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If an individual has access to control funds, (a signer), is the account subject to Regulation O restrictions as a related interest?

My bank is struggling with the definition of "related interest" for our executive officers and directors concerning Regulation O. Currently, the bank has defined related interest as "a signer" on an account. From what I understand from the regulation, simply functioning as an account signer does not make that individual a related interest. However, the bank’s internal auditor understood from the examiners in the past that if an individual has access to control funds, (a signer), then the account is subject to Regulation O restrictions as a related interest. Any additional direction you can provide would be appreciated.

Being a signer by no means equates to control of that company, and while it is possible that a person could have control, the fact that he or she is a signer is not proof of that fact.

A “related interest” is defined in section §215.2(n) as (1) a company controlled by that person, or (2) a political or campaign committee controlled by that person or the funds or services of which benefit that person. These definitions, however, do not apply to all provisions of Regulation O, and not all sections of Regulation O apply to all insiders, so banks must be careful in determining the persons or entities subject to a particular Regulation O provision.

Control is further defined in section §215.2(c) , and states, in part, that “(3) An individual is not considered to have control, including the power to exercise a controlling influence over the management or policies, of a company or bank solely by virtue of the individual's position as an officer or director of the company or bank.”

Arguably, anyone appointed by the board of a company can be a signer on an account. The first question you need to ask is whether or not the insider is an executive officer or director of that company and whether or not he or she directly or indirectly has the power to vote more than 10% of any class of the company’s voting securities.

It should be noted, however, that examiners often “encourage” institutions to expand their policies to cover situations in which the insider may have the appearance of ‘control of a company/bank,’ especially in situations where the insider controls the funds of the entity and arguably has the ability to influence the actions of the institution. So, this boils down to a possible risk assessment and comparison to the institutions risk tolerance/appetite. A conservative approach would be to include them by policy even though they technically may be exempt. However, this is basically a case-by-case determination that cannot be made based solely on signing authority. (March 2019)

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