FRGFIN.200702.omb

Supporting Statement for the

Notice By Financial Institutions of Government Securities Broker or Government Securities Dealer Activities and the

Notice By Financial Institutions of Termination of Activities as a Government Securities Broker or Government Securities Dealer

(FR G-FIN, FR G-FINW; OMB No. 7100‑0224)

Summary

The Board of Governors of the Federal Reserve System, under delegated authority from the Office of Management and Budget (OMB), proposes to extend for three years, without revision, the following mandatory interagency information collection (OMB No. 7100-0224):

• the Notice By Financial Institutions of Government Securities Broker or Government Securities Dealer Activities (FR G-FIN)

• the Notice By Financial Institutions of Termination of Activities as a Government Securities Broker or Government Securities Dealer (FR G‑FINW).

The Government Securities Act of 1986 (the Act) requires financial institutions to notify their appropriate regulatory agency¹ (ARA) of their intent to engage in government securities broker or dealer activity, to amend information submitted previously, and to record their termination of such activity.

The Federal Reserve is the ARA for state member banks, foreign banks, uninsured state branches or state agencies of foreign banks, commercial lending companies owned or controlled by foreign banks, and Edge corporations.² The Federal Reserve Board uses the information in its supervisory capacity to measure compliance with the Act. The total annual burden for both notices is estimated to be twenty-seven hours.

Background and Justification

The Act established for the first time federal regulation of brokers and dealers of government securities, including banks and other financial institutions. The Act directed the Secretary of the Department of the Treasury (Treasury) to adopt regulations concerning consumer protection as well as the financial, reporting, and recordkeeping responsibilities of brokers and dealers. In promulgating its regulations, the Treasury was directed to consult with the Securities and Exchange Commission (SEC), the Federal Reserve, and the other federal banking regulatory agencies, and to consider the sufficiency of existing laws and regulations of other agencies.

Beginning on July 25, 1987, all financial institutions that serve as government securities brokers and government securities dealers were required to notify their ARA of such activities. The financial institutions notify their ARA on reporting forms prescribed by the Federal Reserve that they are engaged in, or have ceased to be engaged in, the activity. The ARAs enforce these Treasury regulations for financial institutions. The Act required previously unregulated nonbank government securities brokers and dealers to register with the SEC and to join a self‑regulatory organization (SRO). The SEC and SROs enforce these Treasury regulations for nonbanks.

Some institutions are exempt from the notice requirement by the Treasury regulation. (For example, an institution whose activity is limited to issuing or forwarding U.S. Savings Bonds.) When an exemption no longer applies, the institution must immediately file a notice.

Description of Information Collection

Pursuant to the Act, the FR G‑FIN is the initial notice of government securities broker or dealer activities and is used to amend obsolete information. The information collected on the FR G-FIN includes the company name, all business addresses, names and titles of managers of government securities activities, and whether any person associated with the respondent’s government securities activities has been involved in disciplinary proceedings related to securities sales. The FR G‑FINW is the notice of termination of government securities broker or dealer activities and collects the company name, address, and contact person responsible for the records associated with the financial institution’s activities as a government securities broker or dealer. Both information collections are event-generated.

An important function of the FR G‑FIN is to help financial institutions determine whether they must file notices pursuant to the Act. The definitions of government securities broker and government securities dealer in the statute are very broad and if read literally would encompass most banks and many thrift institutions. The Treasury has the authority to exempt institutions from this requirement if it is consistent with the intent of the Act. When the Treasury regulations were first drafted to implement the reporting requirements of the Act, the ARAs worked closely to narrow the class of financial institution required to file the FR G‑FIN (the consensus is reflected in Part B of the instructions, Who Must File).

In addition to incorporating Treasury's exemptions from the notice requirement in the reporting instructions, the Federal Reserve has also prominently summarized these exemptions on the cover of the FR G‑FIN in a box labeled Notice Requirements in order to provide a simpler and easier means for financial institutions to determine if they are exempt.

The statute requires that the notice contain information concerning the financial institution and any persons associated with the institution as the Board of Governors deems to be in the public interest or necessary for the protection of investors. Respondents are required to report in data item 6 the names of persons directly engaged in the management, direction, or supervision of their government securities dealer activities (rather than all management personnel of the financial institution). This parallels similar information that the SEC requires in the municipal securities dealer registration form (MSD; OMB No. 3235‑0083). Data item 7 incorporates a narrower definition of associated person than is contained in the statute (this narrower definition has been agreed to by the ARAs). The respondent is required to review employee data from other information collections³ and inform its ARA if any associated person has responded Yes to any questions on those reporting forms related to previous disciplinary actions that would constitute statutory disqualifications against the associated person or any of the employers for whom the associated person worked.

The FR G‑FINW termination notice collects the name and address of the financial institution, as well as the name and address of the custodian of the institution's records of its government securities activities.

Currently between seventy and eighty financial institutions are nonexempt government securities brokers or dealers and are required to file the FR G‑FIN. The Federal Reserve is currently the ARA for thirty-six of them: twenty-seven state member banks and nine branches and agencies of foreign banks. Many of these institutions are also registered municipal securities dealers.

Time Schedule for Information Collection

Financial institutions file the FR G‑FIN before commencing operations as a government securities broker or dealer. Amended FR G‑FIN reporting forms are due within thirty days of the date on which information on the previous notice became inaccurate. Financial institutions that cease to act as a government securities broker or dealer should file the FR G‑FINW immediately. Respondents file two copies of the notice directly with the Federal Reserve. The Federal Reserve forwards one copy to the SEC. The notices are available to the public upon request to the Federal Reserve or the SEC. The data are not published.

Legal Status

The Board's Legal Division has determined that 15 U.S.C. 78o‑5(a)(1)(B) authorizes the Board to require these reports. The notices are not treated as confidential.

Consultation Outside the Agency

The Federal Reserve Board staff consults on occasion with Treasury concerning these information collection requirements. On February 1, 2007, the Federal Reserve published a notice in the Federal Register (72 FR 4708) requesting public comment for sixty days on the extension, without revision, of the FR G-FIN and FR G-FINW. The comment period for this notice expired on April 2, 2007. The Federal Reserve received no comments. On April 16, 2007, the Federal Reserve published a final notice in the Federal Register (72 FR 18996).

Estimate of Respondent Burden

The estimated average response time is one hour for the FR G‑FIN and fifteen minutes for the FR G‑FINW. Because the frequency of filing these forms is event-generated, it is not possible to predict exactly how many would be filed in a particular year. The number of notices received during 2005 was used to estimate the annual reporting burden. The total annual burden of these reports represents less than 1 percent of total Federal Reserve System annual reporting burden.

	Estimated number of respondents	Annual frequency	Estimated average hours per response	Estimated annual burden hours
FR G‑FIN FR G‑FINW Total	26 5	1 1	1 hour 15 minutes	26 1 27

The annual cost to the public of information collection is estimated to be $2,414.⁴

Sensitive Questions

This collection of information contains no questions of a sensitive nature, as defined by OMB guidelines.

Cost to the Federal Reserve System

Since the reports require no automated processing, the cost to the Federal Reserve System is negligible.

1 The agencies are the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, and the Office of Thrift Supervision.

2 At this time, there are no foreign banks, commercial lending companies owned or controlled by foreign banks, or Edge corporations registered as government securities brokers or dealers.

3 The interagency Uniform Application for Municipal Securities Principal or Municipal Securities Representative Associated with a Bank Municipal Securities Dealer (MSD‑4; OMB No. 7100‑0100), Treasury’s Disclosure Form for Person Associated with a Financial Institution Government Securities Broker or Dealer (G‑FIN‑4; OMB No. 1535-0089), and the National Association of Securities Dealers', Form U‑4, that is not subject to the Paperwork Reduction Act.

4 Total cost to the public was estimated using the following formula. Percent of staff time, multiplied by annual burden hours, multiplied by hourly rate: 20% - Clerical @ $25; 70% - Senior Management @ $100; and 10% - Legal Counsel @ $144. Hourly rate estimates for each occupational group are averages using data from the Bureau of Labor and Statistics, Occupational Employment and Wages, news release.

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