208
cable to supervised investment bank holding
companies.
‘‘(B) NOTIFICATION OF STATUS AS A SU-
PERVISED
INVESTMENT
BANK
HOLDING
COM-
PANY.—An investment bank holding company
that elects under subparagraph (A) to become
supervised by the Commission shall file with the
Commission a written notice of intention to be-
come supervised by the Commission in such
form and containing such information and doc-
uments concerning such investment bank hold-
ing company as the Commission, by rule, may
prescribe as necessary or appropriate in fur-
therance of the purposes of this section. Unless
the Commission finds that such supervision is
not necessary or appropriate in furtherance of
the purposes of this section, such supervision
shall become effective 45 days after receipt of
such written notice by the Commission or with-
in such shorter time period as the Commission,
by rule or order, may determine.
‘‘(2) ELECTION
NOT
TO
BE
SUPERVISED
BY
THE COMMISSION AS AN INVESTMENT BANK HOLD-
ING COMPANY.—
209
‘‘(A) VOLUNTARY
WITHDRAWAL.—A su-
pervised investment bank holding company that
is supervised pursuant to paragraph (1) may,
upon such terms and conditions as the Commis-
sion deems necessary or appropriate, elect not
to be supervised by the Commission by filing a
written notice of withdrawal from Commission
supervision. Such notice shall not become effec-
tive until one year after receipt by the Commis-
sion, or such shorter or longer period as the
Commission deems necessary or appropriate to
ensure effective supervision of the material
risks to the supervised investment bank holding
company and to the affiliated broker or dealer,
or to prevent evasion of the purposes of this
section.
‘‘(B) DISCONTINUATION
OF
COMMISSION
SUPERVISION.—If the Commission finds that
any supervised investment bank holding com-
pany that is supervised pursuant to paragraph
(1) is no longer in existence or has ceased to be
an investment bank holding company, or if the
Commission finds that continued supervision of
such a supervised investment bank holding com-
pany is not consistent with the purposes of this
210
section, the Commission may discontinue the
supervision pursuant to a rule or order, if any,
promulgated by the Commission under this sec-
tion.
‘‘(3)
SUPERVISION
OF
INVESTMENT
BANK
HOLDING COMPANIES.—
‘‘(A) RECORDKEEPING AND REPORTING.—
‘‘(i) IN GENERAL.—Every supervised
investment
bank
holding
company
and
each affiliate thereof shall make and keep
for prescribed periods such records, furnish
copies thereof, and make such reports, as
the Commission may require by rule, in
order to keep the Commission informed as
to—
‘‘(I) the company’s or affiliate’s
activities, financial condition, policies,
systems for monitoring and control-
ling financial and operational risks,
and transactions and relationships be-
tween any broker or dealer affiliate of
the supervised investment bank hold-
ing company; and
‘‘(II) the extent to which the
company or affiliate has complied with
211
the provisions of this Act and regula-
tions
prescribed
and
orders
issued
under this Act.
‘‘(ii)
FORM
AND
CONTENTS.—Such
records and reports shall be prepared in
such form and according to such specifica-
tions (including certification by an inde-
pendent public accountant), as the Com-
mission may require and shall be provided
promptly at any time upon request by the
Commission. Such records and reports may
include—
‘‘(I) a balance sheet and income
statement;
‘‘(II) an assessment of the con-
solidated capital of the supervised in-
vestment bank holding company;
‘‘(III) an independent auditor’s
report attesting to the supervised in-
vestment
bank
holding
company’s
compliance with its internal risk man-
agement and internal control objec-
tives; and
‘‘(IV) reports concerning the ex-
tent to which the company or affiliate
212
has complied with the provisions of
this title and any regulations pre-
scribed and orders issued under this
title.
‘‘(B) USE OF EXISTING REPORTS.—
‘‘(i) IN GENERAL.—The Commission
shall, to the fullest extent possible, accept
reports in fulfillment of the requirements
under this paragraph that the supervised
investment bank holding company or its af-
filiates have been required to provide to
another appropriate regulatory agency or
self-regulatory organization.
‘‘(ii) AVAILABILITY.—A supervised in-
vestment bank holding company or an af-
filiate of such company shall provide to the
Commission, at the request of the Commis-
sion, any report referred to in clause (i).
‘‘(C) EXAMINATION AUTHORITY.—
‘‘(i)
FOCUS
OF
EXAMINATION
AU-
THORITY.—The Commission may make ex-
aminations of any supervised investment
bank holding company and any affiliate of
such company in order to—
213
‘‘(I) inform the Commission re-
garding—
‘‘(aa) the nature of the oper-
ations and financial condition of
the supervised investment bank
holding company and its affili-
ates;
‘‘(bb) the financial and oper-
ational risks within the super-
vised
investment
bank
holding
company
that
may
affect
any
broker or dealer controlled by
such supervised investment bank
holding company; and
‘‘(cc) the systems of the su-
pervised investment bank holding
company and its affiliates for
monitoring and controlling those
risks; and
‘‘(II)
monitor
compliance
with
the provisions of this subsection, pro-
visions governing transactions and re-
lationships
between
any
broker
or
dealer affiliated with the supervised
investment bank holding company and
214
any of the company’s other affiliates,
and
applicable
provisions
of
sub-
chapter II of chapter 53, title 31,
United States Code (commonly re-
ferred to as the ‘Bank Secrecy Act’)
and regulations thereunder.
‘‘(ii) RESTRICTED FOCUS OF EXAMI-
NATIONS.—The Commission shall limit the
focus and scope of any examination of a
supervised investment bank holding com-
pany to—
‘‘(I) the company; and
‘‘(II) any affiliate of the company
that, because of its size, condition, or
activities, the nature or size of the
transactions
between
such
affiliate
and any affiliated broker or dealer, or
the centralization of functions within
the holding company system, could, in
the
discretion
of
the
Commission,
have a materially adverse effect on the
operational or financial condition of
the broker or dealer.
‘‘(iii) DEFERENCE TO OTHER EXAMI-
NATIONS.—For purposes of this subpara-
215
graph, the Commission shall, to the fullest
extent possible, use the reports of examina-
tion of an institution described in subpara-
graph (D), (F), or (G) of section 2(c)(2),
or held under section 4(f), of the Bank
Holding Company Act of 1956 made by
the appropriate regulatory agency, or of a
licensed insurance company made by the
appropriate State insurance regulator.
‘‘(4) HOLDING COMPANY CAPITAL.—
‘‘(A)
AUTHORITY.—If
the
Commission
finds that it is necessary to adequately super-
vise investment bank holding companies and
their broker or dealer affiliates consistent with
the purposes of this subsection, the Commission
may adopt capital adequacy rules for supervised
investment bank holding companies.
‘‘(B) METHOD OF CALCULATION.—In de-
veloping rules under this paragraph:
‘‘(i) DOUBLE LEVERAGE.—The Com-
mission shall consider the use by the su-
pervised investment bank holding company
of debt and other liabilities to fund capital
investments in affiliates.
216
‘‘(ii)
NO
UNWEIGHTED
CAPITAL
RATIO.—The Commission shall not impose
under this section a capital ratio that is
not based on appropriate risk-weighting
considerations.
‘‘(iii) NO CAPITAL REQUIREMENT ON
REGULATED
ENTITIES.—The Commission
shall not, by rule, regulation, guideline,
order or otherwise, impose any capital ade-
quacy provision on a nonbanking affiliate
(other than a broker or dealer) that is in
compliance with applicable capital require-
ments of another Federal regulatory au-
thority or State insurance authority.
‘‘(iv)
APPROPRIATE
EXCLUSIONS.—
The Commission shall take full account of
the applicable capital requirements of an-
other Federal regulatory authority or State
insurance regulator.
‘‘(C) INTERNAL RISK MANAGEMENT MOD-
ELS.—The Commission may incorporate inter-
nal risk management models into its capital
adequacy rules for supervised investment bank
holding companies.
217
‘‘(5) FUNCTIONAL
REGULATION
OF
BANKING
AND
INSURANCE
ACTIVITIES
OF
SUPERVISED
IN-
VESTMENT BANK HOLDING COMPANIES.—The Com-
mission shall defer to—
‘‘(A) the appropriate regulatory agency
with regard to all interpretations of, and the
enforcement of, applicable banking laws relating
to the activities, conduct, ownership, and oper-
ations of banks, and institutions described in
subparagraph (D), (F), and (G) of section
2(c)(2), or held under section 4(f), of the Bank
Holding Company Act of 1956; and
‘‘(B) the appropriate State insurance regu-
lators with regard to all interpretations of, and
the enforcement of, applicable State insurance
laws relating to the activities, conduct, and op-
erations of insurance companies and insurance
agents.
‘‘(6) DEFINITIONS.—For purposes of this sub-
section and subsection (j)—
‘‘(A) The term ‘investment bank holding
company’ means—
‘‘(i) any person other than a natural
person that owns or controls one or more
brokers or dealers; and
218
‘‘(ii) the associated persons of the in-
vestment bank holding company.
‘‘(B)
The
term
‘supervised
investment
bank holding company’ means any investment
bank holding company that is supervised by the
Commission pursuant to this subsection.
‘‘(C) The terms ‘affiliate’, ‘bank’, ‘bank
holding
company’,
‘company’,
‘control’,
and
‘savings association’ have the meanings given to
those terms in section 2 of the Bank Holding
Company Act of 1956 (12 U.S.C. 1841).
‘‘(D) The term ‘insured bank’ has the
meaning given to that term in section 3 of the
Federal Deposit Insurance Act.
‘‘(E) The term ‘foreign bank’ has the
meaning given to that term in section 1(b)(7)
of the International Banking Act of 1978.
‘‘(F) The terms ‘‘person associated with an
investment bank holding company’ and ‘‘associ-
ated person of an investment bank holding com-
pany’ means any person directly or indirectly
controlling, controlled by, or under common
control with, an investment bank holding com-
pany.
‘‘(j) COMMISSION BACKUP AUTHORITY.—