House Committee Applauds SEC Broker Exemptions to Credit Unions but Urged More Tweaking

WASHINGTON – The House Financial Services Committee recently joined bank regulators on its concerns with the SEC’s Regulation B proposal that would extend broker/dealer exemptions to credit unions, banks and thrifts. In an Oct. 14 comment letter, Committee Chairman Michael Oxley (R-Ohio) along with 10 subcommittee chairs and ranking members, wrote they were “troubled” by claims the SEC has refused to discuss congressional intent of the proposal in light of the interim rules under the Gramm-Leach-Bliley Act (GLBA). “While we appreciate the consideration the SEC has given to extending portions of the statutory exemptions to credit unions, we fear that, overall, this proposal will discourage depository institutions from engaging in activities that promote financial modernization and encourage economic growth,” the committee wrote. The committee is “especially concerned that the onerous provisions of Regulation B will make it impossible for financial institutions to continue to provide products which they have offered for many years under the supervision of the banking agencies and the states. Many of these products and services cannot be offered by broker-dealers.” Most of the committee’s concerns mirror many of those from Federal Reserve, FDIC and OCC and it directed the SEC to take a second look at such issues as bank trust, fiduciary and custodial exemptions, restructuring of deposit “sweep” activities and networking” arrangements with broker-dealers.In a 32-page, Oct. 8 comment letter, Federal Reserve Board Chairman Alan Greenspan, FDIC Chairman Donald Powell, and recently retired Comptroller of the Currency John Hawke expressed dire concern that the exemptions and the definition of “broker” as adopted in the Gramm-Leach Bliley Act are mired in “a SEC-created regime, that in some areas, conflicts with the existing regulatory requirements already applicable to banks, such as the Department of Labor’s rules under the Employee Retirement Income Security Act (“ERISA”). The SEC’s latest proposal revises the Interim Final Rules issued by the SEC in 2001. The consensus following that rulemaking was that the interim final rule did not conform to the meaning of the GLBA, nor was it in line with legislative history or congressional intent, the committee wrote. The SEC “wisely suspended implementation of the interim final rule and sought input from the federal banking agencies, the industry and other interested parties.” “The SEC, along with the federal banking regulators, should voluntarily enter into a joint rulemaking in order to provide any interpretative guidance needed, while ensuring that all perspectives and implications are considered,” the committee urged.Oxley, along with 10 members of the powerful committee also pressed the SEC to finalize the regulation while Congress is out of session. “This committee must ensure that no financial institutions are put at a disadvantage in the marketplace and that consumers are not denied beneficial products because of the SEC’s lack of understanding of the federal banking laws,” the committee wrote. -