New York Codes, Rules and Regulations › Title 3 - BANKING › Legal Interpretations › LI 9 - Miscellaneous-Other › Section LI 9.1 - Back office operations

Current through Register Vol. 46, No. 28, July 10, 2024
A foreign banking corporation licensed to do business in New
				  York asked whether it could conduct a municipal bond operation at a so-called
				  "back-office location" without special branch authorization. The operation
				  would have involved underwriting and trading municipal securities as a dealer
				  with other dealers, and purchasing and selling municipal securities, as an
				  agent.
The Department responded that the construction given to
				  Sections 200 and
				  396  of the Banking Law which govern the
				  licensing of offices for the transaction of business by foreign banking
				  corporations and savings and loan associations is similar to the construction
				  given Sections 105 and
				  240 (2)  of the Banking Law
				  which prohibit banking organizations from transacting all or any part of the
				  "usual business of banking" from any place other than a principal office or
				  duly authorized branch. In construing these sections, the Department has
				  historically distinguished the activities which may be conducted solely from a
				  duly authorized office or branch from the so-called "back office", loan
				  production office and representative office operations for which no special
				  approval is required.
The "back office" exception would not apply unless the
				  activities and functions of the back office were carefully circumscribed. The
				  bank's services could not be marketed from such office, and any contact with
				  the members of the public to whom or for whom such services are normally
				  directed or performed would have to take place at either the authorized office
				  or branch or, to the limited extent permitted by Supervisory Policy CB 121, a
				  loan production office or representative office, and not at the "back
				  office".
The loan production office and representative office
				  exceptions would not apply unless the activities and functions conducted
				  thereat were carefully circumscribed and the bank had submitted the information
				  required by CB 121. To qualify as a loan production office, the activities
				  would have to be limited to the solicitation of loans on behalf of the bank,
				  the solicitation of investors to purchase loans from the bank, and the search
				  for servicers of the bank's loans. Although limited contact with members of the
				  public could occur in connection with such solicitations, the activities of the
				  loan production office could not be so broad as to constitute the business of
				  banking within the meaning of the New York State Banking Law. See Section
				  121.2(a) of Supervisory Policy CB 121.
Likewise, to qualify as a representative office, the
				  activities of the office would have to be limited to the solicitation of new
				  business, to research, to the servicing of home office needs, and to the acting
				  as a liaison between the home office and its customers in New York State. See
				  Section 121.b(2) of the Supervisory Policy CB 121.
The information provided to the department indicated that the
				  activities of the so-called "back office" would entail substantially more than
				  the mere solicitation of business for the Municipal Bond Department. Through
				  its proposed underwriting activities, dealer activities and agency activities
				  in municipal securities, the bank would have been unequivocally engaged in the
				  business of banking. In this connection, the department referred to a ruling of
				  the New York Attorney General, 1914 Op. Atty. Gen. 147, in which the Attorney
				  General held that the purchase, sale, and delivery of investment securities by
				  a trust company constituted the transaction of the business of the company and
				  that such activity could be conducted solely at an authorized location.
In light of the foregoing, the department concluded that the
				  proposed Municipal Bond Department operations would not fall within the "back
				  office," loan production office or representative office exceptions, and that
				  such operations could be conducted solely at a duly authorized branch.
DATED: July 1, 1976