Trust Updates Archive

20050808BSA New Bank-Friendlier Broker-Dealer Rules Issued

(Dec. 19, 2006--Chicago, IL)--Federal regulators met the Congressional imposed deadline to redraft controversial bank broker-dealer rules; often referred to as "push-out" or "carve-out" rules. The new rules, issued jointly by the Securities and Exchange Commission and the Federal Reserve Board on December 13 and December 18, will allow banks to continue performing traditional activities within the bank and its trust area without SEC oversight, according to the American Bankers Association. There is a 90-day comment period. Regulators expect the new rules to go into effect July 2007.
The controversy surrounding the SEC's original proposal, issued in 2001, stems from varying interpretations of provisions within the Gramm-Leach-Bliley Act (GLBA).
The SEC took the position that the GLBA repealed banks' blanket broker and dealer exemptions under the Securities Exchange Act of 1934 and replaced them with functional exemptions. This was in stark contrast to the position taken by the banking industry, bank regulators, and Congressional leaders who vigorously argued 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 twice sent joint letters to the SEC objecting to its original proposals.
Congress moved to settle this dispute by inserting provisions into the Financial Services Regulatory Relief Act of 2006, requiring the SEC and the Federal Reserve to jointly propose new rules by January 15, 2007.
"The new proposal should ease the uncertainty that has discouraged banks from exploring new business models and products in the trust and investment areas," according to Beth Climo, executive director, ABA Securities Association. "Customer needs--and not unresolved regulation--can now be the main focus for banks."
Some consumer advocates disagree, asserting that the new proposals put consumer protection at risk because bank investment advice and brokerage services will not be subject to SEC oversight.
The proposed rules would allow a bank, subject to certain conditions, to continue to conduct securities transactions for customers as part of its trust and fiduciary, custodial and deposit "sweep" functions, and to refer customers to a securities broker-dealer under a networking arrangement.
Copies of the proposed rule are available at and at .

For more on this topic, see the upcoming issue of Trust Regulatory News.

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