FRR_20240130_omb

Supporting Statement for the
Recordkeeping and Disclosure Requirements Associated with Regulation R
(FR R; OMB No. 7100-0316)
Summary
The Board of Governors of the Federal Reserve System (Board), under authority
delegated by the Office of Management and Budget (OMB), has extended for three years,
without revision, the Recordkeeping and Disclosure Requirements Associated with Regulation R
(FR R; OMB No. 7100-0316). The Board’s Regulation R - Exceptions for Banks from the
Definition of Broker in the Securities Exchange Act of 1934 (12 CFR Part 218) implements
certain exceptions for banks from the definition of broker under section 3(a)(4) of the Securities
Exchange Act of 1934 (Exchange Act). For purposes of the Exchange Act and this Supporting
Statement, “banks” include banking institutions organized in the United States, including
members of the Federal Reserve System, Federal savings associations, and other commercial
banks, savings associations, and nondepository trust companies that are organized under the laws
of a state or the United States and subject to supervision and examination by state or federal
authorities having supervision over banks and savings associations. Sections 701, 723, and 741
of Regulation R contain certain recordkeeping provisions for banks that utilize the exceptions in
the Exchange Act and certain customer and counterparty disclosure requirements.
The estimated total annual burden for the FR R is 62,709 hours.
Background and Justification
Under section 15 of the Exchange Act, securities brokers generally must register with the
U.S. Securities and Exchange Commission (SEC) and join a self-regulatory organization.1
However, section 3(a)(4)(B) of the Exchange Act provides conditional exceptions from the
definition of broker for banks that engage in securities activities only in connection with third-party
brokerage or networking arrangements; trust and fiduciary activities; permissible securities
transactions; affiliate transactions; private securities offerings; transactions related to certain stock
purchase plans, sweep accounts, identified banking products, or municipal securities; or
safekeeping and custody activities, or that engage in a de minimis number of other securities
transactions.
The Exchange Act requires the SEC and Board to jointly adopt rules or regulations to
implement these exceptions for banks. The Board’s Regulation R implements the broker
exceptions for banks relating to, among other things, third-party networking arrangements, trust
and fiduciary activities, sweep activities, and custody and safekeeping activities, as well as
exemptions related to foreign securities transactions, securities lending transactions conducted in
an agency capacity, and the execution of transactions other than through a broker-dealer.2 As
described below, Regulation R includes a number of recordkeeping and disclosure requirements
for banks that utilize these exceptions.

1
2

15 U.S.C. § 78o.
The Board’s Regulation R was issued jointly with the SEC’s identical Regulation R found at 17 CFR Part 247.

This information is not available from other sources. If this information were not retained
or disclosed, or were retained for a shorter time period or disclosed less frequently, then the Board
would not be able assess whether securities transactions are exempt because they were undertaken
to in the exercise of trust or fiduciary responsibilities with respect to the account and would not
be able to ensure that customers received appropriate disclosures regarding transactions exempt
by Regulation R.
Description of Information Collection3
Recordkeeping Requirements
Section 218.723. A bank is exempt from the Exchange Act definition of broker with
respect to its trustee or fiduciary activities if, among other requirements, the bank is chiefly
compensated for such transactions on the basis of an administration or annual fee, a percentage
of assets under management, or a flat or capped per order processing fee. Pursuant to section
723(e) of Regulation R, a bank that desires to exclude a trust or fiduciary account in determining
its compliance with the chiefly compensated test pursuant to that section’s de minimis exclusion
must maintain records demonstrating that the securities transactions conducted by or on behalf of
the account were undertaken by the bank in the exercise of its trust or fiduciary responsibilities
with respect to the account.4
Disclosure Requirements
Section 218.701. Section 701 of Regulation R implements banks’ exception from the
Exchange Act definition of broker with respect to referral fees received in connection with thirdparty brokerage or networking arrangements. Sections 701(a)(2)(i) and 701(b) require banks (or
their broker-dealer partners) that utilize this exemption to make certain disclosures to high net
worth or institutional customers. Specifically, these banks must clearly and conspicuously
disclose (1) the name of the broker-dealer and (2) that the bank employee participates in an
incentive compensation program under which the bank employee may receive a fee of more than
a nominal amount for referring the customer to the broker-dealer and payment of this fee may be
contingent on whether the referral results in a transaction with the broker-dealer.
Section 701(a)(2)(iii) of Regulation R requires that, before a referral fee is paid to a bank
employee under section 701, the bank must provide the broker or dealer the name of the
employee and such other identifying information that may be necessary for the broker or dealer
to determine whether the bank employee is registered or approved, or otherwise required to be
registered or approved, in accordance with the qualification standards established by the rules of
any self-regulatory organization or is subject to statutory disqualification. Additionally, section
701(a)(3)(iv) requires that the written agreement between the bank and the broker or dealer shall
require requires that a broker or dealer inform the customer if it determines that the customer or
the securities transaction(s) to be conducted by the customer does not meet certain standards, and
3

The Board understands that respondents use information technology to comply with these provisions, including
storing records and making disclosures digitally.
4
Section 218.723 does not set forth a retention period for these records. The Board does not expect that it would
require a bank to maintain such records for a period longer than three years.

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section 701(a)(3)(v) requires that the same written agreement between the bank and the broker or
dealer shall require that the broker or dealer inform the bank if it determines that a customer is
not a high net worth customer or institutional customer, as applicable, or that a bank employee is
subject to statutory disqualification.
Section 218.741. Section 741 of Regulation R implements the exemption from the
Exchange Act definition of broker with respect to banks effecting transactions in money market
funds. Section 741(a)(2)(ii)(A) requires a bank relying on this exemption to provide customers
with a prospectus for the money market fund securities, not later than the time the customer
authorizes the bank to effect the transaction in such securities, if the class or series of securities
are not no-load.5 In situations where a bank effects transactions under the exemption as part of a
program for the investment or reinvestment of deposit funds of, or collected by, another bank,
the section permits either bank to provide the customer with the prospectus.
Respondent Panel
The FR R panel comprises banks, as defined in the Exchange Act, that qualify for the
exemptions from the Exchange Act definition of broker described above.
Frequency and Time Schedule
The FR R is event-generated. This information collection contains both recordkeeping
and disclosure requirements. The recordkeeping and disclosures are required when specific types
of transactions occur as described above. Records required to be kept must be retained for a
minimum of three years.6
Public Availability of Data
There are no data related to this information collection available to the public.
Legal Status
The FR R is authorized pursuant to sections 3(a)(4)(F) and 3(b) of the Exchange Act
(15 U.S.C. §§ 78c(a)(4)(F) and 78c(b)), which, among other things, require the Board and SEC
to jointly adopt rules to implement the bank exceptions to the definition of “broker” under the
Exchange Act. Additionally, the Board has the authority to require reports from state member
banks (12 U.S.C. §§ 248(a) and 324). Banks seeking the exception from the definition of
“broker” under the Exchange Act must comply with the requirements of FR R. The obligation,
therefore, is required to obtain a benefit.

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A no-load security is one that is not subject to a sales load. 12 CFR 218.740.
12 CFR 218.701(a)(2)(i) requires that this disclosure may be provided either (1) in writing prior to or at the time of
the referral or (2) orally prior to or at the time of the referral. A bank opting to disclose orally must (1) provide the
disclosure to the customer in writing within 3 business days of the date on which the bank employee refers the
customer to the broker or dealer or (2) the written agreement between the bank and the broker or dealer must
provide for the broker or dealer to provide such information to the customer in writing consistent with the
requirements at 12 CFR 218.701(a)(3)(i).
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Records retained by banking organizations or disclosed by individuals to depository
institutions or other banking organizations under the FR R would generally be maintained at each
banking organization. The Freedom of Information Act (FOIA) would be implicated only if the
Board obtained such records or disclosures as part of the examination or supervision of a
financial institution, in which case the records would be protected from disclosure under FOIA
exemption 8, which protects information contained in “examination, operating, or condition
reports” obtained in the bank supervisory process (5 U.S.C. § 552(b)(8)). Information retained
pursuant to the recordkeeping requirements under the FR R may also be exempt from disclosure
pursuant to FOIA exemption 4, if it is nonpublic commercial or financial information which is
both customarily and actually treated as private by the respondent (5 U.S.C. § 552(b)(4)).
Consultation Outside the Agency
The Board consulted with the SEC on the estimated burden with respect to the renewal of
this information collection.
Public Comments
On September 11, 2023, the Board published an initial notice in the Federal Register (88
FR 62363) requesting public comment for 60 days on the extension, without revision,7 of the
FR R. The comment period for this notice expired on November 13, 2023. The Board did not
receive any comments. The Board adopted the extension, without revision, of the FR R as
originally proposed. On January 29, 2024, the Board published a final notice in the Federal
Register (89 FR 5543).
Estimate of Respondent Burden
As shown in the table below, the estimated total annual burden for the FR R is 62,709
hours. The estimated number of respondents is based on the universe of banks that filed the
Federal Financial Institutions Examination Council (FFIEC) Consolidated Reports of Condition
and Income (Call Report) (FFIEC 031, FFIEC 041, and FFIEC 051; OMB No. 7100-0036)
minus the SEC’s list of registered third-party broker dealer firms as of March 2023.
Under section 701, the Board estimates that 1,249 commercial banks and savings
associations make the required referral fee disclosures to 100 customers annually and that 1,249
commercial banks and savings associations provide one notice annually to their broker-dealer
partner regarding names and other identifying information about bank employees. The Board
estimates that each respondent spends approximately 5 minutes per customer to comply with the
disclosure requirement and approximately 15 minutes per notice to a broker-dealer. The Board
estimates that approximately 62 commercial banks and savings associations annually use the de
minimis exclusion in section 723 and on average maintain records with respect to 10 trust or
fiduciary accounts annually conducted in the exercise of the banks’ trust or fiduciary
responsibilities. The Board estimates that it takes each respondent 15 minutes to comply with
recordkeeping requirements under section 723. Finally, the Board estimates that approximately
7

The initial Federal Register notice was published stating that the Board would be extending, with revision, the
FR R. However, there are not actually any revisions to the FR R.

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625 commercial banks and savings associations annually use the exemption in section 741 and
each deliver the prospectus required by the section to approximately 1,000 customers annually.
The Board estimates that a respondent spends approximately 5 minutes per response to comply
with the delivery requirement of section 741. These recordkeeping and disclosure requirements
represent less than 1 percent of the Board’s total paperwork burden.
Estimated
number of
respondents8

FR R
Recordkeeping
Section 218.723
Disclosure
Section 218.701
Disclosures to customers
Section 218.701
Disclosures to brokers
Section 218.741
Disclosures to customers

Estimated
annual
frequency

Estimated
average hours
per response

62

10

0.25

1,249

100

0.083

1,249

1

625

1,000

Total

Estimated
annual burden
hours
155

10,367

0.25
0.083

312
51,875
62,709

The estimated total annual cost to the public for this collection of information is
$4,154,471.9
Sensitive Questions
This information collection contains no questions of a sensitive nature, as defined by
OMB guidelines.
Estimate of Cost to the Federal Reserve System
The estimated cost to the Federal Reserve System for collecting and processing this
information collection is negligible.

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Of these respondents, 16 for recordkeeping, 325 for section 218.701 disclosures to customers, 325 for section
218.701 disclosures to brokers, and 163 for section 218.741 disclosures are considered small entities as defined by
the Small Business Administration (i.e., entities with less than $850 million in total assets). Size standards effective
March 17, 2023. See https://www.sba.gov/document/support-table-size-standards. There are no special
accommodations given to mitigate the burden on small institutions.
9
Total cost to the responding public is estimated using the following formula: total burden hours, multiplied by the
cost of staffing, where the cost of staffing is calculated as a percent of time for each occupational group multiplied
by the group’s hourly rate and then summed (30% Office & Administrative Support at $22, 45% Financial
Managers at $80, 15% Lawyers at $79, and 10% Chief Executives at $118). Hourly rates for each occupational
group are the (rounded) mean hourly wages from the Bureau of Labor Statistics (BLS), Occupational Employment
and Wages, May 2022, published April 25, 2023, https://www.bls.gov/news.release/ocwage.t01.htm. Occupations
are defined using the BLS Standard Occupational Classification System, https://www.bls.gov/soc/.

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