Securities Activities

Issue

Authority for banks and savings associations to continue to engage in securities-related activities through the bank or savings association.

Position Statement

ABA will work to encourage that all mandated exceptions to the broker-dealer registration requirements of the Securities Exchange Act of 1934 are implemented by the regulators in a rational and least burdensome manner, to ensure that banks can continue to offer their customers traditional products and services.

Explanation

The Gramm-Leach-Bliley Act (GLBA) removed the blanket exemption from broker-dealer registration previously afforded banks under the Securities Exchange Act of 1934 (1934 Act), and established, in its place, fourteen exceptions from broker-dealer registration for certain bank securities activities. Under the Act, banks could perform these excepted securities activities without having to register the bank as a broker-dealer with the Securities and Exchange Commission (SEC) or, otherwise push these activities out of the bank and into a registered broker-dealer (push-out provisions).

Prior to the enactment of the Financial Services Regulatory Relief Act (FSRRA) in 2006, the Securities and Exchange Commission had sole authority to issue regulations to implement the GLBA broker-dealer exception provisions. The SEC had previously issued two regulatory proposals, both of which were unduly burdensome, administratively complex, and would have required banks to push many traditional securities activities out to a registered broker-dealer. ABA expressed concern with the proposals, which were generally strongly opposed by the bank regulatory agencies and the banking industry. Unable to finalize the regulations, the SEC over the years has temporarily exempted banks from these new broker-dealer registration requirements.

Congress put an end to the regulatory impasse by directing in FSRRA the SEC and the Federal Reserve Board to issue regulations jointly that would define the terms and set parameters for the broker provisions of GLBA. The proposal, designated Regulation R, was released for public comment in December 2006 and adopted in final form in September 2007.   The final regulation allows banks and savings associations to continue to engage in traditional bank securities activities, including referring bank customers to affiliated or third-party broker-dealers, providing trust and fiduciary services, offering deposit sweep arrangements, selling money market mutual funds, and providing safe-keeping and custodial services.  Regulation R is effective on the first day of a bank's or saving association's fiscal year that commences after September 30, 2008.  For those institutions whose fiscal year coincides with the calendar year, compliance with Regulation R will be required on January 1, 2009.

The bank regulators are required under GLBA to adopt recordkeeping rules applicable to banks relying on the GLBA exemptions from broker-dealer registration.  It is anticipated that the bank regulators will also issue examiner guidance in this area.  Finally, issues surrounding the dual hatting of bank and savings association employees, i.e., employees that are also licensed as registered representatives and employed by affiliated or third party broker-dealers, will also be addressed.  It is anticipated all three actions will be completed by September 30, 2008.

 

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​Contact for further information: Cecelia Calaby (202) 663-5325.

 

 ABA Staff

 
  • Cecelia Calaby
    Sr. Vice President, Center for Securities, Trust and Investments
 

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