On March 31, 2020, the Board of Governors of the Federal Reserve System (“Board”) announced that it will delay by six months the effective date of the amended control rules. The control framework is used to determine whether one company has a “controlling influence” over another company for purposes of the US Bank Holding Company Act of 1956, as amended (“BHCA”), which is the basis for the application of other aspects of federal banking law. The revised control rules, which were to become effective April 1, 2020, will not take effect until September 30, 2020.1
As we discussed in our earlier Legal Update, the Board substantially revised and augmented the existing regulatory framework for interpreting the controlling influence prong of the statutory test for control in January 2020. While in many respects the revisions codified the Board’s existing control standards, they also introduced new concepts and raised critical questions about how the Board will implement and apply the control rules.
We noted at the time that the “need for clarification regarding existing arrangements, structures or investments could place significant pressure on Board staff and the industry between now and the April 1 effective date.” In the interim, the COVID-19 pandemic has imposed tremendous pressure on Board staff and industry to address current economic conditions. The six month delay in the effective date of the control rule is intended to relieve operational burdens and “provide companies affected by the new control rule additional time to analyze the impact of the rule on existing investments and relationships, and to consult with Board staff as necessary about such matters.”
Moving forward, we continue to expect that determinations regarding the existence of “controlling influence” will require holding companies and investors to engage in fact-specific exchanges with Board staff over existing investments and/or relationships that may trigger potential a presumption of control concerns. While at the moment, industry is rightly focused on mitigating COVID-19, institutions should identify and analyze existing arrangements that may necessitate consultation with Board staff and consider the revised control rules when entering into new or expanded investments.
1 Board, Federal Reserve Board announces it will delay by six months the effective date for its revised control framework (Mar. 31, 2020), https://www.federalreserve.gov/newsevents/pressreleases/bcreg20200331a.htm.