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Regulation and Compliance > Federal Regulation > SEC

New SEC Rules Add Thrifts To Broker-Dealer Exceptions

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New SEC Rules Add Thrifts To Broker-Dealer Exceptions


The Securities and Exchange Commission has adopted interim final rules that give thrift institutions the same exceptions from its broker-dealer registration requirements that other banks enjoy.

Although the rules technically took effect May 15, the commission also extended full compliance until Oct. 1, to give banks time to comply with the rules and comment on them.

The new rules will allow thrifts to compete with other banks in the sales of securities-related products, notes Charlotte Bahin, director of regulatory affairs and senior regulatory counsel for Americas Community Bankers, Washington, a trade association.

“We are thrilled the SEC decided to grant exemptions to savings banks and associations,” Bahin says.

The statutory provisions, which the SEC says it has to adopt under requirements of the Gramm-Leach-Bliley Act, replace banks’ longstanding full exemption from broker-dealer registration with one that grants exceptions for 15 functions. Banks that dont wish to limit their securities activities to these 15 functions either will need to register as broker-dealers or shift those activities to registered broker-dealers, the SEC says.

Exempted functions include trust and fiduciary activities, contractual arrangements with registered broker-dealers to sell securities to bank customers, certain securities transactions in employee benefit plans, and sweep accounts. Banks can also engage in up to 500 securities transactions annually without registering as brokers.

The SEC also provided a conditional exemption to allow small banks to deal in investment company securities held in tax-deferred custody accounts and to be compensated for this activity. The rule defines small banks as those with less than $100 million in assets in the prior two calendar years, providing that they are not affiliates of a bank holding company with total assets of $1 billion or more.

The rules also impose limits on incentive compensation banks can award employees who are not registered as broker-dealers. The limits prohibit unregistered bank employees from receiving incentive compensation for any brokerage transaction, except for limited payments for referring customers to their banks investment specialists.

The SEC is giving banks until Jan. 1, 2002, to align their compensation arrangements with those conditions. In addition, it is giving banks a temporary exemption that protects them from official actions arising from failures to determine their broker-dealer status.

The Gramm-Leach-Bliley Act changed federal statutes governing the scope of activities permitted by banks, effectively lowering long-standing federal barriers between banking and the securities and insurance industries.

The text of the new interim final rules is available on the SEC’s Web site, at

Reproduced from National Underwriter Edition, June 22, 2001. Copyright 2001 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.

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