In general, US banking laws and regulations, including licensure requirements, apply if a foreign bank or financial services 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 US federal banking 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.
Generally, a foreign financial services firm that engages in a securities or investment business in the US, has a presence in the US where it conducts securities or investment business, or solicits or conducts a securities or investment business through employees or agents based in the US is required to register with the SEC as a broker-dealer. This is also true if the firm conducts a securities or investment business through employees or agents based outside the United States, but who periodically travel to the US to meet with customers, or otherwise through the use of US jurisdictional means (e.g., the US mail, email or US telephone lines). While certain exemptions may be available to foreign financial services firms who interact solely with US registered banks, broker-dealers or certain institutional investors, such exemptions require specific adherence to the applicable rules and may require the intermediation of a US registered broker-dealer.
The SEC takes an expansive view of its ability to enforce US securities laws in connection with the activities of persons or firms that use US jurisdictional means to solicit transactions with US "persons," and the concept of US "persons" also is quite broadly defined by statute.
Investment advisers also generally require registration with the US SEC; provided, however, US federal law provides certain 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 to private funds with US investors are exempt from registration under certain circumstances.
With respect to transactions involving futures contracts (and options thereon), if the solicitation, advice or management is occurring in the United States, registration will be required. Thus, to the extent that a person solicits orders, advises US residents or manages any investments from the United States, registration will be required, absent an exemption.
The Dodd-Frank Act added Section 2(i) to the CEA, which provides that the swap provisions of Title VII apply to cross-border activities when such activities have a “direct and significant connection with activities in, or effect on, commerce of the United States” or when they contravene CFTC rules or regulations aimed at preventing evasion of Title VII. Prior to the Dodd-Frank Act, swaps were not subject to CFTC regulation (or any federal agency regulation).
The CFTC has issued both a policy statement (the Interpretive Guidance and Policy Statement Regarding Compliance with Certain Swap Regulations ("Guidance")) and Rule 23.23 the "Cross-Border Rule" ("Rule") regarding the cross-border application of the CFTC’s swaps regulatory regime. Although the Rule largely supersedes the Guidance, the Guidance will remain applicable to most swap arrangements prior to 14 September 2021, certain legacy swaps relationships until 31 December 2027, and with respect to certain CFTC rules (e.g., clearing and trade reporting determinations) until the CFTC adopts new cross-border rules or guidance with respect to those rules.
The application of most CFTC rules (other than margining and segregation of margin) to a cross-border transaction depends, in large part, on whether one of the counterparties to the transaction is a “US person,” as defined in the Guidance. The Guidance defined the term “US person” broadly to include, but not be limited to the following:
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, 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.
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.