WASHINGTON — When the Securities and Exchange Commission voted on Sept. 21 to approve a rule that would allow banks to continue with certain brokerage activities without having to register with the agency, it looked like credit unions were overlooked.

At issue is what the SEC has called, after “eight years of stalled negotiations and impasse,” a vote to adopt the new rules that will finally implement the bank broker provisions of the Gramm-Leach-Bliley Act of 1999. The Board of Governors of the Federal Reserve System followed suit on Sept. 24 allowing it and the SEC to adopt final joint rules.

The rules define the scope of securities activities that banks may conduct without registering with SEC as a securities broker and implement the most important “broker” exceptions for banks adopted by the GLB Act. Specifically, they implement the statutory exceptions that allow a bank, subject to certain conditions, to continue to conduct securities transactions for its customers as part of the bank's trust and fiduciary, custodial and deposit “sweep” functions, and to refer customers to a securities broker-dealer pursuant to a networking arrangement with the broker-dealer.

The final rules are “similar to the proposed rules in overall scope and approach,” SEC and the Fed said. In response to comments, the agencies also have modified the rules in several important respects to make the rules “more workable and less burdensome.” Banks do not have to start complying with the rules until the first day of their fiscal year commencing after Sept. 30, 2008, the agencies said.

“A customer should be able to walk into a financial institution and get any financial product he or she needs–securities, insurance, banking or trust services,” said SEC Chairman Christopher Cox. “But Congress recognized those benefits couldn't be achieved without new ways to safeguard investors that would be consistent with continued innovation. Today's historic action, coming eight years after the passage of the law, is long overdue but welcome news for investors who will now begin to see the benefits of broader services and lower costs that the law

intended.”

In developing these rules, the agencies said they consulted extensively with the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corp. and the Office of Thrift Supervision.

Meanwhile, even though credit unions were included in a 2004 SEC proposal, they were left out of the latest proposal. Still, the situation is looking promising for credit unions as NCUA confirmed on Sept. 24 that is “in discussions with the SEC about developing a rule for credit unions that will address their needs in the securities activities area,” said John McKechnie, director of NCUA's Office of Public and Congressional Affairs.

NACUSO, CUNA and NAFCU are too dialoguing with SEC on credit union inclusion.

“Our understanding is [SEC's] primary focus has been only on banks and thrifts. Now that they've done that, they can take a breather and focus on credit unions,” said Jeffrey Bloch, senior assistant

general counsel

at CUNA.

Bloch said CUNA, which has met with SEC several times over the past few years on including credit unions in the exceptions, is discussing the matter with NCUA as well. “It's not a done deal,” Bloch assured. “We're

still hopeful.”

Until a final regulation is in put in place for credit unions, a 1993 SEC letter that authorized banks, thrifts, and credit unions to enter into third-

party brokerage arrangements under certain conditions without them having to register is still in effect, according to Guy Messick, general counsel

for NACUSO.

Messick assured that credit unions can still follow the 1993 SEC letter from Catherine McGuire, chief counsel, SEC Division of Market Regulation, to Chubb Securities Corp. NCUA has used the letter as a guide as well as its own Letter 150, which specifically recognized that CUSOs may participate

with a credit union and a broker in networking arrangements.

“Sometimes we have had state regulators call into question Chubb. I would hope that we can continue to operate under Chubb until a regulation is in place,” Messick said.

Messick said he anticipates NCUA will look at Letter 150 with “some strong desire to make some changes” once the SEC regulation comes into effect.

NASCUS had previously argued that unless state-chartered credit unions are afforded the same treatment by the SEC as commercial banks and savings institutions, “the powers granted to credit unions by state legislatures and by state regulators could be unnecessarily preempted and trigger redundant and costly examination and oversight.”

“Under current state laws, state-chartered credit unions are permitted to offer a variety of broker-related services such as third-party, brokerage arrangements, sweep accounts safekeeping and custodial arrangements,” NASCUS said in a recent statement. “Moreover, competitive pressures and changes in the marketplace will prompt state-chartered credit unions to continue to offer additional broker-dealer related service to their members.”

–msamaad@cutimes.com

Instant Insights /

Eight Years of Stops, Starts, SEC, Fed Finally Implement Bank Broker Exceptions, Credit Unions to Be Addressed Next

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