[Federal Register: May 16, 1997 (Volume 62, Number 95)]
[Proposed Rules]
[Page 26994-26997]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr16my97-19]
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Proposed Rules
Federal Register
________________________________________________________________________
This section of the FEDERAL REGISTER contains notices to the public of
the proposed issuance of rules and regulations. The purpose of these
notices is to give interested persons an opportunity to participate in
the rule making prior to the adoption of the final rules.
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FEDERAL DEPOSIT INSURANCE CORPORATION
12 CFR Part 343
RIN 3064-AC04
Insured State Nonmember Banks Which are Municipal Securities
Dealers
AGENCY: Federal Deposit Insurance Corporation (FDIC).
ACTION: Proposed rescission of rule.
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SUMMARY: As part of the FDIC's systematic review of its regulations and
written policies under section 303(a) of the Riegle Community
Development and Regulatory Improvement Act of 1994 (CDRI), the FDIC is
proposing to rescind its regulation that requires insured state
nonmember banks which are municipal securities dealers to file with the
FDIC certain information about those persons who are or seek to be
associated with these dealers as municipal securities principals or
municipal securities representatives. The FDIC has determined for a
number of reasons, including the fact that much of the same information
is available in the Municipal Securities Rulemaking Board's (MSRB)
regulation G-7, ``Information Concerning Associated Persons'', and that
the FDIC is not required by law to issue its own regulations governing
the professional qualification of these associated persons, to propose
rescission of the regulation because it is unnecessary and duplicative.
DATES: Comments must be received on or before July 15, 1997.
ADDRESSES: Written comments are to be addressed to the Office of the
Executive Secretary, Federal Deposit Insurance Corporation, 550 17th
Street, NW., Washington, DC 20429. Comments may be hand-delivered to
Room F-402, 1776 F Street, NW., Washington, DC 20429, on business days
between 8:30 a.m. and 5 p.m. (FAX number: (202) 898-3838; internet
address: comments@FDIC.gov). Comments will be available for inspection
in the FDIC Public Information Center, Room 100, 801 17th Street, NW.,
Washington, DC, between 9 a.m. and 5 p.m. on business days.
FOR FURTHER INFORMATION CONTACT: Carol A. Mesheske, Chief, Special
Activities Section, (202) 898-6750, Division of Supervision; or Karen
L. Main, Senior Attorney, (202) 898-8838, Legal Division, Federal
Deposit Insurance Corporation, Washington, DC 20429.
SUPPLEMENTARY INFORMATION:
I. Background
The FDIC adopted part 343 as a final rule on August 8, 1977. 42 FR
40891 (August 12, 1977), and it became effective on October 31, 1977.
42 FR 46275 (September 15, 1977). Part 343 requires insured state
nonmember banks and certain of their subsidiaries, departments and
divisions, as specified in section 3(a)(34)(A)(iii) of the Securities
Exchange Act of 1934 (15 U.S.C. 78a et seq.) (Act), which are municipal
securities dealers, as defined in section 3(a)(30) of the Act, to file
with the FDIC information about persons who are associated with them as
municipal securities principals or municipal securities
representatives.
The Securities Acts Amendments of 1975 (Pub. L. 95-29) amended the
Act to provide for the creation of the MSRB and delegated
responsibility to it to formulate rules regulating the activities of
municipal securities dealers. However, the Act distributes authority to
enforce MSRB rules among the Securities and Exchange Commission (SEC),
the Office of the Comptroller of the Currency (OCC), the Federal
Reserve Board (FRB) and the FDIC. As specified in section
3(a)(34)(A)(iii) of the Act, the FDIC is authorized to enforce
compliance with MSRB rules by an insured state nonmember bank, a
subsidiary or a department or a division thereof, which is a municipal
securities dealer (hereinafter referred to as a ``state nonmember bank
municipal securities dealer'').
One of the areas in which the Act directs the MSRB to promulgate
rules is the qualification of persons associated with municipal
securities dealers as municipal securities principals and municipal
securities representatives as those positions are defined in MSRB Rule
G-3. Paragraph (b) of MSRB Rule G-7 requires persons who are or seek to
be associated with municipal securities dealers as municipal securities
principals or municipal securities representatives to provide certain
background information and conversely, requires the municipal
securities dealers to obtain the information from such persons.
Generally, the information required to be disclosed relates to
employment history and professional background including any
disciplinary sanctions and any claimed bases for exemption from MSRB
examination requirements. Paragraph (b) of MSRB Rule G-7 provides that
a ``completed Form U-4 or similar form prescribed * * * in the case of
a bank dealer, by the appropriate regulatory agency, containing the
foregoing information, shall satisfy the requirements of this
paragraph.'' The FDIC has developed, in conjunction with the OCC and
the FRB (collectively, the Banking Agencies), Form MSD-4 to satisfy the
requirements of paragraph (b) of the MSRB's Rule G-7.
Under paragraph (c) of MSRB Rule
G-7, a person who is or seeks to be associated with a municipal
securities dealer is required to furnish the dealer with a statement
correcting information furnished under paragraph (b) of MSRB Rule G-7
to the extent that such information becomes materially inaccurate or
incomplete. To maintain the accuracy of the information which is filed
on Form MSD-4, the FDIC requires state nonmember bank municipal
securities dealers to file with the FDIC copies of statements such
dealers receive pursuant to paragraph (c) of MSRB Rule G-7 and Form
MSD-5s for municipal securities principals and municipal securities
representatives whose association with such dealers terminates. Form
MSD-5 is a notification by a municipal securities dealer that a
municipal securities principal's or a municipal securities
representative's association with the dealer has terminated and the
reasons for such termination. The informational requirements discussed
above, as set forth in part 343, track very closely the corresponding
requirements described in MSRB Rule G-7, paragraphs (b) and (c).
There are also record retention requirements contained in
paragraphs (e) and (f) of the MSRB's Rule G-7. The FDIC has imposed a
virtually identical requirement on state nonmember bank
[[Page 26995]]
municipal securities dealers in section 343.3(d).
Paragraph (g) of the MSRB's Rule
G-7 requires every bank municipal securities dealer to file with the
appropriate regulatory agency for such bank dealer ``such of the
information prescribed by this rule as such * * * agency * * * shall by
rule or regulation require''. The FDIC requires that each such state
nonmember municipal securities dealer file Form MSD-4s, the statements
described in paragraph (c) of MSRB Rule G-7 and Form MSD-5s with the
FDIC for each person associated with the dealer as a municipal
securities principal or municipal securities representative. The filing
of Form MSD-4s, MSRB Rule G-7(c) statements and Form MSD-5s with the
FDIC constitute ``reports'', ``applications'' or ``documents'' within
the meaning of section 32(a) of the Act and constitute filings with the
SEC for purposes of section 17(c)(1) of the Act. Section 17(c)(1) of
the Act requires every municipal securities dealer which files an
application, notice, report or document with the FDIC to file a copy of
such application, notice, report or document with the SEC.
The FDIC's part 343 is identical in all significant respects to the
comparable regulations adopted by the FRB (Sec. 208.8j) and the OCC
(part 10). The Banking Agencies also cooperated in drafting the forms.
Part 343 has not been amended by the FDIC in any significant manner
since its adoption in August 1977.
II. Basis for Rescission
A. Implementing Regulations Are Not Required by the Act
Section 23(a)(1) of the Act states that the FDIC shall have power
``to make such rules and regulations as may be necessary or appropriate
to implement the provisions of this title for which (it is)
responsible''. (Emphasis supplied.) Therefore, although section
15B(b)(2)(A) requires the MSRB to promulgate regulations addressing the
qualification of persons who are or seek to be associated with bank
municipal securities dealers, there is no corresponding statutory
requirement imposed upon the Banking Agencies, including the FDIC. The
FDIC may exercise its discretion to determine whether it is necessary
or appropriate to adopt regulations such as part 343 or, in this case,
to decide that such a regulation is no longer necessary or appropriate.
The FDIC has determined that part 343 is no longer necessary to ensure
that the requisite qualification information is provided to the state
nonmember bank municipal securities dealers by persons who are or seek
to be associated with the subject bank municipal securities dealers,
and therefore, is proposing to rescind part 343 for the reasons
discussed herein.
B. MSRB's Rule G-7 Requires the Provision of Much of the Same
Information as Section 343.3
As described in Section I. Background, paragraph (b) of the MSRB's
Rule G-7 requires bank municipal securities dealers to obtain certain
information from persons who are or seek to be associated with them as
municipal securities principals or municipal securities
representatives. The MSRB's Rule G-7 provides that a form prescribed by
the appropriate regulatory agency, containing the information set forth
in paragraph (b), will satisfy the requirements of that paragraph. The
FDIC, in cooperation with the other Banking Agencies, has created Form
MSD-4s and Form MSD-5s to satisfy the requirements of paragraph (b) of
MSRB Rule G-7. Although the FDIC proposes to rescind part 343, the Form
MSD-4s and MSD-5s will continue to be provided to state nonmember bank
municipal securities dealers to satisfy the requirements of the MSRB
Rule G-7, paragraph (b) by the FDIC. The forms have detailed
instructions and provide guidance regarding their completion and filing
information. Additionally, the statements mandated in Sec. 343.3 to
correct information which has been previously submitted on a Form MSD-4
are required by MSRB Rule G-7, paragraph (c). Therefore, there is no
need to retain this redundant regulatory requirement. Moreover, a
separate recordkeeping requirement in Sec. 343.3(d) is unnecessary
because substantially similar requirements are found in MSRB Rule G-7,
paragraphs (e) and (f).
C. Rescission Promotes the Long-Term Goal of Adopting the NASD's Form U
and Consolidating Data Bases at the NASD
The FDIC announced in the preamble to the proposed part 343 when it
was published in the Federal Register on March 30, 1977 (42 FR 16823)
that the Banking Agencies were planning to forward the Form MSD-4s, the
MSRB Rule G-7(c) statements and the Form MSD-5s that they would receive
to the National Association of Securities Dealers (NASD) for computer
processing. The NASD has maintained data for many years on personnel in
the securities industry similar to the information disclosed about
municipal securities principals and municipal securities
representatives. It was expected that disciplinary and qualification
data disclosed on Form MSD-4s, MSRB Rule G-7(c) statements and Form
MSD-5s would be interfaced with the securities personnel data bank
already maintained by the NASD. Although this integration of the two
data bases has not yet been realized, the Banking Agencies' working
group has again recognized this objective as a long-term goal and are
working to achieve this data base integration. One of the first steps
is the adoption of the NASD's Form U-4 to replace the Form MSD-4s and
Form MSD-5s which the Banking Agencies currently provide to their
respective constituent bank municipal securities dealers. This is an
objective that the Banking Agencies' working group is continuing to
pursue. Representatives, whether associated with a securities broker or
dealer or a bank municipal securities dealer, are subject to the same
general MSRB qualification requirements. Developing a more nearly
uniform process for all municipal securities associated persons would
reduce overall regulatory costs by eliminating the use of duplicative
forms for individuals with dual registrations (e.g., for dual employees
in bank municipal securities dealers and non-bank municipal securities
dealers) and by promoting industry-wide qualification standards.
Moreover, the state nonmember bank municipal securities dealers
must already be knowledgeable of and familiar with the SEC's, the
MSRB's and the NASD's rules and regulations in order to comply with the
bank municipal securities dealer registration requirements (section
15B(a) of the Act) and other requirements imposed upon bank and non-
bank participants in the municipal securities market. The Banking
Agencies' long-term goal is to have all participants in the municipal
securities markets register and file required forms and information
with the NASD; therefore, the FDIC believes that it is no longer
necessary to maintain a separate regulation which governs a small
segment of the municipal securities market participants (persons who
are or seek to be associated with bank municipal securities dealers)
when the informational requirements and recordkeeping requirements are
already provided in the MSRB's Rule G-7. The state nonmember bank
municipal securities dealers are generally familiar with Rule G-7, and
look to the MSRB, the NASD and the SEC for the information filing,
recordkeeping and other regulatory requirements in the municipal
securities area.
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D. The Number of Covered Entities is Declining
The FDIC has jurisdiction over the state nonmember bank municipal
securities dealers. The FDIC has noted a steady decline in the number
of state nonmember bank municipal securities dealers over the last
several years. As a result of consolidation in the industry as well as
the inactivity of some banks previously registered as bank municipal
securities dealers (who are then requested to de-register), the number
of state nonmember bank municipal securities dealers has declined to
approximately 28. In the interests of efficiency and reducing
duplicative regulatory requirements for this small number of covered
entities, the FDIC would propose to rescind its part 343 and to have
the covered bank municipal securities dealers rely upon the MSRB's Rule
G-7. As discussed hereinabove, the informational requirements and
recordkeeping requirements of Sec. 343.3 of the FDIC's regulations are
also found in the MSRB's Rule G-7, paragraphs (b), (c), (e) and (f).
However, the filing requirement found in paragraph (g) of Rule G-7
is dependent upon the FDIC's having a filing requirement in place. If
the proposed rescission of part 343 is effected, then the requirement
to file the Form MSD-4s, the MSRB Rule G-7(c) statements and the Form
MSD-5s with the FDIC, as the ``appropriate regulatory agency'', will no
longer exist. The corresponding filing requirement in section 17(c)(1)
of the Act will also be eliminated. Section 17(c)(1) states that,
``(e)very * * * municipal securities dealer for which the (SEC) is not
the appropriate regulatory agency shall * * * file with the (SEC) a
copy of any application, notice, proposal, report, or document filed
with such appropriate regulatory agency by reason of its being a * * *
municipal securities dealer. The elimination of the filing requirement
vis-a-vis the FDIC will, therefore, no longer trigger the corresponding
filing of these forms with the SEC. The filing of these forms with the
FDIC are for informational purposes only, the number of covered
entities is very small and it is expected that in the future these
informational filings will be provided to the NASD to be added to a
master data base. Therefore, the FDIC believes that the deletion of
this regulatory requirement will not have adverse consequences.
The forms are still required to be completed and maintained by the
individual state nonmember bank municipal securities dealers and are
reviewed by the FDIC during the regular examination process. The
instructions to the forms provide the name and address of the
appropriate regulatory agency, and direct the bank municipal securities
dealer to file the requisite information with the appropriate
regulatory agency. It is expected that covered entities will continue
to forward the completed forms and statements to the FDIC.
E. Rescission Furthers the Goals of the CDRI Initiative
The FDIC is conducting a systematic review of its regulations and
written policies. Section 303(a) of the CDRI (12 U.S.C. 4803(a))
requires the Banking Agencies each to streamline and modify its
regulations and written policies in order to improve efficiency, reduce
unnecessary costs and eliminate unwarranted constraints on credit
availability. Section 303(a) also requires each of the Banking Agencies
to remove inconsistencies and outmoded and duplicative requirements
from its regulations and written policies. As part of this review, and
in consultation with the OCC and the FRB, the FDIC has determined that
part 343 is duplicative of many of the requirements of the MSRB's Rule
G-7 and that certain efficiencies will be realized by having its state
nonmember bank municipal securities dealers rely upon the MSRB's Rule
G-7 rather than refer to and comply with part 343. The FDIC's written
policies and regulations would be streamlined by its elimination.
Section 303(a)(2) of the CDRI requires the FDIC ``to work jointly
with the other federal banking agencies to make uniform all regulations
* * * implementing common statutory or supervisory policies.'' The FDIC
and the FRB both intend to rescind their respective regulations
governing the qualification requirements of the persons who are or
seeking to be associated with the bank municipal securities dealers;
part 343 and Sec. 208.8(j), respectively. However, the OCC intends to
retain its comparable regulation, part 10, but to add a cross-reference
to the MSRB's rules. Therefore, the Banking Agencies have succeeded in
moving toward the objective stated in section 303(a)(2) of the CDRI as
well as accomplishing the overall goal of eliminating duplicative and
unnecessary regulations.
III. Request for Public Comment
The FDIC is hereby requesting comment during a 60-day comment
period on all aspects of this proposed rescission of part 343. As
discussed above, the rescission of part 343 will eliminate the
regulatory requirement that state nonmember bank municipal securities
dealers file the Form MSD-4s, the MSRB Rule G-7(c) statements and the
Form MSD-5s with the FDIC. Thus, comment is sought on whether the
rescission of this filing requirement would create a regulatory gap
that would have harmful effects on banking. Additionally, some have
voiced concern that the state nonmember bank municipal securities
dealers are accustomed to referring to the FDIC's part 343 for guidance
in the municipal securities area for these informational filing and
recordkeeping requirements. Will the elimination of part 343 actually
result in imposing a hardship on the covered entities by deleting a
handy reference source for them?
IV. Paperwork Reduction Act
The collection of information requirements (embodied in the Form
MSD-4, the MSRB Rule G-7(c) statements and the Form MSD-5) contained in
part 343 have been approved by the Office of Management and Budget
pursuant to the Paperwork Reduction Act (44 U.S.C. 3501 et seq.). The
proposed rescission of part 343 would not, however, alter the
requirement under the MSRB's Rule
G-7 that bank municipal securities dealers collect the prescribed
information from the persons who are or seek to be associated with them
as municipal securities principals or municipal securities
representatives.
V. Regulatory Flexibility Act
Under section 605(b) of the Regulatory Flexibility Act (RFA) (5
U.S.C. 605(b)), the regulatory flexibility analysis otherwise required
under section 603 of the RFA (5 U.S.C. 603) is not required if the head
of the agency certifies that the rule will not have a significant
economic impact on a substantial number of small entities and the
agency publishes such certification and a statement providing the
factual basis for such certification in the Federal Register along with
the proposed rule.
The FDIC estimates that, currently, there are 28 state nonmember
bank municipal securities dealers under its jurisdiction, none of which
are under $100 million in assets. The proposed rescission of part 343
would result in the elimination of duplicative and unnecessary
informational requirements found in the FDIC's regulation, and allow
the covered entities to refer to the MSRB's Rule G-7 requirements
instead. The proposed rescission would have the effect of reducing
costs and burden for the state nonmember bank municipal securities
dealers. Thus, the FDIC Board
[[Page 26997]]
of Directors (Board) hereby certifies that the proposed rescission
would not have a significant economic impact on a substantial number of
small entities 1 within the meaning of the RFA. Therefore,
the provisions of the RFA regarding an initial and final regulatory
flexibility analysis (Id. at 603 and 604) do not apply here.
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\1\ The definition of ``small business entity'' derives from the
definition of a ``small business concern.'' Part 121 of the Small
Business Administration's rules and regulations (13 CFR part 121)
provides that any national bank or commercial bank, savings
association, or credit union with assets of $100 million or less
qualifies as a small business concern.
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List of Subjects in 12 CFR Part 343
Banks, banking, Reporting and recordkeeping requirements,
Securities.
The Board of Directors of the Federal Deposit Insurance Corporation
hereby proposes to remove part 343 of title 12 of the Code of Federal
Regulations.
PART 343--[REMOVED AND RESERVED]
1. Part 343 is removed and reserved.
Dated at Washington, DC this 29th day of April, 1997.
By order of the Board of Directors.
Federal Deposit Insurance Corporation.
Robert E. Feldman,
Deputy Executive Secretary.
[FR Doc. 97-12807 Filed 5-15-97; 8:45 am]
BILLING CODE 6714-01-P
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