4. How do the licensing requirements apply to cross-border business in your jurisdiction?
How do the licensing requirements apply to cross-border business in your jurisdiction?
Banking

In general, US banking laws and regulations, including licensure requirements, apply if a foreign firm has a presence in the United States where it conducts banking business, or solicits or conducts banking business through employees or agents based in the United States, through employees or agents based outside the United States, but who periodically travel to the United States to meet with customers, or otherwise through the use of US jurisdictional means (e.g., the US mail or US telephone lines). Generally, US federal laws do not prohibit a foreign bank from servicing deposit accounts of US persons outside of the US, nor do they require a bank to obtain a US federal banking license or other approval or consent. However, lending activity, specifically mortgage lending, is generally regulated by state law and will need to be addressed on a state-by-state basis.

Securities and investments

Generally, like US persons, any non-US person engaging in the business of a broker or dealer with or for US persons and/or US securities may be subject to registration as a broker or dealer with the SEC, unless an exemption applies. The SEC takes an expansive view of its ability to enforce US securities laws whenever US jurisdictional means are used to solicit transactions with US "persons," and the concept of US "persons" is also quite broadly defined by statute. While exemptions may be available to non-US persons engaging in broker or dealer activity, such exemptions require  adherence to the applicable conditions and may require intermediation by a US registered broker-dealer.  Even if exempt, a non-US person remains subject to securities antifraud laws for conduct within the US and/or conduct outside the US that has a substantial effect within the US.

Investment advisers generally must register with the SEC, but there are limited exemptions for foreign investment advisers with no place of business in the US who advise a de minimis number of US persons, with less than USD 25 million under management. In addition, foreign advisers who only advise private funds are also exempt under certain circumstances. 

Derivatives

Registration will be required if solicitation, management or advice with respect to futures contracts (and options thereon) occurs in the United States. In particular, registration will be required if a person solicits orders, advises US residents or manages any investments from the United States, absent an exemption.

The Dodd-Frank Act extended US swaps regulation to cross-border activities when such activities have a “direct and significant connection with activities in, or effect on, the commerce of the United States” or when they contravene CFTC rules or regulations aimed at preventing evasion of Title VII.

The application of CFTC swaps rules extraterritorially is governed by a CFTC policy statement (the Interpretive Guidance and Policy Statement Regarding Compliance with Certain Swap Regulations ("Guidance")) and Rule 23.23, known as the "Cross-Border Rule" ("Rule").

The extraterritorial application of most CFTC rules (other than margining and segregation of margin) depends, in large part, on whether one of the counterparties to the transaction is a “US person,” as defined in the Guidance. The Guidance defines “US person” broadly to include, but not be limited to the following:

  • Any natural person who is a resident of the United States
  • Any estate of a decedent who was a resident of the United States at the time of death
  • Any corporation, partnership, limited liability company, business or other trust, association, joint-stock company, fund or any form of enterprise similar to any of the foregoing (other than a “US Pension Plan” or a “US Trust,” each as defined below) ("Specified Legal Entity"), in each case that is organized or incorporated in the United States or having its principal place of business in the United States
  • Any pension plan for the employees, officers or principals of a Specified Legal Entity, unless the plan is primarily for foreign employees of such entity ("US Pension Plan")
  • Any trust governed by the laws of a state or other jurisdiction in the United States, if a court within the United States is able to exercise primary supervision over its administration
  • Any commodity pool or other collective investment vehicle that is not a Specified Legal Entity and that is majority-owned by one or more persons described above ("US Collective Investment Vehicle"), except any such entity that is publicly offered only to non-US persons and not offered to US persons
  • Any Specified Legal Entity (other than a limited liability company, limited liability partnership or similar entity where all the owners have limited liability) that is directly or indirectly majority-owned by one or more persons described above (other than a US Collective Investment Vehicle) and in which such person(s) bear unlimited responsibility for the obligations and liabilities of the entity
  • "Conduit affiliates" (i.e., non-US entities that have certain trading, ownership or accounting relationships with US affiliates)
  • Any individual account or joint account (discretionary or not) where the beneficial owner is a US person as described above

The Guidance makes clear that the prongs of the "US person" definition are not exhaustive and that there may be circumstances not fully addressed by those prongs and situations where the Guidance does not “appropriately resolve whether a person should be included in the interpretation of the term ‘US person.'”

The Rule creates a new concept of "significant risk subsidiary" that replaces the "conduit affiliate" category for some types of regulations, provides some additional guidance regarding permissible uses of guarantees, and streamlines some of the categories of US person.

With respect to margining and segregation of margin for uncleared swaps, the CFTC adopted a slightly different definition of “US person.” Accordingly, to the extent that a person engages in swaps transactions, careful analysis of both US person definitions should be conducted to determine the applicable substantive provisions of the swaps regulatory regime.

The SEC has also adopted a "security-based swap" regime for swaps that are deemed to be securities. The SEC swaps regime is similar, though not identical, to the CFTC swaps regime, and a separate analysis of US securities-based swaps activity is necessary.

Insurance

State laws in the United States applicable to insurance business will likely be invoked to the extent a foreign company’s conduct involves US persons or entities located within that state.

Money transmission

State laws in the United States applicable to money transmission and other money services business will likely be invoked to the extent a foreign company’s conduct involves US persons or entities located within that state. In addition, the federal definition of money transmission may also require registration with FinCEN. Note also that a requirement to license with a state as a money transmitter also requires registration with FinCEN even if the business would otherwise be exempt from FinCEN registration.