor's full investment in the property plus the estimated total cost of financing the property over the term of the lease from rental payments, estimated tax benefits, and the estimated residual value of the property at the expiration of the initial lease; and (B) The estimated residual value of property for purposes of paragraph (f)(3)(iii)(A) of this section shall not exceed 25 percent of the acquisition cost of the property to the lessor. (4) Operating nonbank depository institutions. (i) Industrial banking. (ii) Operating savings associations. (5) Trust company functions. (6) Financial and investment advisory activities. (i) Serving as investment adviser (as defined in section 2(a)(20) of the Investment Company Act of 1940, 15 U.S.C. 80a-2(a)(20)), to an investment company registered under that act, including sponsoring, organizing, and managing a closed-end investment company; (ii) Furnishing general economic information and advice, general economic statistical forecasting services, and industry studies; (iii) Providing advice in connection with mergers, acquisitions, divestitures, investments, joint ventures, leveraged buyouts, recapitalizations, capital structurings, financing transactions and similar transactions, and conducting financial feasibility studies; 4 4 (iv) Providing information, statistical forecasting, and advice with respect to any transaction in foreign exchange, swaps, and similar transactions, commodities, and any forward contract, option, future, option on a future, and similar instruments; (v) Providing educational courses, and instructional materials to consumers on individual financial management matters; and (vi) Providing tax-planning and tax-preparation services to any person. (7) Agency transactional services for customer investments. (i) Securities brokerage. (ii) Riskless principal transactions. (iii) Private placement services. (iv) Futures commission merchant. (v) Other transactional services. (8) Investment transactions as principal. (i) Underwriting and dealing in government obligations and money market instruments. (ii) Investing and trading activities. (A) Foreign exchange; (B) Forward contracts, options, futures, options on futures, swaps, and similar contracts, whether traded on exchanges or not, based on any rate, price, financial asset (including gold, silver, platinum, palladium, copper, or any other metal), nonfinancial asset, or group of assets, other than a bank-ineligible security, 5 5 ( 1 ( 2 ( 3 ( i ( ii ( 4 ( i ( ii (C) Forward contracts, options, 6 6 (iii) Buying and selling bullion, and related activities. (9) Management consulting and counseling activities. (i) Management consulting. 7 7 See also ( 1 ( 2 (B) Revenues derived from, or assets related to, a company's management consulting activities under this subparagraph will not be considered to be financial if the company: ( 1 ( 2 (C) Up to 30 percent of a nonbank company's assets or revenues related to management consulting services provided to customers not described in paragraph (f)(9)(i)(A)( 1 2 (ii) Employee benefits consulting services. (iii) Career counseling services. (A) A financial organization 8 8 (B) Individuals who are seeking employment at a financial organization; and (C) Individuals who are currently employed in or who seek positions in the finance, accounting, and audit departments of any company. (10) Support services. (i) Courier services. (A) Checks, commercial papers, documents, and written instruments (excluding currency or bearer-type negotiable instruments) that are exchanged among banks and financial institutions; and (B) Audit and accounting media of a banking or financial nature and other business records and documents used in processing such media. 9 9 (ii) Printing and selling MICR-encoded items. (11) Insurance agency and underwriting. (i) Credit insurance. (A) Directly related to an extension of credit by the company or any of its subsidiaries; and (B) Limited to ensuring the repayment of the outstanding balance due on the extension of credit 10 10 (ii) Finance company subsidiary. 11 11 (A) The insurance is limited to ensuring repayment of the outstanding balance on such extension of credit in the event of loss or damage to any property used as collateral for the extension of credit; and (B) The extension of credit is not more than $10,000, or $25,000 if it is to finance the purchase of a residential manufactured home 12 12 (C) The applicant commits to notify borrowers in writing that: ( 1 ( 2 ( 3 (iii) Insurance in small towns. (A) Has a population not exceeding 5,000 (as shown in the preceding decennial census); or (B) Has inadequate insurance agency facilities, as determined by the Board, after notice and opportunity for hearing. (iv) Insurance-agency activities conducted on May 1, 1982. 13 14 13 14 (A) Engages in such specific insurance agency activity only at locations: ( 1 ( 2 ( 3 (B) Provides other insurance coverages that may become available after May 1, 1982, so long as those coverages insure against the types of risks as (or are otherwise functionally equivalent to) coverages sold or approved to be sold on May 1, 1982, by the company or subsidiary. (v) Supervision of retail insurance agents. (A) Fidelity insurance and property and casualty insurance on the real and personal property used in the operations of the company or its subsidiaries; and (B) Group insurance that protects the employees of the company or its subsidiaries. (vi) Small companies. (vii) Insurance-agency activities conducted before 1971. (12) Community development activities. (i) Financing and investment activities. (ii) Advisory activities. (13) Money orders, savings bonds, and traveler's checks. (14) Data processing. (i) Providing data processing, data storage and data transmission services, facilities (including data processing, data storage and data transmission hardware, software, documentation, or operating personnel), databases, advice, and access to such services, facilities, or data-bases by any technological means, if the data to be processed, stored or furnished are financial, banking or economic. (ii) Up to 30 percent of a nonbank company's assets or revenues related to providing general purpose hardware in connection with providing data processing products or services described in paragraph (f)(14)(i) of this appendix will be included in the company's financial assets or revenues. (15) Administrative services. (16) Securities exchange. (17) Certification authority. (18) Employment histories. (19) Check cashing and wire transmission. (20) Services offered in connection with banking services. (21) Real estate title abstracting. (g) Engaging, in the United States, in any activity that a bank holding company may engage in outside of the United States; and the Board has determined, under regulations prescribed or interpretations issued pursuant to section 4(c)(13) of the BHC Act (12 U.S.C. 1843(c)(13)) to be usual in connection with the transaction of banking or other financial operations abroad. Those activities include— (1) Providing management consulting services, including to any person with respect to nonfinancial matters, so long as the management consulting services are advisory and do not allow the company to control the person to which the services are provided. (2) Operating a travel agency in connection with financial services. (3) Organizing, sponsoring, and managing a mutual fund. (4) Commercial banking and other banking activities. (h) Directly, or indirectly acquiring or controlling, whether as principal, on behalf of 1 or more entities, or otherwise, shares, assets, or ownership interests (including debt or equity securities, partnership interests, trust certificates, or other instruments representing ownership) of a company or other entity, whether or not constituting control of such company or entity, engaged in any activity not financial in nature as defined in this appendix if: (1) Such shares, assets, or ownership interests are acquired and held as part of a bona fide underwriting or merchant or investment banking activity, including investment activities engaged in for the purpose of appreciation and ultimate resale or disposition of the investment; (2) Such shares, assets, or ownership interests are held for a period of time to enable the sale or disposition thereof on a reasonable basis consistent with the financial viability of the activities described in paragraph (h)(1) of this appendix; and (3) During the period such shares, assets, or ownership interests are held, the company does not routinely manage or operate such company or entity except as may be necessary or required to obtain a reasonable return on investment upon resale or disposition. (i) Directly or indirectly acquiring or controlling, whether as principal, on behalf of 1 or more entities, or otherwise, shares, assets, or ownership interests (including debt or equity securities, partnership interests, trust certificates or other instruments representing ownership) of a company or other entity, whether or not constituting control of such company or entity, engaged in any activity not financial in nature as defined in this appendix if— (1) Such shares, assets, or ownership interests are acquired and held by an insurance company that is predominantly engaged in underwriting life, accident and health, or property and casualty insurance (other than credit-related insurance) or providing and issuing annuities; (2) Such shares, assets, or ownership interests represent an investment made in the ordinary course of business of such insurance company in accordance with relevant state law governing such investments; and (3) During the period such shares, assets, or ownership interests are held, the company does not routinely manage or operate such company except as may be necessary or required to obtain a reasonable return on investment. (j) Lending, exchanging, transferring, investing for others, or safeguarding financial assets other than money or securities. (k) Providing any device or other instrumentality for transferring money or other financial assets. (l) Arranging, effecting, or facilitating financial transactions for the account of third parties.