Trust Updates Archive
(Oct. 19, 2006--Chicago, IL)--With the enactment of Financial Services Regulatory Relief Act of 2006 (FSRRA), the SEC is no longer the sole drafter of new bank broker rules--commonly referred to as the "push out" or "carve out" rules. Controversy surrounding the SEC's originally proposal, intended to take effect May 12, 2001, resulted in the rules' repeated postponement. New rules are to be published by Jan. 15, 2007 and are expected to take effect in late spring or early summer 2007, according to regulators.
The controversy surrounding these rules stems from an interpretation of provisions under the Gramm-Leach-Bliley Act.
The SEC took the position that Gramm-Leach-Bliley repealed banks’ blanket broker and dealer exemptions under the Securities Exchange Act of 1934 and replaced them with functional exemptions. This was, and remains, in stark contrast to the position taken by the banking industry, bank regulators, and Congressional leaders who have continued to vigorously argue that the GLBA did not intend to alter the exemption. In a regulatory rarity, the heads of the Federal Reserve Board, the FDIC, and the OCC have twice sent joint letters to the SEC objecting to the proposed rule.
Congress moved to settled this dispute by inserting provisions into FSRRA, which was signed into law last week. The provision requires the SEC and the Federal Reserve to jointly propose final rules within 180 days. The rules will define the circumstances under which a bank can engage in securities activities without registering as a broker. SEC rules regarding dealer activities were adopted in 2003 without controversy.
A senior American Bankers Association official told Trust Regulatory News in 2005 that the dispute with the SEC over the GLBA interpretation could have been avoided if federal bank regulators had paid more attention to the fiduciary banking area.
"For two decades," said the official speaking on condition of anonymity, "bank regulators deemphasized the trust areas. Now they're paying the price."
FSRRA also gives thrifts parity with banks for purposes of exemptions from registration as "brokers" under the 1934 Act and as "investment advisers" under the Advisers Act, according to Rebecca H. Laird, partner with the law firm of Kirkpatrick & Lockhard Nicholson Graham.
No statement in this issue is offered as or should be
construed as legal opinion or advice.
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