Foreign Bank Exemption from the Insider Lending Prohibition of Exchange Act Section 13(k)

FORM 20-F

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PART 1

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Item 7. Major Shareholders and Related Party Transactions

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B. Related party transactions.

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2. The amount of outstanding loans (including guarantees of any kind) made by the company, its parent or any of its subsidiaries to or for the benefit of any of the persons listed above. The information given should include the largest amount outstanding during the period covered, the amount outstanding as of the latest practicable date, the nature of the loan and the transaction in which it was incurred, and the interest rate on the loan. In addition, if the company, its parent or any of its subsidiaries is a foreign bank (as defined in 17 CFR 240.13k-1) that has made a loan to which
Instruction 2 of this Item does not apply, identify the director, senior management member, or other related party required to be described by this Item who received the loan, and describe the nature of the loan recipient's relationship to the foreign bank.

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Instructions to Item 7.B:

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3. In response to Item 7.B.2, if you are unable to identify the recipient of a foreign bank loan to which Instruction 2 of this Item does not apply because you have concluded that such disclosure would conflict with privacy laws, such as customer confidentiality and data protection laws, of your home jurisdiction, you must provide a legal opinion attesting to that conclusion as an exhibit. You must also disclose that:

(A) an unnamed director, senior management member, or other related party for which disclosure is required by this Item, has been the recipient of a loan to which Instruction 2 of this Item does not apply;

(B) your home jurisdiction's privacy laws prevent the disclosure of the name of this loan recipient; and

(C) this loan recipient is unable to waive or has otherwise not waived application of these privacy laws.

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INSTRUCTIONS AS TO EXHIBITS

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14. The legal opinion required by Instruction 3 of Item 7.B of this Form.

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By the Commission.

Margaret H. McFarland
Deputy Secretary

Dated: April 26, 2004

Endnotes

1 17 CFR 240.13k-1.

2 17 CFR 249.220f.

3 15 U.S.C. 78a et seq.

4 Pub. L. 107-204, 116 Stat. 745 (2002).

5 See Senator Charles Schumer's remarks in 148 Cong. Rec. S. 7350, 7360-7361 (July 25, 2002). See also Senator Carl Levin's letter, dated September 25, 2002, to Chairman Harvey Pitt, reprinted in 149 Cong. Rec. S. 2178, 2179-2180 (February 11, 2003).

6 15 U.S.C. 78m(k).

7 15 U.S.C. 78m(k)(1). Section 13(k)(1)'s insider lending ban prohibits an issuer from "arranging for" or otherwise making a loan to any of its directors or executive officers "including through any subsidiary" of that issuer.

8 15 U.S.C. 77a et seq.

9 Sarbanes-Oxley Act Section (2)(a)(7).

10 The other three exemptions apply to extensions of credit that existed before the Sarbanes-Oxley Act's enactment, specified home improvement and consumer credit loans, and specified loans by a broker-dealer to its employees. See Exchange Act Sections 13(k)(1) and 13(k)(2) [15 U.S.C. 78m(k)(2)].

11 Exchange Act Section 13(k)(3) [15 U.S.C. 78m(k)(3)]. The Federal Reserve Board's Regulation O (12 CFR 215.1 et seq.) implements Federal Reserve Act Section 22(h).

12 12 U.S.C. 1811 et seq.

13 12 U.S.C. 1813(c)(2).

14 12 U.S.C. 3104(d)(1).

15 12 U.S.C. 3104(d)(2).

16 Of the 46 foreign banks that are currently Exchange Act reporting companies and, thus, subject to the Sarbanes-Oxley Act, only 10 have U.S.-based operations that are FDIC-insured.

17 See, for example, U.S. General Accounting Office, "Foreign Banks--Assessing Their Role in the U.S. Banking System" (February 1996) ("GAO Foreign Banks Report") at p. 2.

18 GAO Foreign Banks Report at p. 16.

19 Release No. 34-48481 (September 11, 2003) [68 FR 54590] ("Proposing Release").

20 We have posted these comment letters on our website at http://www.sec.gov/rules/proposed/s71503.shtml. A comment summary is also available at http://www.sec.gov/rules/extra/s71503summary.htm.

21 A foreign government is able to register securities under the Securities Act by filing a Schedule B registration statement. Schedule B is located at the conclusion of the Securities Act.

22 12 CFR 211.20 et seq.

23 17 CFR 240.12b-2.

24 Note 1 to Rule 13k-1(b) [17 CFR 240.13k-1(b)].

25 The final rule further provides that a foreign bank may rely on a Federal Reserve Board determination that another bank in the foreign bank's jurisdiction is subject to comprehensive supervision or regulation on a consolidated basis as long as the foreign bank is under substantially the same banking supervision or regulation in its home jurisdiction as the other bank. Note 2 to Rule 13k-1(b).

26 Under the Exchange Act, the term "United States" includes the District of Columbia, Puerto Rico, the Virgin Islands, and any other possession of the United States. See the definition of "State" in Exchange Act Section 3(a)(16) [15 U.S.C. 78c(a)(16)].

27 17 CFR 240.13k-1(a)(1).

28 17 CFR 240.13k-1(a)(3).

29 We are adopting unchanged from the proposed definition the first two prongs that require an institution to have its home jurisdiction outside the United States and to be regulated as a bank in its home jurisdiction. We also are adopting unchanged the definition of home jurisdiction to mean the country, political subdivision or other place in which a foreign bank is incorporated or organized. 17 CFR 240.13k-1(a)(2).

30 See 12 CFR 211.21(n), which defines in part a foreign bank to mean "an organization that is organized under the laws of a foreign country and that engages directly in the business of banking outside the United States."

31 Domestic credit card banks are typically "insured depository institutions" and subject to the Federal Reserve Board's insider lending provisions under Regulation O. These banks are therefore eligible for the exemption from the insider lending prohibition under Section 402.

32 See 12 CFR 211.21(k), which defines "engages directly in the business of banking outside the United States" to mean that the "foreign bank engages directly in banking activities usual in connection with the business of banking in the countries where it is organized or operating."

33 17 CFR 240.13k-1(b).

34 Under 17 CFR 240.12b-2, the term "affiliate" means "a person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, the person specified."

35 Rule 13k-1(a)(4) [17 CFR 240.13k-1(a)(4)] also adopts the definitions of "parent" and "subsidiary" under 17 CFR 240.12b-2, both of which depend upon the definition of affiliate. Consequently, we are not adopting the proposed definition of parent that would have required a company to own or control a majority of a company's voting shares. Issuers should consult precedent under the federal securities laws when determining whether a particular entity can be a parent company if it directly or indirectly owns or controls less than 50 percent of a company's voting shares.

36 See 12 CFR 215.1(b). Although Regulation O applies by its terms only to national and state member banks, the federal banking laws also make all insured state nonmember banks and savings associations subject to the insider lending restrictions of Regulation O. See 12 U.S.C. 1828(j)(2) and 1468(b).

37 See the Federal Reserve Board's adopting release regarding certain amendments to Regulation O at 57 FR 22417, 22421 (May 28, 1992).

38 See Note 1 to 17 CFR 240.13k-1(b).

39 Because Regulation O defines a member bank to include any of its subsidiaries,Regulation O applies to loans by an insured depository institution's subsidiary, such as a mortgage lender, to insiders of the insured depository institution, its parent or other affiliate. See 12 CFR 215.2(j). Because the subsidiary is also treated as an "insured depository institution" that is subject to Regulation O, it is therefore eligible for the Section 402 exemption.

40 17 CFR 240.13k-1(b)(1).

41 The Federal Reserve Board generally is required to make a CCS determination when a foreign bank seeks to open a U.S. banking office, acquire a U.S. bank, or become certified as a financial holding company. See 12 CFR 211.24(c), 12 CFR 225.13(a)(4), and 12 CFR 225.92(c) and (e).

42 See Note (2) to Rule 13k-1(b).

43 See, for example, the Federal Reserve Board Order Concerning HSH Nordbank AG, Hamburg/Kiel, Germany, 89 Federal Reserve Bulletin No. 7 (July 2003) at p. 344.

44 17 CFR 240.13k-1(b)(2).

45 See 12 CFR 215.4(a)(1) and (2).

46 See 12 CFR 211.24(c)(1)(B)(ii), which provides that when making a CCS determination, "the Board shall determine whether the foreign bank is regulated in such a manner that its home country supervisor receives sufficient information on the worldwide operations of the foreign bank (including the relationships of the bank to any affiliate) to assess the foreign bank's overall financial condition and compliance with law and regulation." Although information regarding a foreign bank's dealings with affiliates is one factor that the Board must consider when conducting a CCS determination, the definition of "affiliate" includes companies only, such as a foreign bank's parent company and sister subsidiaries, and not insiders of these companies. See, for example, 12 CFR 211.21(a).

47 The proposed third condition would also have required the intended loan recipient to abstain from the required board vote. We based this proposed third condition on similar Regulation O requirements. See 12 CFR 215.4(b)(1) and (2).

48 17 CFR 240.13k-1(c). This provision references the definition of foreign government in 17 CFR 230.405, according to which the term "foreign government"means the government of any foreign country or of any political subdivision of a foreign country.

49 In a number of situations, the staff has not objected to certain foreign government-owned or controlled banks registering debt securities on Schedule B. See, for example Bank of Greece No-Action Letter (June 2, 1993); Kreditanstalt f¼r Wiederaufbau No-Action Letter (September 21, 1987). We are not directing the staff to change its practice.

50 See the Shearman & Sterling LLP letter (October 8, 2003) at p. A-1, n.2. This commenter specifically requested that we exempt those issuers that have filed a
Schedule B registration statement for unlisted debt securities, which has not yet gone effective and which has not been withdrawn. Because Exchange Act Section 15(d)
[15 U.S.C. 78o(d)] does not apply to foreign governments, this issuer would not have any Exchange Act reporting obligations once the registration statement became effective. Accordingly, the pre-effective period is the only time that Section 402's insider lending prohibition would apply to this issuer. We agree with this commenter that applying Section 402's prohibition in this situation would be unfair, would provide no meaningful protection, and does not appear to advance Congress' objective in adopting Section 402. We also believe, however, that because of broader concerns, the exemption should apply to any foreign governmental entity that files a Schedule B registration statement.

51 See 17 CFR 240.10A-3(c)(6)(iii). Sarbanes-Oxley Act Section 301 added Exchange Act Section 10A(m)(1) [15 U.S.C. 78j-1(m)(1).]

52 See Release No. 33-8220, n. 159 (April 9, 2003) [68 FR 18788].

53 Instruction 2 permits a company to provide specified abbreviated disclosure about bank loans that "are not disclosed as nonaccrual, past due, restructured or potential problems under Industry Guide 3. . ."

54 For example, Form 20-F Item 7.B.2 requires disclosure regarding loans made to a close family member of a company's director or senior management member.

55 The form amendment does not apply to the few Canadian banks that are subject to the Multijurisdictional Disclosure System and file their Exchange Act annual reports and registration statements on Form 40-F (17 CFR 249.240f). We have not similarly amended Form 40-F because, as we explained in the proposing release, Form 40-F's content is determined primarily by the applicable Canadian securities administrator.

56 We have also provided a corresponding exhibit instruction for this Item 7.B legal opinion. See amended paragraph 14 of Instructions as to Exhibits.

57 5 U.S.C. 553(d)(1).

58 44 U.S.C. 3501 et seq.

59 44 U.S.C. 3507(d) and 5 CFR 1320.11.

60 Because Securities Act Form F-4 (OMB Control No. 3235-0325) (17 CFR 239.34) and Form F-1 (OMB Control No. 3235-0258) (17 CFR 239.31) require the disclosure of information specified in Form 20-F Item 7.B, the Form 20-F amendment will potentially affect Forms F-4 and F-1 registrants. However, based on our review of Form F-4 and F-1 registration statements filed by foreign bank issuers during the three most recently completed years, we expect that the Form 20-F amendment will not have a material effect on these collections of information for the following reasons. First, during 2001 through 2003, the 46 reporting foreign banks filed only 7 Form F-4 registration statements and 2 Form F-1 registration statements. 5 of the 7 Form F-4 registrants incoporated by reference their most recent Form 20-F annual report and, therefore, did not repeat the Item 7.B disclosure in their Securities Act registration statements. Securities Act registrants that are able to incorporate by reference should not sustain any additional effect from the Form 20-F amendment since no additional analysis and disclosure is required for the Securities Act registration statement other than what is required for the Form 20-F. Second, none of the remaining Forms F-4 and F-1 registrants disclosed any insider loans that would have triggered the additional disclosure requirements mandated by the Form 20-F amendment. Accordingly, since none of these Securities Act registrants would have been affected by the Form 20-F amendment, we do not anticipate that this amendment will have a material effect on foreign bank issuers filing registration statements under the Securities Act.

61 41 of these foreign bank issuers file Form 20-F annual reports and 5 file Form 40-F annual reports.

62 We have derived this average from a review of the most recent Form 20-F and
40-F annual reports filed by these foreign banks.

63 We have derived these expected costs by adding the additional burden estimated to result from adoption of the Form 20-F Item 7.B.2 amendment, as set forth in the Paperwork Reduction Act section of the Proposing Release (1 burden hour of work for internal staff and $900 of work for outside firms), with the additional burden estimated to result from adoption of Instruction 3 to Item 7.B, as set forth in Part III of this Release (1 burden hour of work for internal staff and $675 of work for outside firms).

64 15 U.S.C. 78w(a)(2).

65 15 U.S.C. 77b(b).

66 15 U.S.C. 78c(f).

67 5 U.S.C. 605(b).

68 15 U.S.C. 77f, 77g, 77h, 77j, and 77s.

69 15 U.S.C. 78c, 78l, 78m, 78w, and 78mm.