A well-regulated U.S. branch of a foreign bank can manage collective investment funds for U.S. employee benefit plans.
Louis Campagna, chief of the Fiduciary Interpretations Division at the U.S. Department of Labor, has come to that conclusion in Advisory Opinion 2007-03A.
Campagna issued the opinion at the request of the Bank of Ireland, Dublin, Ireland.
The bank has 5 U.S. subsidiaries, and 3 are registered in the United States as investment advisors, according to the bank’s lawyers.
A U.S. branch in Stamford, Conn., began doing business in October 2006, and it is subject to regulation both by the Connecticut Department of Banking and by the Federal Reserve System.
The bank asked the Labor Department whether the department would treat the branch as a “bank or trust company” for purposes of interpreting Section 408(b)(8) of the Employee Retirement Income Security Act, Section 4975(d)(8) of the Internal Revenue Code and Prohibited Transaction Exemption 91-38.
The ERISA and Internal Revenue Code provisions and the prohibited transaction exemption set forth the rules that permit banks and trust companies to run collective investment funds. A CIF is a kind of investment fund for benefit plans.
Lawyers for the bank told the Labor Department that Connecticut and federal banking regulators apply roughly the same standards to the Bank of Ireland branch that they apply to a state-chartered Connecticut bank.
Before the Bank of Ireland branch could run collective investment funds, it would have to pledge to the Connecticut Banking Department assets with a value at least $1 million, or 2% of adjusted liabilities, which ever was greater, according to the bank’s lawyers.
“Claims against the BOI-U.S. branch will be enforceable against BOI, a large and financially stable multi-national banking entity that is considered ‘well capitalized’ for purposes of the U.S. Bank Holding Company Act,” Campagna writes in the advisory opinion. “By virtue of establishing the BOI-U.S. branch, BOI is subject to the jurisdiction of the state and federal courts in the U.S., and can be sued in those venues.”
In 1996, the Labor Department decided that entities licensed by a state to engage in banking and trust activities can be treated as banks or trust companies for purposes of interpreting the laws and PTEs governing collective investment funds, Campagna writes.
“It is the view of the [Labor] Department that a U.S. branch of a non-U.S. bank that has been licensed to engage in banking and trust business by a state regulator, and that is subject to the same level of oversight and regulation as any other comparable banking entity established in that state, would qualify as a ‘bank or trust company’ for purposes of” interpreting the collective investment fund rules, Campagna writes.
A copy of the advisory opinion is on the Web