The OTS issued an approval, OTS Order No. 2007-70 (the “Order”), in which it authorized a large federal savings association (the “Association”) to establish and invest in several foreign service corporations (the “Foreign Service Corporations”). The OTS stated that HOLA and OTS regulations “neither explicitly prohibit, nor explicitly authorize federal savings associations to engage in foreign activities.” The OTS concluded that where foreign activities are neither explicitly prohibited nor authorized a federal savings association (“FSA”) can engage in such activities if they: (1) would be permissible if engaged in domestically; (2) can be conducted in a safe and sound manner; and (3) are incidental to the clearly permissible activities of the FSA.The OTS found that the Association’s proposal met each of these requirements. The proposed activities are permissible as they involve telemarketing, collection, service call and related traditional support for consumer and mortgage banking services. The foreign operations represented less than one-hundredth of one percent of the Association’s total assets and the investment is within the Association’s investment limits. Moreover, the OTS concluded that the Foreign Service Corporations’ maintained corporate identities separate from the Association, as required by OTS regulations. Furthermore, the Order highlights that foreign operations raise certain safety and soundness concerns and that foreign operations “may become subject to new foreign regulatory requirements that may ultimately affect the Association’s overall operation.” Accordingly, to address these safety and soundness issues the OTS conditions its approval upon the OTS’s (a) control over proposed changes in the type and size of the Foreign Service Corporations’ activities; (b) access in the US to the Foreign Service Corporations’ books and records; (c) jurisdiction over the foreign operations, including for examination, supervision and enforcement; and (d) ability to require termination of the foreign operations if the OTS determines there is undue risk.
Alert January 29, 2008