4000 - Advisory Opinions
Applicability of Regulation O Insider Transaction Recordkeeping Requirement on Insured Nonmember Banks
July 12, 1982
Pamela E. F. LeCren, Senior Attorney
The following is in response to your March 11, 1982 letter in which you continue to raise objections to the enforcement by the FDIC of section 215.7 of Regulation O (12 C.F.R. section 215.7) against ***. Your objections were originally lodged in an October 21, 1981 letter which set forth your argument that section 215.7 of Regulation O (which imposes certain recordkeeping requirements in connection with insider transactions) cannot be enforced against ***, a nonmember bank, because the FDIC did not adopt a similar recordkeeping regulation. In short, you challenged the applicability of section 215.7 to insured nonmember banks and FDIC's ability to enforce the same against nonmember banks.
We responded to your October letter by letter dated December 15, 1981 wherein it was stated,
Regulation O, which was promulgated by the Federal Reserve Board pursuant to a specific grant of authority, implements section 22(h) of the Federal Reserve Act (see section 22(h)(7)). Section 108 of the Financial Institutions Regulatory and Interest Rate Control Act of 1978 added section 18(j)(2) to the Federal Deposit Insurance Act ("FDI Act") making Section 22(h) applicable to insured nonmember banks "in the same manner and to the same extent" as though they were member banks. The FDIC clearly is given authority through section 18(j)(2) to enforce section 22(h) with respect to insured nonmember banks. Equally as clear in our estimation is that the FDIC is to enforce Regulation O as to insured nonmember banks. If the regulation did not apply, section 22(h) would not apply to member and nonmember banks "in the same manner and to the same extent." section 18(j)(3) of the FDI Act which authorizes the FDIC to impose civil money penalties on insured nonmember banks for violations of section 22(h) and "any lawful regulation issued pursuant thereto" further supports our interpretation of section 18(j)(2). In sum, to the extent that section 215.7 of Regulation O reasonably interprets the underlying statute (i.e., the Federal Reserve Board acted within the scope of its authority in adopting Section 215.7) the provision is operative and insured nonmember banks are subject thereto.
We do not feel it is necessary to do any more than reiterate that it is the FDIC's interpretation of section 18(j)(2) and section 18(j)(3) of the FDI Act that Regulation O applies to insured nonmember banks and that the FDIC may enforce the Regulation, including its recordkeeping provisions, against insured nonmember banks by Cease and Desist Order as well as by civil money penalty. If this were not so, the express language of section 18(j)(2) and 18(j)(3) would be a nullity.
The FDIC is clearly not required to promulgate regulations in order to enforce the FDI Act. Section 9, paragraph 7 of the FDI Act grants the FDIC the authority to prescribe such rules and regulations as it may deem necessary (emphasis added) to carry out the provisions of the FDI Act. Furthermore, the FDI Act clearly contemplates that Regulation O will be applicable to nonmember banks. As stated in our December 15, letter and reiterated above, section 18(j)(3) empowers the FDIC to impose civil money penalties for violations of any lawful regulation issued pursuant to Section 22(h) of the Federal Reserve Act. The provision does not indicate that the FDIC may impose civil money penalties for violations of any lawful regulation issued pursuant to section 18(j)(2) which would be the authority upon which any FDIC regulation concerning insider transactions would be based. The provision, therefore, clearly incorporates Regulation O as well as section 22(h) of the Federal Reserve Act. Additionally, Regulation O itself as promulgated by the Federal Reserve Board indicates that the regulation shall apply to nonmember banks. Footnote 4 to section 215.5 expressly indicates that certain provisions of the Regulation do not apply to nonmember banks. The clear implication of the footnote is that the remainder of the regulation does apply. This would of course include the recordkeeping provision of section 215.7.
We therefore urge you to give due consideration to FDIC's position and to advise your client that should *** not maintain records as required by section 215.7 of Regulation O, the bank may be cited for violating section 22(h) of the Federal Reserve Act and Regulation O as made applicable to insured nonmember banks through section 18(j) of the FDI Act.