Grandfathered (Banking) Activities - Explained
What are Grandfathered Activities in Banking?
Written by J. Mance Gordon
Updated at April 18th, 2022
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What are Grandfathered Banking Activities?
Grandfathered activities are non-bank operations that are considered illegal and not permissible, but are allowed to continue in certain cases, especially when those activities began before they were prohibited by the regulatory authorities. Some Non-bank activities are allowed for foreign banks and holding companies in the United States despite that such activities are not allowed for other companies, activities of these nature are called grandfathered activities. The grandfather clause of the Bank Holding Company Act of 1956 and the International Banking Act of 1978 allowed for the existence of grandfathered activities. Usually, grandfathered activities started prior to a regulation that banned such activities.
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How Do Grandfathered Activities Work?
A Grandfather clause is a common feature of new laws and regulations. This clause grants an exemption to activities that were in existence before the formulation of a new rule and regulation. In financial services, the grandfathered activities are non-bank activities which are not permissible for foreign banks or holding companies but are allowed for companies and banks that have been practicing them prior to their prohibition.