Economic Classification Policy Committee: Standard Industrial Classification ReplacementThe North American Industry Classification System Proposed Industry Classification Structure

Federal RegisterJul 5, 1996

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SUMMARY: Under 44 U.S.C. 3504, the Office of Management and Budget

(OMB) is seeking public comment on a series of notices documenting the

development of the new North American Industry Classification System

(NAICS), the industry classification system being proposed to replace

the current Standard Industrial Classification (SIC) system. All

Federal agencies that collect establishment-based data are expected to

utilize the new system.

OMB is seeking comments on the usefulness and advisability of the

proposed new NAICS as submitted by the Economic Classification Policy

Committee (ECPC), an interagency committee established by OMB.

This notice, the sixth related to preparation of NAICS and the

fourth in a series seeking comment on proposed industry structures,

presents the entire proposed industry structure for NAICS including

those sectors not previously published, the hierarchy, and the coding

system. The structure and coding system shown in Part IV, Table 1 do

not include any changes based on comments received in response to

previous Federal Register notices regarding NAICS. The ECPC is

currently reviewing those comments. Thus comments provided in response

to any of the previous notices need not be resubmitted. This fall OMB

will publish the ECPC's final recommendations to OMB for comment in a

Federal Register notice that incorporates all of the ECPC's recommended

revisions to the structure and coding system based on comments received

in the U.S. and comments received by Canada and Mexico.

NAICS is being developed in cooperation with Statistics Canada and

Mexico's Instituto Nacional de Estadistica, Geografia e Informatica

(INEGI). The new NAICS system provides common industry definitions for

Canada, Mexico, and the United States to facilitate economic analyses

that cover the economies of the three North American countries. The

three country collaboration on an industry classification system for

North America was announced for public comment in the Federal Register,

July 26, 1994, pp. 38092-38096.

The July 26, 1994 Federal Register notice includes the concepts for

the new system, as developed by Statistics Canada, Mexico's INEGI, and

the ECPC. It also includes a copy of the joint statement of the three

countries' statistical agencies regarding the development of NAICS.

That agreement includes the following principles:

(1) NAICS will be erected on a production-oriented, or supply-

based, conceptual framework. This means that producing units that use

identical or similar production processes will be grouped together in

NAICS.

(2) The system will give special attention to developing

production-oriented classifications for (a) new and emerging

industries, (b) service industries in general, and (c) industries

engaged in the production of advanced technologies.

(3) Time series continuity will be maintained to the extent

possible. However, changes in the economy and proposals from data users

must be considered. In addition, adjustments will be required for

sectors where the United States, Canada, and Mexico presently have

incompatible industry classification definitions in order to produce a

common industry system for all three North American countries.

(4) The system will strive for compatibility with the 2-digit level

of the International Standard Industrial Classification of All Economic

Activities (ISIC, Rev. 3) of the United Nations.

ECPC Report No. 3--Summary of Public Responses to the Proposed New

North American Industry Classification Industry System provides a

summary of public comments received in response to the July 26, 1994,

Federal Register notice.

A notice was published in the Federal Register, July 26, 1995, pp.

38436-38452, requesting comment on proposed industry structures for

petroleum and coal product manufacturing, chemical manufacturing, and

rubber and plastics manufacturing; for broadcasting and

telecommunications; and for food services and drinking places and

accommodations. A second Federal Register notice was published on

February 6, 1996, pp. 4524-4578, requesting comment on proposed

industry structures for crop production, animal production, forestry

and logging; textile mills, textile product mills, apparel

manufacturing, and leather and allied product manufacturing; food

manufacturing and beverage and tobacco product manufacturing;

fabricated metal product manufacturing; machinery manufacturing;

electrical equipment, appliance and component manufacturing; and

transportation equipment manufacturing. A third Federal Register notice

was published on May 28, 1996, pp. 26558-26668, requesting comment on

proposed industry structures for health and social assistance;

educational services; computers and electronics product manufacturing;

furniture manufacturing; printing and related support activities;

professional, technical and scientific services; performing arts,

spectator sports and related industries; museums, historical sites and

similar institutions; recreation, amusement and gambling; information;

wood product manufacturing, except furniture; rental and leasing;

repair and maintenance; management and support; transportation; mining;

paper manufacturing; nonmetallic minerals manufacturing; primary metal

manufacturing; miscellaneous manufacturing; and postal service and

couriers.

DATES: To ensure consideration and response to all comments on the

proposals set forth in this notice, comments must be in writing and

should be submitted as soon as possible, but no later than September 3,

1996. It is planned that this proposed industry system would become

effective in the U.S. on January 1, 1997.

ADDRESSES: Correspondence about the industry proposals of the NAICS

structure announced in this Federal Register notice should be sent to:

Carole A. Ambler, Coordinator, Economic Classification Policy

Committee, Bureau of the Census, U.S. Department of Commerce, Room

2633-3, Washington, DC 20233, telephone number: (301) 457-2668, FAX

number: (301) 457-1343.

Copies of all ECPC issues papers and ECPC reports are available by

contacting Jack E. Triplett, Chairman, Economic Classification Policy

Committee, Bureau of Economic Analysis (BE-42), U.S. Department of

Commerce, Washington, DC 20230, telephone number: (202) 606-9615, FAX

number: (202) 606-5311.

ELECTRONIC AVAILABILITY AND COMMENTS: This document is available on the

Internet from the Census Bureau via WWW browser, ftp, and E-mail.

To obtain this document via WWW browser, connect to ``http://

www.census.gov'' then select the ``Current Economic Indicators''

circular

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icon, then select ``Economy-wide topics'' from the ``About businesses''

theme, then select ``North American Industry Classification System

(NAICS)'', then select this Federal Register notice.

To obtain this document via ftp, login to ftp.census.gov as

anonymous, and retrieve the file ``naicsfr6'' from the ``/pub/epcd/

naics'' directory. (That directory also contains previous NAICS Federal

To obtain this document via Internet E-mail, send a message to

[email protected] with the body text as follows: ``get gatekeeper

naicsfr6.txt''. The document will be delivered as a message attachment.

Comments may be sent via Internet E-mail to the Census Bureau at

[email protected] (do not include any capital letters in the address).

Comments received at this address by the dates specified above will be

included as part of the official record.

FOR FURTHER INFORMATION CONTACT: Carole A. Ambler, Coordinator,

Economic Classification Policy Committee, Bureau of the Census, U.S.

Department of Commerce, Room 2633-3, Washington, DC 20233, telephone

number: (301) 457-2668, FAX number: (301) 457-1343.

SUPPLEMENTARY INFORMATION:

Structure of Notice

There are four parts to this notice. PART I includes the proposals

for Finance and Insurance; PART II includes the structure for all of

the subsectors not made comparable across all three countries and the

structure for the retail and wholesale sectors, the boundaries of which

are included in NAICS; PART III includes the proposed NAICS hierarchy;

and PART IV presents the entire proposed structure of the new

classification system, including the proposed coding system.

Part I of the notice is organized into two sections. The first

section includes a copy of the proposed agreement signed by the ECPC,

Statistics Canada, and INEGI; the structure of NAICS; and an

explanation of the structure. For a number of reasons, NAICS industries

do not always provide as much industry detail as has been present in

the U.S. SIC. Each country may add additional detailed industries,

below the proposed 5-digit industry level of NAICS, as necessary to

meet national needs, so long as this additional detail aggregates to a

5-digit industry NAICS level in order to ensure full comparability

among the three countries. The second section includes the U.S.

detailed industries within NAICS and two comparison tables showing the

differences between the 1987 SIC and the 1997 NAICS with United States

detail.

Part II includes the structure for industries that have not been

made comparable across all three countries. Because both resources and

time for constructing NAICS were limited, the statistical agencies of

the three countries agreed on the boundaries of some sectors or

subsectors rather than a detailed industry structure. Those sectors

(subsectors) are construction; utilities; retail trade; wholesale

trade; real estate; lessors of other non- financial assets; waste

management and remediation services; and other services that include

personal and laundry services and religious, grantmaking, civic, and

other membership organizations. For each of these sectors, except

wholesale trade, Canada and the United States have agreed on an

industry structure and hierarchy to ensure comparability of statistics

between those two countries. The United States will provide for

additional industries at the national level to reflect important

industries in the United States that will not be shown separately in

Canada.

Part III includes the proposed hierarchy for NAICS. This structure

includes those sectors for which detailed industries have been agreed

upon by the three countries and those industries that include only an

agreement between Canada and the United States.

Part IV presents the entire structure of the new classification

system for the United States including both NAICS and non-NAICS

industries. Table 1 shows the proposed 1997 hierarchy, including NAICS

and U.S. national detail industries, and the proposed coding system for

NAICS with a comparison to the 1987 SIC. Table 2 is in 1987 SIC

sequence and relates the 1987 SIC to the 1997 NAICS.

The structure and coding system shown in Part IV, Table 1 do not

include any changes based on comments received about previous Federal

comments. If you have provided comments on any of the previous notices,

you do not need to resubmit those comments. This fall OMB will publish

the ECPC's final recommendations to OMB for comment in a Federal

revisions to the structure and coding system based on comments received

in the U.S. and comments received by Canada and Mexico.

Time Series Summary

The standard approach to preserving time series continuity after

classification revisions is to create linkages where the series break.

This is accomplished by producing the data series using both the old

and new classifications for a given period of transition. With the dual

classifications of data, the full impact of the revision can be

assessed. Data producers then may measure the reallocation of the data

at aggregate industry levels and develop a concordance between the new

and old series for that given point in time. The concordance creates a

crosswalk between the old and new classification systems. This link

between the 1987 U.S. SIC and NAICS (with U.S. national detail) will be

developed by the statistical agencies in the U.S.

Outreach Activities

OMB and the Economic Classification Policy Committee (ECPC) are

seeking comments on the proposed NAICS structure for the industries

described in this notice. In carrying out its mandate to ensure maximum

public participation in the process of constructing NAICS, the ECPC has

already discussed many of these industry proposals with industry and

user groups and will continue to do so. In addition, the ECPC is

replying on a flow basis as soon as the work is completed for industry

subsectors to previous Federal Register notices. Thus, this Federal

the development of NAICS.

Part 1--Proposed New Industry Structure for Finance and Insurance

Section A--NAICS Structure

North American Industry Classification System (NAICS)

Agreement Number 24

This Document represents the proposed agreement on the structure of

the North American Industry Classification System (NAICS) for the

following sector: Finance and Insurance.

The detailed NAICS structure along with a brief description of the

structure is attached (Attachments 1 and 2). Each country agrees to

release a copy of the proposed NAICS structure to interested data

users. Comments received will be shared among the countries and

additional discussions will be held before a final decision on the

structure is made. Each country may add additional detailed industries,

below the NAICS industry level of NAICS, as

[[Page 35386]]

necessary to meet national needs, so long as this additional detail

aggregates to the NAICS industry level in order to ensure full

comparability among the three countries. This NAICS structure was

presented and provisionally accepted at the NAICS Committee meeting

held on December 12 and December 13, 1995 in Washington, DC.

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Accepted Signature Date

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Canada.............................. /s/ Jacob Ryten....... 12/13/95

Mexico.............................. /s/ Enrique Ordaz..... 12/13/95

United States....................... /s/ Jack E. Triplett.. 12/13/95

------------------------------------------------------------------------

Attachment 1--NAICS Structure

52 FINANCE AND INSURANCE

521 Monetary Authorities--Central Bank

5211 Monetary Authorities--Central Bank

52111 Monetary Authorities--Central Bank

522 Credit Intermediation and Related Activities

523 Securities, Commodity Contracts, and Other Intermediation and

Related Activities

5231 Securities and Commodity Contracts Intermediation and

Brokerage

5232 Securities and Commodity Exchanges

52321 Securities and Commodity Exchanges

5239 Other Financial Investment Activities

524 Insurance Carriers and Related Activities

5241 Insurance Carriers

5242 Agencies, Brokerages, and Other Insurance Related Activities

Attachment 2--North American Industry Classification System

Draft Classification for:

Finance and Insurance

Representatives of the statistical agencies of Canada, Mexico, and

the United States agree to a draft classification for these industries.

This draft classification constitutes the sector Finance and

Insurance. This sector is composed of four subsectors: Monetary

Authorities--Central Bank; Credit Intermediation and Related

Activities; Securities, Commodity Contracts, and Other Intermediation

and Related Activities; and Insurance Carriers and Related Activities.

These subsectors are subdivided into six industry groups.

In addition, Canada and the United States will further subdivide

the NAICS structure, creating, in all, nine industry groups and 25

industries; this structure is shown in Attachment 3. Mexico will have

its own industry detail to reflect the very different financial

institutions that exist in Mexico.

A General Outline

The Finance and Insurance sector consists of establishments

primarily engaged in financial transactions--that is, transactions

involving the creation, liquidation, or change in ownership of

financial assets--or in facilitating financial transactions. Three

principal types of activities can be identified:

Some establishments raise funds by taking deposits and/or

issuing securities, and, in the process, incur liabilities. They use

these funds to acquire financial assets by making loans and/or

purchasing securities. Putting themselves at risk, they channel funds

from lenders to borrowers and transform or repackage the funds with

respect to maturity, scale and risk. This activity is known as

financial intermediation, and that term will be used in the rest of

this agreement.

Some establishments are engaged in the pooling of risk.

They collect fees--insurance premiums or annuity considerations; build

up reserves; invest those reserves; and make contractual payments. Fees

are based on the expected incidence of the insured risk and the

expected return on investment.

Some establishments are engaged in providing specialized

services facilitating, or supporting, financial intermediation,

insurance, and employee benefit programs.

In addition, establishments charged with monetary control--the

monetary authorities--are included in this sector.

The subsectors, industry groups, and industries within this sector

have been defined on the basis of their unique production processes. As

with all industries, the production processes are distinguished by

their use of specialized human resources and specialized physical

capital. In addition, the way in which these establishments acquire and

allocate financial capital--their source of funds and the use of those

funds--provides a third basis for distinguishing characteristics of the

production process. For instance, the production process in raising

funds through deposit taking is different from the process of raising

funds in bond or money markets. The process of making loans to

individuals also requires different production processes than does the

creation of investment pools or the underwriting of securities.

Most of the Finance and Insurance subsectors contain one or more

industry groups of intermediaries with similar patterns of raising and

using funds and another industry group of establishments engaged in

activities that facilitate, or are otherwise related to, that type of

financial or insurance intermediation.

The subsector Monetary Authorities-Central Bank consists of

establishments engaged in such central banking functions as issuing

currency, regulating the supply of credit, managing the nation's

international reserves, holding deposits that represent the reserves of

other banks and other central banks, and acting as fiscal agent for the

central government. The institutional arrangements for performing these

functions may differ among countries. In Canada these functions are

performed by the Bank of Canada, in Mexico by the Bank of Mexico, and

in the United States by the Federal Reserve banks.\1\

---------------------------------------------------------------------------

\1\ The Board of Governors of the Federal Reserve System is

classified in Public Administration.

---------------------------------------------------------------------------

The subsector Credit Intermediation and Related Activities consists

of two types of establishments: those that intermediate in credit

markets and those that facilitate such intermediation. Establishments

in the first group lend funds to the public or to other borrowers,

raising the funds that they lend by accepting deposits from the public,

by borrowing from other financial intermediaries, or by issuing

commercial paper and debt in the capital markets. Establishments that

facilitate credit intermediation are engaged in such activities as

mortgage and loan brokerage, clearinghouse and reserve services, and

check cashing services.

The subsector Securities, Commodity Contracts, and Other

Intermediation and Related Activities contains three industry groups.

The first industry group, Securities and Commodity Contracts

Intermediation and Brokerage, consists of establishments that put

capital at risk in the process of engaging in underwriting securities

issues or in making markets for securities and establishments that, as

agents and brokers, act as intermediaries between buyers and sellers,

usually charging a commission. The second industry group, Securities

and Commodity Exchanges, consists of securities and commodity exchanges

that provide administrative, monitoring, and enforcement services for

financial markets. The third industry group, Other Financial Investment

Activities, consists of establishments that facilitate the marketing of

other financial contracts or provide portfolio management, other

investment advisory services, trust, fiduciary, and custody services.

The subsector Insurance Carriers and Related Activities contains

two industry groups. The first industry group,

[[Page 35387]]

Insurance Carriers, consists of establishments that intermediate as the

consequence of pooling risks. They invest premiums to build up a

portfolio of financial assets to be used against future claims.

Industries are defined in terms of the type of risk being insured

against, such as, death, loss of employment because of age or

disability, and property damage. Contributions and premiums are set on

the basis of actuarial calculations of probable payouts based on risk

factors from experience tables and expected investment returns on

reserves. The second industry group, Agencies, Brokerages, and Other

Insurance Related Activities, consists of agencies and brokerages

selling insurance and establishments providing other insurance- and

employee-benefit-related services.

Background. Existing industry classification structures for this

sector typically have been specified at the enterprise level by type of

financial institution--banks, life insurance companies, etc. Until

recently, the functions that could be performed by particular

institutions were constrained by the regulatory structure in each

country; but this situation is rapidly changing, particularly in Canada

and the United States. The NAICS classification proposed for Finance

and Insurance is a bridge between the existing institutional basis and

a structure based on the activities performed within these

institutions.

Industries are defined in terms of activities for which a

production process can be specified, and many of these activities are

not exclusive to a particular type of financial institution. Although

the activities carried out by establishments in the Finance and

Insurance sector appear to be broadly similar in the three countries,

the manner in which they have been organized and delivered are unique

to each country--depending on laws, regulations, tradition, and

technological advancements. The extent to which these activities can be

separately identified and measured is not clear; consequently, three-

country NAICS is specified, for the most part, only at the subsector or

industry group level.

To deal with the varied activities taking place within existing

financial institutions, the approach is to split these institutions

into components performing specialized services. This requires defining

the units engaged in providing those services and developing procedures

that allow for their delineation. These units are the equivalents for

Finance and Insurance of the establishments defined for other

industries. There are differences in the present definition of the

production unit in the three countries, ranging from the location in

the United States to the enterprise in Mexico. This requires that, in

designing the classification structure, consideration be given to the

appropriate definition and delineation of the producing unit to be

classified.

The output of many financial services, as well as the inputs and

the processes by which they are combined, cannot be observed at a

single location and can only be defined at a higher level of the

organizational structure of the enterprise. Additionally, a number of

independent activities that represent separate and distinct production

processes may take place at a single location belonging to a multi-

location financial firm. Activities are more likely to be homogeneous

with respect to production characteristics than are locations, at least

in financial services. The classification proposed defines activities

broadly enough that it can be used both by those classifying by

location and by those employing a more top-down approach to the

delineation of the establishment.

Limitations and Constraints of the Classification

The classification of establishments engaged in activities that

facilitate, or are otherwise related to, the various types of

intermediation have been included in individual subsectors, rather than

in a separate subsector dedicated to services alone. This is because

these services are performed by intermediaries as well as by specialist

establishments, and the extent to which the activity of the former can

be separately identified is not clear. An aggregate that includes all

of the service, wherever it is produced, is preferable to one that

misses much of it. In particular, in many instances Mexico proposes to

collect data on an institutional basis and would be unable to separate

services. Aggregates for related activities are identified at the 3-

digit industry group level, wherever possible. They can be reaggregated

to a services subsector if desired.

The boundaries of the Finance and Insurance sector have been

defined so as to encompass establishments primarily engaged in

financial transactions--that is, transactions involving the creation,

liquidation, or change in ownership of financial assets--or in

facilitating financial transactions. Financial industries are extensive

users of electronic means for facilitating the verification of

financial balances, authorizing transactions, transferring funds to and

from transactors' accounts, notifying banks (or credit card issuers) of

the individual transactions and providing daily summaries. Since these

transaction processing activities are integral to the production of

finance and insurance services, establishments that principally provide

a financial transaction processing service are classified to this

sector, rather than to the data processing industry in the Information

sector.

Funds, trusts and other financial vehicles that are not separate

production units and do not have employees are excluded from the

structure in the three-country agreement. The management of these funds

can require significant human and capital resources, however, and the

management activity is a major source of the value added in the

investment intermediary industry. In NAICS, where there are separate

establishments and employees devoted to the management of funds, they

are classified in ``Other Financial Investment Activities'' by all

three countries.

These legal entities that hold portfolios of assets on behalf of

others are significant, however, and data on them are required for a

variety of purposes. All three countries may include these legal

entities in the compilation of financial and other statistics, but

whereas Canada and Mexico do not propose to include them in their

compilation of production statistics, the United States proposes to do

so. The United States, therefore, has extended the boundary to include

funds, trusts and other financial vehicles in a fifth subsector.

Relationship to ISIC

All of the industries included in this sector are contained within

Divisions 65, Financial Intermediation, Except Insurance and Pension

Funding; 66, Insurance and Pension Funding, and 67, Activities

Auxiliary to Financial Intermediation in the current International

Standard Industrial Classification of All Economic Activities (ISIC,

Revision 3) of the United Nations. ISIC Division 67, however, also

includes actuarial consulting services, which are in the Professional,

Scientific, and Technical subsector of NAICS.

For Finance and Insurance, NAICS differs from ISIC, Rev.3, in the

following respects: there are fewer detailed industries in NAICS; NAICS

does not distinguish between monetary intermediation and other

intermediation; NAICS monetary authorities (ISIC central banking) are

not part of depository credit intermediation; NAICS includes activities

related to financial intermediation within each

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subsector, although to the extent that such industry groups are

identified, they can be reaggregated to approximate ISIC Division 67;

and those holding companies, pension funds, and other funds that are

included in ISIC are excluded from NAICS.

Some Changes to the National Classifications

For Canada, an important revision is that the retail operations of

banks, trust companies, and other related institutions, as well as the

corporate and institutional activities of these institutions, are

classified to Commercial Banking, which is in the Depository Credit

Intermediation industry group. There are no longer separate classes for

institutions as defined in the 1980 Canadian Standard Industrial

Classification (CSIC), except credit unions.

The classes contained in Major Group 71 of the CSIC are to be found

in a new industry group entitled Non-Depository Credit Intermediation

in NAICS, with the exception of Venture Capital Companies, which are in

the industry Miscellaneous Intermediation.

Activities related to depository and non-depository credit

intermediation are included in a single industry group, Activities

Related to Credit Intermediation, within the NAICS subsector, Credit

Intermediation and Related Activities. For instance, central credit

unions, clearing houses, and reserve and other depository services are

included here. Previously all of the operations of credit card

companies were classified to CSIC 7122, Credit Card Companies. In

NAICS, establishments specializing in the lending activities associated

with credit cards are classified in the industry, Credit Card Issuing,

a component of the industry group, Non-Depository Credit

Intermediation. Establishments involved in the processing of credit

cards (including billing and collection) are classified in an industry

within the industry group, Activities Related to Credit Intermediation.

In Canada, any establishments primarily involved in the processing of

credit cards and also involved in other financial transactions would be

placed in the industry group, Activities Related to Credit

Intermediation.

There are also important revisions in the treatment of investment

intermediary industries. CSIC Major Group 72, Investment Intermediary

Industries, includes establishments engaged in investing in a portfolio

of securities and other investments on behalf of shareholders or unit

holders. Also included in this major group are various funds and

holding companies. The funds themselves are the result of savings

attributable to other sectors of the economy, do not have a direct role

in production, and have been excluded from NAICS. The management of

these funds can require significant human and capital resources and is

the primary source of the value added in this industry. Where there are

separate establishments with employees devoted to the management of

funds, such as in the case of mutual fund management companies, they

are classified in the industry group, Other Financial Investment

Activities.

For Mexico, this sector corresponds almost entirely to the

combination of CMAP's subsector 81 (Insurance and financial services)

and branch 9740 (Services related to financial, insurance and bond

institutions). The current subsector 81 comprises 18 activity classes

and branch 9740 has 5 additional classes; of these 23 classes, 11 are

entirely comparable with other similar NAICS industry classes, whereas

the remaining 12 underwent some changes.

Class 811046 (Non-banking Institutions engaged in savings and

loans) and class 811047 (other credit institutions) are included in

NAICS subsector, Credit Intermediation and Related Activities; class

813002 refers to insurance services that is included in NAICS industry

group Insurance Carriers.

On the other hand, some minor CMAP classes were regrouped or placed

in miscellaneous NAICS industries as in the case of surety services

(813001) or the financial advisory category and development committees

(811045).

Many NAICS activities will not be applicable in the case of Mexico

since they refer to activities that do not exist in that country,

although some may be created in the future. These activities are credit

unions, interbanking and reserve boards, consumer credit, real estate

credit, mortgage brokers and other credit, securities and commodity

brokerage. The two other ``new'' industries with respect to the CMAP

are miscellaneous industries generated by the restructuring of this

sector.

Most of the current CMAP classes will correspond either to a NAICS

industry or to a national industry. So, in fact, with respect to the

CMAP, these changes do not represent a great impact on the time series.

For the United States, 1987 SIC Major Group 60, Depository

Institutions, and 1987 SIC Major Group 61, Non-Depository Credit

Institutions, differ from NAICS subsector Credit Intermediation and

Related Activities in that the NAICS subsector does not include the

central bank, which is in a subsector of its own; and a number of

activities are broken out as industries and classified in other

industry groups or subsectors--trust, fiduciary, and custody services,

for example. In addition, NAICS recognizes the lending activities of

pawnbrokers in this subsector; pawnbrokers were classified in 1987 SIC

5932, Used Merchandise Stores.

1987 SIC Major Group 62, Security and Commodity Brokers, Dealers,

Exchanges, and Services, differs from NAICS subsector Securities,

Commodity Contracts, and Other Intermediation and Related Activities in

that the NAICS subsector more clearly delineates the distinction

between portfolio management (classified here) and the assets under

management (excluded from NAICS); it includes the trust, fiduciary, and

custody activities of banks and other financial institutions; it

includes part of 1987 SIC 6733, Trusts Except Educational, Religious,

and Charitable; it includes part of 1987 SIC 6792, Oil Royalty Traders;

and it includes part of 1987 SIC 6799, Investors Not Elsewhere

Classified.

1987 SIC Major Group 63, Insurance Carriers, and 1987 SIC Major

Group 64, Insurance Agents, Brokers, and Service, differ from NAICS

subsector Insurance Carriers and Related Activities in that the NAICS

subsector excludes those pension and other employee benefit funds that

are simply legal entities organized to hold portfolios of securities

and other assets on behalf of the beneficiaries of the funds.

Most of 1987 SIC Major Group 67, Holding and Other Investment

Offices, is not included in the Finance and Insurance subsector in

NAICS. 1987 SIC Industry Group 671, Holding Companies, and 1987 SIC

Industry Group 672, Investment Offices, are included in the Funds,

Trusts, and Other Financial Vehicles subsector, which is not part of

NAICS but is a U.S. only subsector. 1987 SIC 6732, Educational,

Religious, and Charitable Trusts, is included in the Religious,

Grantmaking, Civic and Other Membership Organizations subsector; part

of 1987 SIC 6733, Trusts Except Educational, Religious, and Charitable,

is included in the Securities, Commodity Contracts, and Other

Intermediation and Related Activities and part in Funds, Trusts and

Other Financial Vehicles subsector; 1987 SIC 6794, Patent Owners and

Lessors, is now a separate subsector; and 1987 SIC 6798, Real Estate

Investment Trusts, and part of 1987 SIC 6799, Investors Not Elsewhere

Classified, are included in

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the Funds, Trusts, and Other Financial Vehicles subsector.

Achievement of Objectives

The classification meets the objectives for the North American

Industry Classification System (NAICS). It is based on the production

function concept, and it groups establishments with similar production

processes. Data for financial institutions carrying out several

activities will need to be disaggregated into their components for

classification.

The classification achieves comparability at the subsector or

industry group level for the three countries and at the industry level

for Canada and the United States. The unique aspects of the financial

systems in the three countries, as well as countries' differing

abilities to break down institutional data into their component

activities, are accommodated through the provision of a number of

national industries in the classification.

To the extent possible, the classification structure allows for the

delineation of new and emerging industries in this sector by taking

into account the foreseeable changes in regulation. Innovative use of

technology allows the sector to rapidly develop new products and to

deliver them in new ways.

Attachment 3--Proposed U.S./Canadian 5-Digit Detail For Finance and

Insurance

52 Finance and Insurance

521 Monetary Authorities--Central Bank

5211 Monetary Authorities--Central Bank

52111 Monetary Authorities--Central Bank

522 Credit Intermediation and Related Activities

5221 Depository Credit Intermediation

52211 Commercial Banking

52212 Savings Institutions

52213 Credit Unions

52219 Other Depository Credit Intermediation

5222 Non-Depository Credit Intermediation

52221 Credit Card Issuing

52222 Sales Financing

52229 Other Non-Depository Credit Intermediation

5223 Activities Related to Credit Intermediation

52231 Mortgage and Other Loan Brokers

52232 Financial Transactions Processing, Reserve, and Clearing

House Activities

52239 Other Activities Related to Credit Intermediation

523 Securities, Commodity Contracts, and Other Intermediation and

Related Activities

5231 Securities and Commodity Contracts Intermediation and

Brokerage

52311 Investment Banking and Securities Dealing

52312 Securities Brokerage

52313 Commodity Contracts Dealing

52314 Commodity Brokerage

5232 Securities and Commodity Exchanges

52321 Securities and Commodity Exchanges

5239 Other Financial Investment Activities

52391 Miscellaneous Intermediation

52392 Portfolio Management

52393 Investment Advice

52399 All Other Financial Investment Activities

524 Insurance Carriers and Related Activities

5241 Insurance Carriers

52411 Direct Life Insurance Carriers

52412 Direct Non-Life Insurance Carriers

52413 Reinsurance Carriers

5242 Agencies, Brokerages, and Other Insurance Related Activities

52421 Insurance Agencies and Brokerages

52429 Other Insurance Related Activities

As mentioned earlier, Canada and the United States have agreed to

subdivide the NAICS structure and create a number of industries. Three

additional industry groups are specified, all in the sector Credit

Intermediation and Related Activities, and 23 industries are defined in

the industry groups that are not detailed in NAICS. As compared with

the existing classifications, the major features of the proposed

elaboration of the NAICS classification structure for this sector are

the following:

Financial intermediation is more clearly differentiated

from services facilitating or otherwise related to financial

intermediation.

Industries are more homogeneous in terms of the activities

included.

The classification is less reflective of regulatory

definitions.

The proposed NAICS structure clearly differentiates

between the management of funds and the assets under management.

Remaining class of customer distinctions reflect true

differences in production processes.

The NAICS subsector Credit Intermediation and Related Activities is

subdivided into three industry groups: Depository Credit

Intermediation, Non-Depository Credit Intermediation, and Activities

Related to Credit Intermediation. The first industry group, Depository

Credit Intermediation, consists of establishments that raise the funds

they lend by accepting deposits; within it, industries are defined on

the basis of differences in the types of deposit liabilities assumed

and the nature of the credit extended. The second industry group, Non-

Depository Credit Intermediation, consists of establishments that fund

themselves by borrowing from other financial intermediaries or by

issuing commercial paper and other debt instruments; within this group,

industries are defined on the basis of the type of credit being

extended. The third industry group, Activities Related to Credit

Intermediation, consists of establishments that facilitate credit

intermediation by such activities as bringing borrowers and lenders

together and clearing checks and credit card transactions.

The NAICS industry group Securities and Commodity Contracts

Intermediation and Brokerage is subdivided into four industries that

distinguish between brokers who bring together buyers and sellers of

financial instruments, usually charging a commission, and

establishments that intermediate by putting capital at risk and that

are compensated by price spreads on the instruments they trade. An

additional distinction is made between establishments operating in

securities markets and establishments operating in commodities contract

markets.

The NAICS industry group Other Financial Investment Activities is

subdivided into four industries. Miscellaneous Intermediation consists

of establishments that put capital at risk in instruments other than

securities and commodity contracts. Establishments in Portfolio

Management have authority to direct the use or investment of funds or

other assets; for a fee, they buy and sell securities or other assets

in portfolios of assets entrusted to them and make decisions about the

objectives and content of these portfolios. Investment Advice consists

of establishments that provide investment information on a fee basis,

but do not have authority to execute trades. Establishments in All

Other Financial Investment Activities are engaged in such activities as

providing trust, fiduciary and custody services.

The NAICS industry group Insurance Carriers is subdivided into

three industries. Direct Life Insurance Carriers underwrite annuities

and life, accidental death and dismemberment, and disability income

insurance directly to policyholders. Direct Non-Life Insurance Carriers

underwrite various lines of insurance (other than life insurance)

directly to policyholders. Reinsurance Carriers assume all or part of

insurance policies originally written by another carrier.

The NAICS industry group Agencies, Brokerages, and Other Insurance

Related Activities is subdivided into two industries. Insurance

Agencies and Brokerages consists of establishments that sell insurance

products. Other Insurance Related Activities consists of establishments

providing, on a fee or

[[Page 35390]]

contract basis, such insurance services as claims administration and

adjusting.

Section B--Annex: United States National Industry Detail

As explained in the Structure presentation of this notice, the

three country agreement on NAICS envisions that each country may

develop national detail industries below the NAICS industry level, so

long as the national detail can be aggregated to the NAICS

classification, thus assuring full North American comparability. As

explained earlier, for finance and insurance the three countries agreed

to comparability at either the subsector or the industry group level.

However, Canada and the United States have agreed to a classification

that extends comparability to the 5-digit industry level. Attachment 3

shows the industry detail agreed upon by Canada and the United States.

These industries can be aggregated to the NAICS classifications, thus

assuring full North American comparability.

The ECPC is proposing U.S. 6-digit industry detail for this NAICS

industry sector. In the following tables, proposed 6-digit detail is

shown. For cases where no 6-digit detail is shown, the ECPC is

proposing that the 5-digit industries will also represent the most

detailed U.S. industries.

In addition to the 6-digit detail, there is a U.S.-only subsector--

Funds, Trusts, and Other Financial Vehicles--that provides a

classification structure for legal entities organized to hold

portfolios of securities or other assets on behalf of shareholders,

beneficiaries of pension funds, etc. The portfolio is customized so as

to achieve specific investment characteristics, such as

diversification, risk, rate of return, and price volatility. These

entities earn interest, dividends, and other property income, but have

no employment or revenue from the sale of services. The funds

themselves are excluded from the NAICS classification, because they are

not separate production units and do not have employees, although

establishments with employees devoted to the management of funds are

classified in several of the industries within the NAICS subsectors

Securities, Commodity Contracts, and Other Intermediation and Related

Activities and Insurance Carriers and Related Activities.

Despite their lack of employment, these funds are economically

significant, and the United States requires data related to them for

various purposes. For instance, financial flow accounts and balance of

payments accounts track changes in outstanding assets and liabilities,

and interest and dividend income earnings are important in determining

the distribution of income. Moreover, funds are frequently given tax

numbers, become part of the survey frame, and are sometimes surveyed.

It is necessary to have a structure for classifying such records and

keeping them separate from those of producing units. Consequently,

these funds are placed in a U.S.-only subsector at the end of the NAICS

classification structure. Included in this subsector are: Holding

Companies, Insurance and Employee Benefit Funds, and Investment Pools

and Funds.

Table 1

The definition of status codes are as follows: E--existing industry; N--new industry; R--revised industry; and *

means ``part of''. The abbreviation NEC is used for Not Elsewhere Classified.

----------------------------------------------------------------------------------------------------------------

1997 NAICS and U.S. 1987 SIC

description Status code code 1987 SIC description

----------------------------------------------------------------------------------------------------------------

521..................... Monetary Authorities--

Central Bank

5211.................... Monetary Authorities--

Central Bank

52111................... Monetary Authorities-- E 6011 Federal Reserve Banks.

Central Bank.

522..................... Credit Intermediation and

Related Activities

5221.................... Depository Credit

Intermediation

52211................... Commercial Banking....... R *6021 National Commercial Banks

(banking).

*6022 State Commercial Banks

(banking).

6029 Commercial Banks, NEC.

*6081 Branches and Agencies of

Foreign Banks (banking).

52212................... Savings Institutions..... R 6035 Savings Institutions,

Federally Chartered.

6036 Savings Institutions, Not

Federally Chartered.

52213................... Credit Unions............ R 6061 Credit Unions, Federally

Chartered.

6062 Credit Unions, Not

Federally Chartered.

52219................... Other Depository Credit N *6099 Functions Related to

Intermediation. Depository Banking, NEC

(money order issuance).

5222.................... Non-Depository Credit

Intermediation

52221................... Credit Card Issuing...... N *6021 National Commercial Banks

(credit card issuing).

*6022 State Commercial Banks

(credit card issuing).

*6141 Personal Credit

Institutions (credit card

issuing).

52222................... Sales Financing.......... N *6141 Personal Credit

Institutions (installment

sales finance).

*6153 Short-Term Business Credit

Institutions, Except

Agricultural (business

sales finance).

*6159 Miscellaneous Business

Credit Institutions

(finance leasing).

52229................... Other Non-Depository

Credit Intermediation

522291.................. Consumer Credit......... R *6141 Personal Credit

Institutions (except

installment sales finance

and credit card issuing).

522292.................. Real Estate Credit...... R *6162 Mortgage Bankers and Loan

Correspondents (mortgage

bankers and originators).

522293.................. International Trade N *6081 Branches and Agencies of

Financing. Foreign Banks

(international trade

financing).

6082 Foreign Trade and

International Banking

Institutions.

*6111 Federal and Federally-