(The news featured below is a selection from the news covered in the Federal Securities Report Letter, which is distributed to subscribers of the Federal Securities Law Reports.)

SEC Adopts Exemption for Insider Loans by Foreign Banks

The SEC adopted an exemption for foreign banks from the insider lending provisions of added to Exchange Act Section 13(k) by the Sarbanes-Oxley Act. The act prohibited both domestic and foreign issuers from making or arranging loans to their officers and directors unless they met certain specified criteria. New Rule 13k-1 is intended to provide a more level playing field for foreign and domestic banks while remaining consistent with the goals of the Sarbanes-Oxley Act, according to the SEC. Chairman William Donaldson noted that the final rule reflects the "thoughtful comments" submitted in response to the proposal which helped to refine the final rule.

The Sarbanes-Oxley Act did not prohibit insider lending by banks or other depository institutions that are insured under the Federal Deposit Insurance Act. Foreign banks, however, were ineligible for this exemption. New Rule 13k-1 will exempt a foreign bank from the insider lending prohibition if the laws or regulations of its home jurisdiction require banks to insure their deposits or make them subject to guarantees or protections. Alternatively, foreign banks will be deemed exempt if the Federal Reserve Board determines that the foreign bank is subject to comprehensive supervision or regulation on a consolidated basis by the appropriate bank supervisor in its home jurisdiction.

Foreign banks may also qualify for the exemption if the loans are made on substantially the same terms as those available for comparable transactions with other persons, if the loan is part of a widely available benefit or compensation plan or if the home jurisdiction bank supervisor expressly approves them. The SEC also adopted an amendment to require foreign banks to disclose on Form 20-F substantially the same information that domestic registrants must disclose with respect to loans to insiders, such as loans that are past due.

The SEC eliminated a proposed condition that banks obtain approval in advance for loans exceeding $500,000 for reasons of comity, the staff explained. The final rule also exempts foreign governments that file on Schedule B. Another revision will permit banks to keep the identify of the insider loan recipient confidential if the home jurisdiction precludes disclosure under its privacy laws. In that case, the bank must attach a legal opinion with respect to the jurisdiction's confidentiality laws.

The exemption will become effective upon publication in the Federal Register. The amendment to Form 20-F will become effective 30 days after publication in the Federal Register.

¨ The adopting release will be published in a forthcoming REPORT