RBS 2007 Annual Report Download - page 235

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RBS Group • Annual Report and Accounts 2007
Additional information
the Federal Reserve System (the “Federal Reserve”).
Among other things, the Group’s direct and indirect
activities and investments in the United States are limited to
those that are ‘financial in nature’ or ‘incidental’ or
‘complementary’ to a financial activity, as determined by
the Federal Reserve. The Group is also required to obtain
the prior approval of the Federal Reserve before acquiring,
directly or indirectly, the ownership or control of more than
5% of any class of the voting shares of any US bank or
bank holding company.
Under current Federal Reserve policy, the Group is
required to act as a source of financial strength for its US
bank subsidiaries. Among other things, this source of
strength obligation could require the Group to inject capital
into any of its US bank subsidiaries if any of them became
undercapitalised.
The Group’s US bank and non-bank subsidiaries and
RBS’s US branches are also subject to supervision and
regulation by a variety of other U.S. regulatory agencies.
As of 1 September 2007, Citizens Financial Group’s state-
chartered bank subsidiaries (with the exception of its bank
subsidiary in the State of Pennsylvania) were merged and
consolidated into a single nationally chartered bank, RBS
Citizens, NA. As a result, RBS Citizens, NA is now
supervised by the Office of the Comptroller of the
Currency, a bureau of the US Department of the Treasury
charged with the regulation and supervision of nationally
chartered banks. Citizens Financial Group remains under
the supervision of the Federal Reserve as a bank holding
company. Citizens Bank of Pennsylvania is subject to the
regulation and supervision of the Pennsylvania Department
of Banking and the US Federal Deposit Insurance
Corporation. RBS’s New York branch is supervised by the
New York State Banking Department, and its Connecticut
branch is supervised by the Connecticut Department of
Banking. Both branches are also subject to supervisory
oversight by the Federal Reserve, through the Federal
Reserve Bank of Boston.
The Group’s US insurance agencies are regulated by state
insurance authorities. The Group’s US broker dealer,
Greenwich Capital Markets, Inc., is subject to regulation
and supervision by the US Securities and Exchange
Commission and the Financial Industry National Regulatory
Association (FINRA) with respect to its securities activities.
With respect to its futures activities, Greenwich Capital
Markets, Inc. is also subject to regulation and oversight by
the US Commodity Futures Trading Commission and the
Chicago Board of Trade.
The Group is subject to extensive regulations that impose
obligations on financial institutions to maintain appropriate
policies, procedures and controls to detect, prevent and
report money laundering and terrorist financing and to
ensure compliance with US economic sanctions against
designated foreign countries, nationals and others. Anti-
money laundering, anti-terrorism and economic sanctions
regulations have become a major focus of US government
policy relating to financial institutions and are rigorously
enforced by US government agencies.
2.3 Other jurisdictions
The Group and Bank of China have established an
exclusive strategic partnership. The Group and Bank of
China have agreed to co-operate across a range of
business activities, building on Bank of China’s distribution
strength and the Group’s product skills in areas including
credit cards, wealth management, corporate banking and
personal lines insurance. The Group also continues to
grow its other Asian activities, having recently set up new
branches in the Middle East and Far East. As in all
jurisdictions in which the Group undertakes business, it
considers regulatory risk as a key component of is new
products approval process to ensure that it meets with
local regulatory requirements.
Department of Justice investigation
As previously disclosed by ABN AMRO, the United States
Department of Justice has been conducting a criminal
investigation into ABN AMRO’s dollar clearing activities, Office
of Foreign Assets Control compliance procedures and other
Bank Secrecy Act compliance matters. ABN AMRO has
cooperated and continues to cooperate fully with the
investigation. Prior to the acquisition by the Group, ABN AMRO
had reached an agreement in principle with the Department of
Justice that would resolve all presently known aspects of the
ongoing investigation by way of a Deferred Prosecution
Agreement in return for a settlement payment by ABN AMRO
of US$500 million (which amount was accrued by ABN AMRO
in its interim financial statements for the six months ended 30
June 2007). Negotiations are continuing to enable a written
agreement to be concluded.
Sub-prime exposures
Certain of the Group’s subsidiaries have received requests for
information from various US governmental agencies and self-
regulatory organisations including in connection with sub-prime
mortgages and securitisations, collateralised debt obligations
and synthetic products related to sub-prime mortgages. The
Group and its subsidiaries are cooperating with these various
requests for information and investigations.