Section 029-122-V - RESTRICTIONS AND LIMITATIONS1) Prior written approval of the Superintendent is required for a financial institution or a subsidiary thereof to engage in, or invest in a company engaged in, each activity which can be permitted pursuant to this regulation. An application for prior approval shall include, but not be limited to, discussion of the general business plan, initial capital needs, and the prospective risks involved in the proposed activity. The restrictions and limitations contained in this regulation are based on the assumption that both IV.A. and IV.B. activities will be generally conducted by subsidiaries of financial institutions. If a financial institution seeks to directly engage in activities permitted by Section IV.A. of this regulation, the restrictions and limitations set forth in Section V will apply, to the fullest extent possible, notwithstanding the use of the word "subsidiary" in subsection V(2).
In addition to satisfying the decision-making criteria found in Title 9-B M.R.S.A. Section252, any application that provides for the conduct of the activities enumerated in Section IV.A. directly by a financial institution rather than a subsidiary thereof, shall bear a heavy burden in demonstrating that such activities:
(1) do not raise unnecessary risks to the financial institution or its customers; (2) are conducted in accordance with the restrictions and limitations set forth in this regulation to the fullest extent possible; (3) avoid all problems of conflict of interest, breach of fiduciary duty and the appearance of impropriety.2) Whenever a subsidiary is formed or acquired to engage in a permitted activity, the subsidiary shall be a separate corporation from the financial institution(s) controlling it and shall comply with all related securities laws. (A) The facilities utilized in providing the activities enumerated in Section IV of this regulation must be distinctly separated from those of the financial institution;(B) The subsidiary must maintain separate accounting and other corporate records.(C) The subsidiary may not share any common officers with the financial institution and must maintain a separate board of directors, the majority of whom are neither directors nor officers of the financial institution;(D) Any advertising or promotional activity must make clear that the subsidiary and not the financial institution, is offering brokerage services, and the customer shall acknowledge in writing that he or she understands this fact;(E) Individuals acting as dual employees of the financial institution and subsidiary shall be prohibited from receiving any transaction-related compensation that is directly derived from the securities activities; and(F) Recognizing the risks inherent in securities activities, the aggregate investment in subsidiaries engaging in activities pursuant to this regulation shall not exceed 20% of the institution's total capital and reserves or surplus account without the express permission of the Superintendent. Also, these investments shall be included in determining compliance with the aggregate limitations prescribed in Title 9-B M.R.S.A. Section445 and 446.3) Underwriting (A) A subsidiary that engages in brokerage services pursuant to subsection IV.B. of this regulation may only underwrite the following: (1) Investment quality debt securities;(2) Investment quality equity securities; and(3) Investment companies with not more than 25% of its investments consisting of other than: (i) investment quality debt securities; ii) investment quality equity securities; iii) obligations of the United State Government and Agencies, including repurchase agreements of such obligations; and iv) other similar investments normally associated with a money market fund.(B) Paragraph A. of this section notwithstanding, a subsidiary of a financial institution may engage in underwriting activities other than as limited thereby provided that the following conditions are met: (1) The subsidiary is a member in good standing of the National Association of Securities Dealers ("NASD");(2) The subsidiary has been in continuous operation for the five year period preceding notice to the year period preceding notice to the Bureau of Banking as required by this rule;(3) No director, officer, general partner, employee or 10% shareholder of any class of voting securities of the subsidiary has been convicted, within five years of the notice required by this rule, of any felony or misdemeanor in connection with the purchase or sale of any security or involving the making of a false filing with the Securities and Exchange Commission or arising out of the conduct of the business of an underwriter, broker, dealer, municipal securities dealer, or investment advisor;(4) Neither the subsidiary nor any of its directors, officers, general partners, employees, or 10% shareholders of any class of voting securities of the subsidiary is or has been subject to any state or federal administrative order or court order, judgment, or decree entered, within five years of the notice required by this rule, temporarily or preliminary enjoining or restraining such person or the subsidiary from engaging in, or continuing, any conduct or practice in connection with the purchase or sale of any security involving the making of a false filing with the Securities and Exchange Commission or arising out of the conduct of the business of an underwriter, broker, dealer, municipal securities dealer, or investment advisor;(5) None of the subsidiary's directors, officers, general partners, employees, or 10% shareholders of any class of voting securities of the subsidiary are or have been subject to an order entered, within five years of the notice required by this rule, of the Securities and Exchange Commission entered pursuant to section 15(b) or 15B(c) of the Securities Exchange Act of 1934 ( 15 U.S.C. 780, 780-4) or section 203(c) of (f) of the Investment Advisor Act of 1940 ( 15 U.S.C. 80b-3(c), and (f)); and(6) All officers of the subsidiary who have supervisory responsibility for underwriting activities have at least five years experience in similar activities at NASD member securities firms.4) Extensions of Credit A financial institution which has a subsidiary that engages in brokerage services pursuant to this regulation shall not:
(1) Extend credit to any investment company whose securities are currently underwritten or distributed by its subsidiary, unless such securities qualify as investment quality debt securities or investment quality equity securities;(2) Extend credit where the purpose is to acquire any security issued or currently underwritten or distributed by its subsidiary, or issued by an investment company advised by the subsidiary, unless the credit extensions are to employees of the subsidiary for acquiring shares through an adopted employee stock bonus or stock purchase plan;(3) Condition any extension of credit to any company on the requirement that the company contract with the financial institution's subsidiary to underwrite or distribute the company's securities; and(4) Condition any extension of credit to any person on the requirement that that person purchase any security currently underwritten or distributed by its subsidiary.5) Trust Department A financial institution which has a subsidiary that engages in brokerage service pursuant to this regulation shall not:
(a) Transact business through its trust department with its subsidiary unless such transactions are conducted on a basis at least comparable with transactions between the trust department and a securities company that is not a subsidiary of the financial institution; and(b) Purchase as fiduciary or co-fiduciary any security currently distributed, underwritten, or issued by its subsidiary or any investment company advised by such subsidiary, unless the purchase is: (i) expressly authorized by the trust instrument, court order, local law, or specific authority is obtained from all interested parties after full disclosure; ii) otherwise consistent with the financial institution's fiduciary obligation; or iii) permissible under applicable federal and/or state statute or regulation.6) Federal Regulations It is recognized that the Federal Home Loan Bank Board, through the Federal Savings and Loan Insurance Corporation and the Federal Deposit Insurance Corporation, have promulgated regulations controlling the manner in which they will permit financial institutions they insure to engage in securities activities. It is further recognized that there may exist differences in scope and coverage between this regulation and those promulgated by the said federal insuring agencies. It is not the intent of this regulation to permit any practice which is not permitted by the appropriate federal agency. To the contrary, besides any other restriction or limitation stated herein, each financial institution must comply with the regulations of the applicable federal insuring agency.
02-029 C.M.R. ch. 122, § V