The Federal Reserve Board on April 2 requested comment on a proposed amendment to the Board's Notice of Proposed Rulemaking (NPR) issued February 11, 2011, to establish requirements for determining whether a company is "predominantly engaged in financial activities" solely for purposes of determining whether a company qualifies as a nonbank financial company under Title I of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act). Under Title 1 of the Dodd-Frank Act, a company generally can be designated for Board supervision by the Financial Stability Oversight Council (the Council) only if 85 percent or more of the company's revenues or assets are related to activities that are financial in nature under the Bank Holding Company Act. The Board "believes that clarification is needed regarding the scope of activities that would be considered to be financial activities under that proposal."

For purposes of Title I of the Dodd-Frank Act, a company is considered to be "predominantly engaged" in financial activities if either:

• the annual gross revenues derived by the company and all of its subsidiaries from activities that are financial in nature (as defined in section 4(k) of the Bank Holding Company Act), and, if applicable, from the ownership or control of an insured depository institution, represents 85 percent or more of the consolidated annual gross revenues of the company; or
• the consolidated assets of the company and all of its subsidiaries related to activities that are financial in nature (as defined in section 4(k) of the Bank Holding Company Act), and, if applicable, related to the ownership or control of an insured depository institution, represents 85 percent or more of the consolidated assets of the company.

"The Board is proposing to amend the February 2011 NPR to clarify that, consistent with the purpose of Title I any activity referenced in section 4(k) will be considered to be a financial activity without regard to conditions that were imposed on bank holding companies that do not define the activity itself. To provide clarity, the Board further is issuing as an appendix to the NPR a list of the activities that would be considered to be financial activities as of April 2, 2012, including conditions necessary to the definition of the activity as a financial activity, for purposes of determining whether a company is predominantly engaged in financial activities." Among other things, the Federal Reserve believes that "Congress recognized that nonbank financial companies do not conduct their activities in compliance with the requirements applicable to bank holding companies. It would be illogical to conclude that a company would be eligible for Council designation only if it conducted its financial activities in conformance with the requirements imposed on bank holding companies’ conduct of financial activities set forth in section 4(k), but would not be required to conform its financial activities to the conditions imposed on bank holding companies by section 4(k) after being designated by the Council for Board supervision."

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