Last week, the Board of Governors of the Federal Reserve System approved a final rule to codify its standards for determining whether one company has control over another. The final rule takes effect on April 1 and completes the process that the Federal Reserve began last April by issuing a proposal seeking public comment. Despite extensive industry input that urged the Federal Reserve to take a more expansive view, the Federal Reserve generally dismissed the comments received and largely adopted the control rule as initially proposed. Although this was disappointing to many in the industry, the impact of the control rule will nevertheless be significant with clear winners and losers. Beneficiaries of the final rule include investors in banks, including private equity and activists, who are permitted more board seats and governance rights than under the prior policy. Conversely, banks looking to invest in fintech and other companies, as well as fintech companies seeking to own banks, did not receive the flexibility that they had been seeking.
