American Bankers Association and
Bankers' Association for Finance and Trade
October 17, 2003
Jonathan G. Katz
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Foreign Bank Exemption from the Insider Lending Restrictions of Exchange Act Section 13(k); File No. S7-15-03; 68 Federal Register 54590 (September 17, 2003).
Dear Mr. Katz:
The American Bankers Association ("ABA")1 and the Bankers' Association for Finance and Trade ("BAFT")2 appreciate the opportunity to comment on the proposal issued by the Securities and Exchange Commission ("Commission") to exempt qualified foreign banks from the insider lending prohibitions of Section 13(k) of the Securities Exchange Act of 1934 ("Exchange Act"). Specifically, the proposal attempts to craft an exemption for those foreign banks subject to Exchange Act reporting requirements comparable to that provided by Section 402 of the Sarbanes-Oxley Act of 2002 for domestic banks and U.S. subsidiaries of foreign banks. ABA strongly supported the legislative efforts to add the bank exemption to Section 402 of the Sarbanes-Oxley Act. We have long maintained that banks are different from the rest of corporate America in that banks are subject to extensive regulation and that lending is integral to the very business of banking. We believe the proposal recognizes the merits of these arguments in proposing to extend similar treatment to foreign banks.
In addition, both ABA and BAFT believe that the proposal represents an important step toward achieving "convergence" of international regulatory standards. We consider "convergence" as the most realistic method for alleviating the regulatory burden placed on international banks, which may encounter conflicting regulatory regimes of their host and home countries.3 Thus, we support the Commission's proposal.
The exemption is conditioned, in part, on "[t]he laws or regulations of the foreign bank's home jurisdiction restrict[ing] the foreign bank from making loans to its executive officers and directors or those of its parent company unless the foreign bank is permitted to and does extend the loan on substantially the same terms as those prevailing at the time for comparable transactions by the foreign bank with other persons who are not executive officers, directors or employees of the foreign bank or its parent company; ...."4
Thus, the exemption contemplates that, in order to take advantage of the first alternative, foreign banks would have to be subject to laws or regulations comparable to the Federal Reserve Board's Regulation O. It is our understanding that some foreign banking supervisors have in place requirements that are designed to achieve purposes similar to those of Regulation O, but may not meet all of the requirements of the proposed exemption. We, therefore, suggest that the Commission grant itself some additional discretion with regard to the availability of the exemption for individual banks. We suggest that the Commission's proposal provide for a procedure whereby a foreign bank would be eligible for the exemption from the insider lending restrictions of Section 13(k) if the Commission determines that the home country restrictions on insider lending were "adequate". This procedure would be similar to that adopted by the EU Parliament under Article 25 of the EU Data Protection Directive (Directive 95/46/EC), which provides that the Member States comprising the EU are directed to prohibit the transfer of personal data outside the EU unless they are subject to an "adequate" level of protection at their destination. It is the EU Commission that makes the "adequacy" determination.
We would also like to congratulate the Commission for addressing the appropriateness of exemptions under Section 402. As the Commission is well aware, much confusion currently exists within the corporate and legal communities regarding the permissibility of various compensation arrangements, including, most notably, the issue of split-dollar life insurance policies. This lack of certainty is especially troubling given that criminal liability may result from a Section 402 violation, no matter how inadvertent. We strongly encourage the Commission to clear up the current state of confusion and address these and other similar arrangements.
|Sarah A. Miller
American Bankers Association
|| Thomas L. Farmer|
Bankers' Association for Finance and Trade
|1|| The ABA brings together all categories of banking institutions to best represent the interests of this rapidly changing industry. Its membership-which includes community, regional and money center banks and holding companies, as well as savings associations, trust companies, and savings banks-makes ABA the largest banking trade association in the country.
|2|| BAFT is a separately chartered trade association and non-profit affiliate of the ABA. BAFT's members and partners include U.S. and non-U.S. commercial banks, financial services companies, non-U.S. financial trade associations, and a variety of service providers, such as insurance, technology, consulting and accounting firms concerned with international business.
|3|| See remarks by Commissioner Campos in a speech presented to the Center for European Policy Studies, June 11, 2003 at page 6.
|4|| See proposed Rule 13k-1(b)(2).