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7500 - FRB Regulations


Subpart J—Merchant Banking Investments

§ 225.170  What type of investments are permitted by this subpart, and under what conditions may they be made?

(a)  What types of investments are permitted by this subpart?  Section 4(k)(4)(H) of the Bank Holding Company Act (12 U.S.C. 1843(k)(4)(H)) and this subpart authorize a financial holding company, directly or indirectly and as principal or on behalf of one or more persons, to acquire or control any amount of shares, assets or ownership interests of a company or other entity that is engaged in any activity not otherwise authorized for the financial holding company under section 4 of the Bank Holding Company Act. For purposes of this subpart, shares, assets or ownership interests acquired or controlled under section 4(k)(4)(H) and this subpart are referred to as "merchant banking investments." A financial holding company may not directly or indirectly acquire or control any merchant banking investment except in compliance with the requirements of this subpart.

(b)  Must the investment be a bona fide merchant banking investment?  The acquisition or control of shares, assets or ownership interests under this subpart is not permitted unless it is part of a bona fide underwriting or merchant or investment banking activity.

(c)  What types of ownership interests may be acquired?  Shares, assets or ownership interests of a company or other entity include any debt or equity security, warrant, option, partnership interest, trust certificate or other instrument representing an ownership interest in the company or entity, whether voting or nonvoting.

(d)  Where in a financial holding company may merchant banking investments be made?  A financial holding company and any subsidiary (other than a depository institution or subsidiary of a depository institution) may acquire or control merchant banking investments. A financial holding company and its subsidiaries may not acquire or control merchant banking investments on behalf of a depository institution or subsidiary of a depository institution.

(e)  May assets other than shares be held directly?  A financial holding company may not under this subpart acquire or control assets, other than debt or equity securities or other ownership interests in a company, unless:

(1)  The assets are held by or promptly transferred to a portfolio company;

(2)  The portfolio company maintains policies, books and records, accounts, and other indicia of corporate, partnership or limited liability organization and operation that are separate from the financial holding company and limit the legal liability of the financial holding company for obligations of the portfolio company; and

(3)  The portfolio company has management that is separate from the financial holding company to the extent required by § 225.171.

(f)  What type of affiliate is required for a financial holding company to make merchant banking investments?  A financial holding company may not acquire or control merchant banking investments under this subpart unless the financial holding company qualifies under at least one of the following paragraphs:

(1)  Securities affiliate.  The financial holding company is or has an affiliate that is registered under the Securities Exchange Act of 1934 (15 U.S.C. 78c, 78o, 78o--4) as:

(i)  A broker or dealer; or

(ii)  A municipal securities dealer, including a separately identifiable department or division of a bank that is registered as a municipal securities dealer.

(2)  Insurance affiliate with an investment adviser affiliate.  The financial holding company controls:

(i)  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; and

(ii)  A company that:

(A)  Is registered with the Securities and Exchange Commission as an investment adviser under the Investment Advisers Act of 1940 (15 U.S.C. 80b--1 et seq.); and

(B)  Provides investment advice to an insurance company.

[Codified to 12 C.F.R. § 225.170]

[Section 225.170 added at 65 Fed. Reg. 16473, March 28, 2000, effective March 17, 2000; amended at 66 Fed. Reg. 8484, January 31, 2001, effective February 15, 2001]

§ 225.171  What are the limitations on managing or operating a portfolio company held as a merchant banking investment?

(a)  May a financial holding company routinely manage or operate a portfolio company?  Except as permitted in paragraph (e) of this section, a financial holding company may not routinely manage or operate any portfolio company.

(b)  When does a financial holding company routinely manage or operate a company?

(1)  Examples of routine management or operation.--(i)  Executive officer interlocks at the portfolio company.  A financial holding company routinely manages or operates a portfolio company if any director, officer or employee of the financial holding company serves as or has the responsibilities of an executive officer of the portfolio company.

(ii)  Interlocks by executive officers of the financial holding company.--

(A)  Prohibition.  A financial holding company routinely manages or operates a portfolio company if any executive officer of the financial holding company serves as or has the responsibilities of an officer or employee of the portfolio company.

(B)  Definition.  For purposes of paragraph (b)(1)(ii)(A) of this section, the term "financial holding company" includes the financial holding company and only the following subsidiaries of the financial holding company:

(1)  A securities broker or dealer registered under the Securities Exchange Act of 1934;

(2)  A depository institution;

(3)  An affiliate that engages in merchant banking activities under this subpart or insurance company investment activities under section 4(k)(4)(I) of the Bank Holding Company Act (12 U.S.C. 1843(k)(4)(I));

(4)  A small business investment company (as defined in section 302(b) of the Small Business Investment Act of 1958 (15 U.S.C. 682(b)) controlled by the financial holding company or by any depository institution controlled by the financial holding company; and

(5)  Any other affiliate that engages in significant equity investment activities that are subject to a special capital charge under the capital adequacy rules or guidelines of the Board.

(iii)  Covenants regarding ordinary course of business.  A financial holding company routinely manages or operates a portfolio company if any covenant or other contractual arrangement exists between the financial holding company and the portfolio company that would restrict the portfolio company's ability to make routine business decisions, such as entering into transactions in the ordinary course of business or hiring officers or employees other than executive officers.

(2)  Presumptions of routine management or operation.  A financial holding company is presumed to routinely manage or operate a portfolio company if:

(i)  Any director, officer, or employee of the financial holding company serves as or has the responsibilities of an officer (other than an executive officer) or employee of the portfolio company; or

(ii)  Any officer or employee of the portfolio company is supervised by any director, officer, or employee of the financial holding company (other than in that individual's capacity as a director of the portfolio company).

(c)  How may a financial holding company rebut a presumption that it is routinely managing or operating a portfolio company?  A financial holding company may rebut a presumption that it is routinely managing or operating a portfolio company under paragraph (b)(2) of this section by presenting information to the Board demonstrating to the Board's satisfaction that the financial holding company is not routinely managing or operating the portfolio company.

(d)  What arrangements do not involve routinely managing or operating a portfolio company?--(1)  Director representation at portfolio companies.  A financial holding company may select any or all of the directors of a portfolio company or have one or more of its directors, officers, or employees serve as directors of a portfolio company if:

(i)  The portfolio company employs officers and employees responsible for routinely managing and operating the company; and

(ii)  The financial holding company does not routinely manage or operate the portfolio company, except as permitted in paragraph (e) of this section.

(2)  Covenants or other provisions regarding extraordinary events.  A financial holding company may, by virtue of covenants or other written agreements with a portfolio company, restrict the ability of the portfolio company, or require the portfolio company to consult with or obtain the approval of the financial holding company, to take actions outside of the ordinary course of the business of the portfolio company. Examples of the types of actions that may be subject to these types of covenants or agreements include, but are not limited to, the following:

(i)  The acquisition of significant assets or control of another company by the portfolio company or any of its subsidiaries;

(ii)  Removal or selection of an independent accountant or auditor or investment banker by the portfolio company;

(iii)  Significant changes to the business plan or accounting methods or policies of the portfolio company;

(iv)  Removal or replacement of any or all of the executive officers of the portfolio company;

(v)  The redemption, authorization or issuance of any equity or debt securities (including options, warrants or convertible shares) of the portfolio company or any borrowing by the portfolio company outside of the ordinary course of business;

(vi)  The amendment of the articles of incorporation or by-laws (or similar government documents) of the portfolio company; and

(vii)  The sale, merger, consolidation, spin-off, recapitalization, liquidation, dissolution or sale of substantially all of the assets of the portfolio company or any of its significant subsidiaries.

(3)  Providing advisory and underwriting services to, and having consultations with, a portfolio company.  A financial holding company may:

(i)  Provide financial, investment and management consulting advice to a portfolio company in a manner consistent with and subject to any restrictions on such activities contained in §§ 225.28(b)(6) or 225.86(b)(1) of this part (12 CFR 225.28(b)(6) and 225.86(b)(1));

(ii)  Provide assistance to a portfolio company in connection with the underwriting or private placement of its securities, including acting as the underwriter or placement agent for such securities; and

(iii)  Meet with the officers or employees of a portfolio company to monitor or provide advice with respect to the portfolio company's performance or activities.

(e)  When may a financial holding company routinely manage or operate a portfolio company?--(1)  Special circumstances required.  A financial holding company may routinely manage or operate a portfolio company only when intervention by the financial holding company is necessary or required to obtain a reasonable return on the financial holding company's investment in the portfolio company upon resale or other disposition of the investment, such as to avoid or address a significant operating loss or in connection with a loss of senior management at the portfolio company.

(2)  Duration Limited.  A financial holding company may routinely manage or operate a portfolio company only for the period of time as may be necessary to address the cause of the financial holding company's involvement, to obtain suitable alternative management arrangements, to dispose of the investment, or to otherwise obtain a reasonable return upon the resale or disposition of the investment.

(3)  Notice required for extended involvement.  A financial holding company may not routinely manage or operate a portfolio company for a period greater than nine months without prior written notice to the Board.

(4)  Documentation required.  A financial holding company must maintain and make available to the Board upon request a written record describing its involvement in routinely managing or operating a portfolio company.

(f)  May a depository institution or its subsidiary routinely manage or operate a portfolio company?--(1)  In general.  A depository institution and a subsidiary of a depository institution may not routinely manage or operate a portfolio company in which an affiliated company owns or controls an interest under this subpart.

(2)  Definition applying provisions governing routine management or operation.  For purposes of this section other than paragraph (e) and for purposes of § 225.173(d), a financial holding company includes a depository institution controlled by the financial holding company and a subsidiary of such a depository institution.

(3)  Exception for certain subsidiaries of depository institutions.  For purposes of paragraph (e) of this section, a financial holding company includes a financial subsidiary held in accordance with section 5136A of the Revised Statutes (12 U.S.C. 24a) or section 46 of the Federal Deposit Insurance Act (12 U.S.C. 1831w), and a subsidiary that is a small business investment company and that is held in accordance with the Small Business Investment Act (15 U.S.C. 661 et seq.), and such a subsidiary may, in accordance with the limitations set forth in this section, routinely manage or operate a portfolio company in which an affiliated company owns or controls an interest under this subpart.

[Codified to 12 C.F.R. § 225.171]

[Section 225.171 added at 65 Fed. Reg. 16473, March 28, 2000, effective March 17, 2000; amended at 66 Fed. Reg. 8485, January 31, 2001, effective February 15, 2001]

§ 225.172  What are the holding periods permitted for merchant banking investments?

(a)  Must investments be made for resale?  A financial holding company may own or control shares, assets and ownership interests pursuant to this subpart only for a period of time to enable the sale or disposition thereof on a reasonable basis consistent with the financial viability of the financial holding company's merchant banking investment activities.

(b)  What period of time is generally permitted for holding merchant banking investments?--(1)  In general.  Except as provided in this section or § 225.173, a financial holding company may not, directly or indirectly, own, control or hold any share, asset or ownership interest pursuant to this subpart for a period that exceeds 10 years.

(2)  Ownership interests acquired from or transferred to companies held under this subpart.  For purposes of paragraph (b)(1) of this section, shares, assets or ownership interests--

(i)  Acquired by a financial holding company from a company in which the financial holding company held an interest under this subpart will be considered to have been acquired by the financial holding company on the date that the share, asset or ownership interest was acquired by the company; and

(ii)  Acquired by a company from a financial holding company will be considered to have been acquired by the company on the date that the share, asset or ownership interest was acquired by the financial holding company if--

(A)  The financial holding company held the share, asset, or ownership interest under this subpart; and

(B)  The financial holding company holds an interest in the acquiring company under this subpart.

(3)  Interests previously held by a financial holding company under limited authority.  For purposes of paragraph (b)(1) of this section, any shares, assets, or ownership interests previously owned or controlled, directly or indirectly, by a financial holding company under any other provision of the Federal banking laws that imposes a limited holding period will if acquired under this subpart be considered to have been acquired by the financial holding company under this subpart on the date the financial holding company first acquired ownership or control of the shares, assets or ownership interests under such other provision of law. For purposes of this paragraph (b)(3), a financial holding company includes a depository institution controlled by the financial holding company and any subsidiary of such a depository institution.

(4)  Approval required to hold interests held in excess of time limit.  A financial holding company may seek Board approval to own, control or hold shares, assets or ownership interests of a company under this subpart for a period that exceeds the period specified in paragraph (b)(1) of this section. A request for approval must:

(i)  Be submitted to the Board at least 90 days prior to the expiration of the applicable time period;

(ii)  Provide the reasons for the request, including information that addresses the factors in paragraph (b)(5) of this section; and

(iii)  Explain the financial holding company's plan for divesting the shares, assets or ownership interests.

(5)  Factors governing Board determinations.  In reviewing any proposal under paragraph (b)(4) of this section, the Board may consider all the facts and circumstances related to the investment, including:

(i)  The cost to the financial holding company of disposing of the investment within the applicable period;

(ii)  The total exposure of the financial holding company to the company and the risks that disposing of the investment may pose to the financial holding company;

(iii)  Market conditions;

(iv)  The nature of the portfolio company's business;

(v)  The extent and history of involvement by the financial holding company in the management and operations of the company; and

(vi)  The average holding period of the financial holding company's merchant banking investments.

(6)  Restrictions applicable to investments held beyond time period.  A financial holding company that directly or indirectly owns, controls or holds any share, asset or ownership interest of a company under this subpart for a total period that exceeds the period specified in paragraph (b)(1) of this section must--

(i)  For purposes of determining the financial holding company's regulatory capital, apply to the financial holding company's adjusted carrying value of such shares, assets, or ownership interests a capital charge determined by the Board that must be:

(A)  Higher than the maximum marginal tier 1 capital charge applicable under part 217 to merchant banking investments held by that financial holding company;1 or order the bank holding company to divest the section 20 subsidiary.

(iii)  A foreign bank that operates a branch or agency in the United States shall maintain strong capital on a fully consolidated basis at levels above the minimum levels required by the Basle Capital Accord. In the event that the Board determines that the foreign bank's capital has fallen below these levels and the foreign bank fails to restore its capital position promptly, the Board may, in its discretion, reimpose the funding, credit extension and credit enhancement firewalls contained in its 1990 order allowing foreign banks to underwrite and deal in bank-ineligible securities,2 or order the foreign bank to divest the section 20 subsidiary.

(2)  Internal controls. (i)  Each bank holding company or foreign bank shall cause it subsidiary banks, thrifts, branches or agencies3 to adopt policies and procedures, including appropriate limits on exposure, to govern their participation in transactions underwritten or arranged by a section 20 affiliate.

(ii)  Each bank holding company or foreign bank shall ensure that an independent and thorough credit evaluation has been undertaken in connection with participation by a bank, thrift, or branch or agency in such transactions, and that adequate documentation of that evaluation is maintained for review by examiners of the appropriate federal banking agency and the Federal Reserve.

(3)  Interlocks restriction. (i)  Directors, officers or employees of a bank or thrift subsidiary of a bank holding company, or a bank or thrift subsidiary or branch or agency of a foreign bank, shall not serve as a majority of the board of directors or the chief executive officer of an affiliated section 20 subsidiary.

(ii)  Directors, officers or employees of a section 20 subsidiary shall not serve as a majority of the board of directors or the chief executive officer of an affiliated bank or thrift subsidiary or branch or agency, except that the manager of a branch or agency may act as a director of the underwriting subsidiary.

(iii)  For purposes of this standard, the manager of a branch or agency of a foreign bank generally will be considered to be the chief executive officer of the branch or agency.

(4)  Customer disclosure--(i)  Disclosure to section 20 customers. A section 20 subsidiary shall provide, in writing, to each of its retail customers,4 at the time an investment account is opened, the same minimum disclosures, and obtain the same customer acknowledgement, described in the Interagency Statement on Retail Sales of Nondeposit Investment Products (Statement) as applicable in such situations. These disclosures must be provided regardless of whether the section 20 subsidiary is itself engaged in activities through arrangements with a bank that is covered by the Statement.

(ii)  Disclosures accompanying investment advice. A director, officer, or employee of a bank, thrift, branch or agency may not express an opinion on the value or the advisability of the purchase or the sale of a bank-ineligible security that he or she knows is being underwritten or dealt in by a section 20 affiliate unless he or she notifies the customer of the affiliate's role.

(5)  Intra-day credit. Any intra-day extension of credit to a section 20 subsidiary by an affiliated bank, thrift, branch or agency shall be on market terms consistent with section 23B of the Federal Reserve Act.

(6)  Restriction on funding purchases of securities during underwriting period. No bank, thrift, branch or agency shall knowingly extend credit to a customer secured by, or for the purpose of purchasing, any bank-ineligible security that a section 20 affiliate is underwriting or has underwritten within the past 30 days, unless:

(i)  The extension of credit is made pursuant to, and consistent with any conditions imposed in a preexisting line of credit that was not established in contemplation of the underwriting; or

(ii)  The extension of credit is made in connection with clearing transactions for the section 20 affiliate.

(7)  Reporting requirement. (i)  Each bank holding company or foreign bank shall submit quarterly to the appropriate Federal Reserve Bank any FOCUS report filed with the NASD or other self-regulatory organizations, and any information required by the Board to monitor compliance with these operating standards and section 20 of the Glass-Steagall Act, on forms provided by the Board.

(ii)  In the event that a section 20 subsidiary is required to furnish notice concerning its capitalization to the Securities and Exchange Commission pursuant to 17 CFR 240.17a--11, a copy of the notice shall be filed concurrently with the appropriate Federal Reserve Bank.

(8)  Foreign banks. A foreign bank shall ensure that any extension of credit by its branch or agency to a section 20 affiliate, and any purchase by such branch or agency, as principal or fiduciary, of securities for which a section 20 affiliate is a principal underwriter, conforms to sections 23A and 23B of the Federal Reserve Act, and that its branches and agencies not advertise or suggest that they are responsible for the obligations of a section 20 affiliate, consistent with section 23B(c) of the Federal Reserve Act.

[Section 225.200 added at 62 Fed. Reg. 45306, August 27, 1997, effective October 27, 1997; amended at 63 Fed. Reg. 14804, March 27, 1998; moved to Subpart L, 76 Fed. Reg. 8265, effective April 1, 2011]

Subpart M—Minimum Requirements for Appraisal Management Companies

Sec.

§ 225.190 Authority, purpose, and scope.
§ 225.191 Definitions.
§ 225.192 Appraiser panel—annual size calculation.
§ 225.193 Appraisal management company registration.
§ 225.194 Ownership limitations for State registered appraisal management companies.
§ 225.195 Requirements for Federally regulated appraisal management companies.
§ 225.196 Information to be presented to the Appraisal Subcommittee by participating States.

§ 225.190  Authority, purpose, and scope.

(a)  Authority.This subpart is issued by the Board of Governors of the Federal Reserve System (the Board) pursuant to diagnosed title XI of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA) (Pub. L. 101--73, 103 Stat. 183 (1989)), 12 U.S.C. 3310, 3331--3351, section 1473 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, 12 U.S.C. 3353, and section 5(b) of the Bank Holding Company Act, 12 U.S.C. 1844(b).

(b)  Purpose and scope.(1)  The purpose of this subpart is to implement sections 1109, 1117, 1121, and 1124 of FIRREA Title XI, 12 U.S.C. 3338, 3346, 3350, and 3353. Title XI provides protection for Federal financial and public policy interests in real estate related transactions by requiring real estate appraisals used in connection with Federally related transactions to be performed in writing, in accordance with uniform standards, by appraisers whose competency has been demonstrated and whose professional conduct will be subject to effective supervision. This subpart implements the requirements of title XI as amended by the Dodd-Frank Wall Street Reform and Consumer Protection Act and applies to all Federally related transactions and to States and to appraisal management companies (AMCs) performing appraisal management services in connection with consumer credit transactions secured by a consumer's principal dwelling or securitizations of those transactions.

(2)  This subpart:

(i)  Identifies which real estate related financial transactions require the services of an appraiser.

(ii)  Prescribes which categories of Federally related transactions shall be appraised by a State-certified appraiser and which by a State-licensed appraiser;

(iii)  Prescribes minimum standards for the performance of real estate appraisals in connection with Federal related transactions under the jurisdiction of the Board;

(iv)  Prescribes minimum requirements to be applied by participating States in the registration and supervision of AMCs; and

(v)  Prescribes minimum requirements to be applied by participating States to report certain information concerning AMCs registered with the States to a national registry of AMCs.

(c)  Rule of construction.Nothing in this subpart should be construed to prevent a State from establishing requirements in addition to those in this subpart. In addition, nothing in this Interagency Appraisal and Evaluation Guidelines1 or other relevant agency guidance that cautions banks and bank holding companies, that each organization is accountable for overseeing the activities of third-party service providers and ensuring that any services provided by a third party comply with applicable laws, regulations, and supervisory guidance applicable directly to the creditor.

[Codified to 12 C.F.R. § 225.190]

[Section 225.190 added at 80 Fed. Reg. 32684, June 9, 2014 effective August 10, 2015]

§ 225.191  Definitions.

For purposes of this subpart:

(a)  Affiliate has the meaning provided in 12 U.S.C. 1841.

(b)  AMC National Registry means the registry of State-registered AMCs and Federally regulated AMCs maintained by the Appraisal Subcommittee.

(c)  Appraisal Foundation means the Appraisal Foundation established on November 30, 1987, as a not-for-profit corporation under the laws of Illinois.

(d)(1)  Appraisal management company (AMC) means a person that:

(i)  Provides appraisal management services to creditors or to secondary mortgage market participants, including affiliates;

(ii)  Provides such services in connection with valuing a consumer's principal dwelling as security for a consumer credit transaction or incorporating such transactions into securitizations; and

(iii)  Within a 12-month period, as defined in § 225.192(d), oversees an appraiser panel of more than 15 State-certified or State-licensed appraisers in a State or 25 or more State-certified or State-licensed appraisers in two or more States, as described in § 225.192;

(2)  An AMC does not include a department or division of an entity that provides appraisal management services only to that entity.

(e)  Appraisal management services means one or more of the following:

(1)  Recruiting, selecting, and retaining appraisers;

(2)  Contracting with State-certified or State-licensed appraisers to perform appraisal assignments;

(3)  Managing the process of having an appraisal performed, including providing administrative services such as receiving appraisal orders and appraisal reports, submitting completed appraisal reports to creditors and secondary market participants, collecting fees from creditors and secondary market participants for services provided, and paying appraisers for services performed; and

(4)  Reviewing and verifying the work of appraisers.

(f)  Appraiser panel means a network, list or roster of licensed or certified appraisers approved by an AMC to perform appraisals as independent contractors for the AMC. Appraisers on an AMC's "appraiser panel" under this part include both appraisers accepted by the AMC for consideration for future appraisal assignments in covered transactions or for secondary mortgage market participants in connection with covered transactions and appraisers engaged by the AMC to perform one or more appraisals in covered transactions or for secondary mortgage market participants in connection with covered transactions. An appraiser is an independent contractor for purposes of this part if the appraiser is treated as an independent contractor by the AMC for purposes of Federal income taxation.

(g)  Consumer credit means credit offered or extended to a consumer primarily for personal, family, or household purposes.

(h)  Covered transaction means any consumer credit transaction secured by the consumer's principal dwelling.

(i)  Creditor means:

(1)  A person who regularly extends consumer credit that is subject to a finance charge or is payable by written agreement in more than four installments (not including a down payment), and to whom the obligation is initially payable, either on the face of the note or contract, or by agreement when there is no note or contract.

(2)  A person regularly extends consumer credit if the person extended credit (other than credit subject to the requirements of 12 CFR 1026.32) more than 5 times for transactions secured by a dwelling in the preceding calendar year. If a person did not meet these numerical standards in the preceding calendar year, the numerical standards shall be applied to the current calendar year. A person regularly extends consumer credit if, in any 12-month period, the person originates more than one credit extension that is subject to the requirements of 12 CFR 1026.32 or one or more such credit extensions through a mortgage broker.

(j)  Dwelling means:

(1)  A residential structure that contains one to four units, whether or not that structure is attached to real property. The term includes an individual condominium unit, cooperative unit, mobile home, and trailer, if it is used as a residence.

(2)  A consumer can have only one "principal" dwelling at a time. Thus, a vacation or other second home would not be a principal dwelling. However, if a consumer buys or builds a new dwelling that will become the consumer's principal dwelling within a year or upon the completion of construction, the new dwelling is considered the principal dwelling for purposes of this section.

(k)  Federally regulated AMC means an AMC that is owned and controlled by an insured depository institution, as defined in 12 U.S.C. 1813 and regulated by the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, or the Federal Deposit Insurance Corporation.

(l)  Federally related transaction regulations means regulations established by the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, or the National Credit Union Administration, pursuant to sections 1112, 1113, and 1114 of FIRREA Title XI, 12 U.S.C. 3341--3343.

(m)  Person means a natural person or an organization, including a corporation, partnership, proprietorship, association, cooperative, estate, trust, or government unit.

(n)  Secondary mortgage market participant means a guarantor or insurer of mortgage-backed securities, or an underwriter or issuer of mortgage-backed securities. Secondary mortgage market participant only includes an individual investor in a mortgage-backed security if that investor also serves in the capacity of a guarantor, insurer, underwriter, or issuer for the mortgage-backed security.

(o)  States mean the 50 States and the District of Columbia and the territories of Guam, Mariana Islands, Puerto Rico, and the U.S. Virgin Islands.

(p)  Uniform Standards of Professional Appraisal Practice (USPAP) means the appraisal standards promulgated by the Appraisal Standards Board of the Appraisal Foundation.

[Codified to 12 C.F.R. § 225.191]

§ 225.192  Appraiser panel--annual size calculation.

For purposes of determining whether, within a 12-month period, an AMC oversees an appraiser panel of more than 15 State-certified or State-licensed appraisers in a State or 25 or more State-certified or State-licensed appraisers in two or more States pursuant to § 225.191(d)(1)(iii)--

(a)  An appraiser is deemed part of the AMC's appraiser panel as of the earliest date on which the AMC:

(1)  Accepts the appraiser for the AMC's consideration for future appraisal assignments in covered transactions or for secondary mortgage market participants in connection with covered transactions; or

(2)  Engages the appraiser to perform one or more appraisals on behalf of a creditor for a covered transaction or secondary mortgage market participant in connection with a covered transaction.

(b)  An appraiser who is deemed part of the AMC's appraiser panel pursuant to paragraph (a) of this section is deemed to remain on the panel until the date on which the AMC:

(1)  Sends written notice to the appraiser removing the appraiser from the appraiser panel, with an explanation of its action; or

(2)  Receives written notice from the appraiser asking to be removed from the appraiser panel or notice of the death or incapacity of the appraiser.

(c)  If an appraiser is removed from an AMC's appraiser panel pursuant to paragraph (b) of this section, but the AMC subsequently accepts the appraiser for consideration for future assignments or engages the appraiser at any time during the twelve months after the AMC's removal, the removal will be deemed not to have occurred, and the appraiser will be deemed to have been part of the AMC's appraiser panel without interruption. (d)  The period for purposes of counting appraisers on an AMC's appraiser panel may be the calendar year or a 12-month period established by law or rule of each State with which the AMC is required to register.

[Codified to 12 C.F.R. § 225.2]

§ 225.193  Appraisal management company registration.

Each State electing to register AMCs pursuant to paragraph (b)(1) of this section must:

(a)  Establish and maintain within the State appraiser certifying and licensing agency a licensing program that is subject to the limitations set forth in § 225.194 and with the legal authority and mechanisms to:

(1)  Review and approve or deny an AMC's application for initial registration;

(2)  Review and renew or review and deny an AMC's registration periodically;

(3)  Examine the books and records of an AMC operating in the State and require the AMC to submit reports, information, and documents;

(4)  Verify that the appraisers on the AMC's appraiser panel hold valid State certifications or licenses, as applicable;

(5)  Conduct investigations of AMCs to assess potential violations of applicable appraisal-related laws, regulations, or orders;

(6)  Discipline, suspend, terminate, or deny renewal of the registration of an AMC that violates applicable appraisal-related laws, regulations, or orders; and

(7)  Report an AMC's violation of applicable appraisal-related laws, regulations, or orders, as well as disciplinary and enforcement actions and other relevant information about an AMC's operations, to the Appraisal Subcommittee.

(b)  Impose requirements on AMCs that are not owned and controlled by an insured depository institution and not regulated by a Federal financial institutions regulatory agency to:

(1)  Register with and be subject to supervision by the State appraiser certifying and licensing agency;

(2)  Engage only State-certified or State-licensed appraisers for Federally related transactions in conformity with any Federally related transaction regulations;

(3)  Establish and comply with processes and controls reasonably designed to ensure that the AMC, in engaging an appraiser, selects an appraiser who is independent of the transaction and who has the requisite education, expertise, and experience necessary to competently complete the appraisal assignment for the particular market and property type;

(4)  Direct the appraiser to perform the assignment in accordance with USPAP; and

(5)  Establish and comply with processes and controls reasonably designed to ensure that the AMC conducts its appraisal management services in accordance with the requirements of section 129E(a)--(i) of the Truth in Lending Act, 15 U.S.C. 1639e(a)--(i), and regulations thereunder.

[Codified to 12 C.F.R. § 225.193]

§ 225.194  Ownership limitations for State-registered appraisal management companies.

(a)  Appraiser certification or licensing of owners.(1)  An AMC subject to State registration pursuant to § 225.193 shall not be registered by a State or included on the AMC National Registry if such AMC, in whole or in part, directly or indirectly, is owned by any person who has had an appraiser license or certificate refused, denied, cancelled, surrendered in lieu of revocation, or revoked in any State for a substantive cause, as determined by the appropriate State appraiser certifying and licensing agency.

(2)  An AMC subject to State registration pursuant to § 225.193 is not barred by paragraph (a)(1) of this section from being registered by a State or included on the AMC National Registry if the license or certificate of the appraiser with an ownership interest was not revoked for a substantive cause and has been reinstated by the State or States in which the appraiser was licensed or certified.

(b)  Good moral character of owners.An AMC shall not be registered by a State if any person that owns more than 10 percent of the AMC--

(1)  Is determined by the State appraiser certifying and licensing agency not to have good moral character; or

(2)  Fails to submit to a background investigation carried out by the State appraiser certifying and licensing agency.

[Codified to 12 C.F.R. § 225.194]

§ 225.195  Requirements for Federally regulated appraisal management companies.

(a)  Requirements in providing services.To provide appraisal management services for a creditor or secondary mortgage market participant relating to a covered transaction, a Federally regulated AMC must comply with the requirements in § 225.193(b)(2) through (5).

(b)  Ownership limitations.(1)  A Federally regulated AMC shall not be included on the AMC National Registry if such AMC, in whole or in part, directly or indirectly, is owned by any person who has had an appraiser license or certificate refused, denied, cancelled, surrendered in lieu of revocation, or revoked in any State for a substantive cause, as determined by the ASC.

(2)  A Federally regulated AMC is not barred by this paragraph (b) from being included on the AMC National Registry if the license or certificate of the appraiser with an ownership interest was not revoked for a substantive cause and has been reinstated by the State or States in which the appraiser was licensed or certified.

(c)  Reporting information for the AMC National Registry.A Federally regulated AMC must report to the State or States in which it operates the information required to be submitted by the State to the Appraisal Subcommittee pursuant to the Appraisal Subcommittee's policies regarding the determination of the AMC National Registry fee, including but not necessarily limited to the collection of information related to the limitations set forth in this section.

[Codified to 12 C.F.R. § 225.195]

§ 225.196  Information to be presented to the Appraisal Subcommittee by participating States.

Each State electing to register AMCs for purposes of permitting AMCs to provide appraisal management services relating to covered transactions in the State must submit to the Appraisal Subcommittee the information required to be submitted by Appraisal Subcommittee regulations or guidance concerning AMCs that operate in the State.

[Codified to 12 C.F.R. § 225.196]

1Firewalls 5--8, 19, 21 and 22 of J.P. Morgan & Co., The Chase Manhattan Corp., Bankers Trust New York Corp., Citicorp, and Security Pacific Corp., 75 Federal Reserve Bulletin 192, 214--16 (1989). Go back to Text

2Firewalls 5--8, 19, 21 and 22 of Canadian Imperial Bank of Commerce, The Royal Bank of Canada, Barclays PLC and Barclays Bank PLC, 76 Federal Reserve Bulletin 158, (1990). Go back to Text

3The terms "branch" and "agency" refer to a U.S. branch and agency of a foreign bank. Go back to Text

4For purposes of this operating standard, a retail customer is any customer that is not an "accredited investor" as defined in 17 CFR 230.501(a). Go back to Text

1See, Agencies issue final appraisal and evaluation guidelines, http:// www.federalreserve.gov/newsevents/press/bcreg/20101202a.htm. Go back to Text


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