New York Codes, Rules and Regulations › Title 3 - BANKING › Legal Interpretations › LI 3 Foreign Banking Corporations › Section 3.1 - Powers of branches and agencies of foreign banks with respect to the handling of securities

Current through Register Vol. 46, No. 28, July 10, 2024
Section 201-b  of the Banking Law permits a branch,
				  which has received a certificate from the Superintendent, to exercise fiduciary
				  powers to act as fiscal or transfer agent for the foreign country of its
				  incorporation or for any corporation organized under the laws of such foreign
				  country or doing business there. Branches without such authorization, and all
				  agencies, are precluded from so acting. Several requests were made for the
				  department's view as to what functions may be performed by agencies and
				  foreign-bank branches, without special authorization under section 201-b  of the Banking Law, on behalf of
				  corporations organized in, or otherwise related to, such bank's country of
				  incorporation.
In principle the distinctions between what can be done by
				  branches with fiduciary powers under section 201-b  of the Banking Law as opposed to
				  branches without fiduciary powers or agencies are practically identical to
				  those applicable to trust companies, as opposed to banks without trust powers,
				  under section 100 (1)  of the Banking Law.
				  Specifically, banking entities lacking fiscal, transfer agent, or other
				  fiduciary powers may nonetheless engage in the following types of business:
(1) custody for safekeeping of customers' securities,
				  pursuant to instructions by such customers;
(2) receipt of dividends on the securities for the account of
				  such customers, and disposition thereof in accordance with instructions;
(3) placing of orders for the purchase or sale of securities
				  in accordance with customers' instructions;
(4) execution of voting and other rights in connection with
				  custodian accounts and in accordance with customers' instructions;
(5) transaction of such business through nominees; and
(6) receipt of fees or commissions from customers in
				  connection with such business.
More difficult questions arise, however, where an entity is
				  acting primarily on behalf of or in respect of a particular issuer or issue of
				  securities, not just with respect to securities (which will often be of widely
				  varying types) owned by and held for customers as such. The department regarded
				  it as clear that only authorized fiscal and transfer agents could receive from
				  the issuer and disburse to security holders principal and interest on debt
				  securities, dividends on equity securities, and similar sums such as
				  withholding reimbursements. Only such agents, moreover, could validate and
				  effect issuance, transfer, exchange, conversion (if any) and retirement (as,
				  for instance, by random selection of debt instruments for prepayment) of such
				  securities, or act as the issuer's agent for service of process, receipt of
				  securities for forwarding, and like purposes.
The foregoing would be true even of so-called "private
				  placements" and even if there is a disclaimer, accepted by all parties, of any
				  fiduciary relationship between the entity and the security holders. The
				  applicable statutes create no exception for issues of limited scope. Moreover,
				  even in the absence of a formal "fiduciary" relationship the rights of
				  institutional purchasers of securities, and ultimately of the small investors
				  they usually represent, can be seriously prejudiced by faulty performance of
				  fiscal and transfer duties, which specific departmental grant and supervision
				  of fiscal-agency powers was designed to avoid.
However, the department did note in conclusion that New York
				  agencies and branches without fiduciary powers, under their power to receive
				  and transmit funds could, on a "wholesale" basis (i.e. in one or a few large
				  transactions substantially without investor contact, except of an interbank
				  nature) handle remittances of funds to and from issuers in respect of their
				  securities issues, and of course, in respect of normal commercial transactions
				  including customary collections and payments. Foreign-bank agencies in
				  particular would not be expected to retain such remittances for any significant
				  length of time before transmission lest they come to resemble deposits (as
				  opposed to credit balances), which agencies are not allowed to receive.
DATED: August 5, 1974