FDIC Federal Register Citations

[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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[[Page 26994]]

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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

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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