Trust Updates Archive

SEC Delays Rule; GAO Suggests Restructuring Regulators

The Securities and Exchange Commission's decision to put the so-called broker exception rule on hold for a second time, comes curiously close to a call by the General Accounting Office to totally restructure federal review of the financial industry.

In an October 2004 letter, the OCC, FDIC, and Federal Reserve jointly called on the SEC to delay any implementation of the its revised rule. The SEC's initial draft of the rule in 2001 would have resulted in banks shifting, or ''pushing out'' some traditional banking services, including fiduciary activities, into broker-dealer subsidiaries. Opposition to that proposal was both strong and bipartisan. House and Senate hearings on the rules brought stinging criticism, and sent the SEC back to the drawing board. The three federal banking regulators also opposed the initial proposal. The revised rule--issued in June 2004--met with similar responses and a similar fate.

After the initial draft, Senate Banking Committee Chair Richard Shelby (R-Ala.) asked the GAO--the investigative arm of Congress--to analyze the U.S.'s financial regulatory structure and compare it to that of other countries. The GAO's 173-page report, now publicly released, calls for a significant restructuring of federal banking regulators. Recommendations include:

* consolidating all financial regulators into a single entity
* creating a separate oversight structure for large, complex entities
* organizing oversight along functional areas.

The SEC has extended the exemption for financial institutions from implementing the rule until March 31, 2005. Capitol Hill sources expect implementation to be further delayed.

More in the November issue of TRN.

-- Copyright ©2004 A.M. Publishing, Inc., Trust Regulatory News

No statement in this issue is offered as or should
be construed as legal opinion or advice.

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