Stricter standards are set for representative offices

The enactment of the Foreign Bank Supervision Enhancement Act of 1991 (FBSEA) marked a sea change in the regulation of foreign bank operations in the US. An important element in this changing climate is the treatment of representative offices, which are direct offices of banks that do not exercise banking powers, by both federal and state bank supervisory authorities. In implementing FBSEA, the Federal Reserve Board (FRB) issued final regulations establishing procedures for foreign banks to set up representative and other types of offices in the US. These regulations expressly limit the permitted activities for a representative office to include soliciting new business for a foreign bank, conducting research, acting as a liaison between the bank's head office and US customers, performing back office functions, and acting as a regional administrative office of the bank. Among the prominent standards that the FRB has applied to foreign banks seeking to establish representative offices are: 1. comprehensive supervision by the home country, 2. financial and managerial resources, and 3. disclosure of information.