On July 11, 2012 the Board of Governors of the Federal Reserve System issued supervisory guidance describing a new, optional process for pre-filing staff review of specific aspects of proposed acquisitions or other proposals prior to the formal submission of an application or notice. The pre-filing review process is designed particularly for the benefit of infrequent filers, such as individuals, family trusts, private equity firms new to banking investments and community banking organizations, and filers with novel proposals, and is expected to facilitate speedier review of and Board action on final submissions.
The guidance introduces a formal process, including guidelines for appropriate subjects of inquiry and a review period of up to 60 days, for pre-filing feedback from Board and Federal Reserve Bank staff on potential issues raised by a proposed acquisition or other proposal. Although the guidance indicates that brief phone conversations and “limited e-mail correspondence” will not be deemed to trigger this pre-filing process, it suggests that any request for review of substantive written materials related to a proposal (other than individuals’ biographical and financial information for the purposes of background checks) would do so.
The pre-filing process appears to reflect an effort by the Board to manage the large volume of pre-filing inquiries received, including by directing pre-filing submissions to the appropriate Reserve Bank, and to provide an opportunity for staff to flag potential problems with specific aspects of a proposal. Common issues faced by Board staff that the pre-filing process is intended to help identify and resolve include:
- business plans that present supervisory concerns;
- in the context of non-controlling investments by private equity firms and similar investors, transactions and organizational documents and structures that present concerns about the investor’s ability to exercise a controlling influence; and
- the circumstances in which individuals and family trusts may have to make filings under the Change in Bank Control Act and related regulations.
Terms of the Pre-Filing Process
The guidance states that appropriate subjects for pre-filing inquiry are those related to “specific aspects” of a proposal, but that the pre-filing process is “not intended to be a forum for negotiating the final structure of a potential proposal or for resolving significant issues of policy or law.” Examples of appropriate subjects for pre-filing review provided in the guidance include:
business plans or pro forma financial information related to a potential filing;
- presentations outlining specific potential proposals (i.e., not just proposal concepts);
- draft transactional and structural documents, such as:
- shareholder agreements;
- purchase agreements;
- voting agreements;
- side letters;
- offering documents;
- partnership agreements;
- qualified family partnerships;
- questions regarding the type of filing required, if any;
- the individuals or entities that would need to join a filing; and
- whether an entity would be considered to be a “company” or have “control” of a company under the Bank Holding Company Act or the Home Owners’ Loan Act.
Logistics of Pre-Filing
Pre-filings should be submitted to the appropriate Federal Reserve Bank, rather than directly to Board staff. The guidance states that “most pre-filings can be addressed swiftly,” although once the pre-filing process is triggered, staff may take up to 60 days to respond. Generally, only one pre-filing review period will be available with respect to a potential application or notice, and staff will handle pre-filing inquiries on a “best-efforts basis,” giving priority to pending formal applications and notices. Individuals or entities who seek pre-filing review are not required to wait until the expiration of the 60-day pre-filing period to submit a formal application or notice.
Written pre-filing inquiries and any related materials submitted are now formally deemed to be public records of the Board and therefore subject to the Freedom of Information Act. Traditional requests for confidential treatment will be considered. Such inquiries and materials will not be published in the Board’s weekly H.2 report of actions of the Board, Board staff, Federal Reserve Banks and applications and reports received.
Impact of the Pre-Filing Process
Although the pre-filing process is stated to be for the benefit of inexperienced filers, more experienced filers with discrete interpretative questions relating to a proposed acquisition or other proposal will need to assess whether such questions can continue to be dealt with informally or whether they would constitute pre-filings subject to this process.