TO:
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CHIEF EXECUTIVE OFFICER
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SUBJECT:
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Waiver of Burdensome Disclosures for
Certain Securities Transactions for Bank Customers
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On March 21, 1995, the FDIC Board of Directors
waived under certain circumstances the requirements that a bank handling securities
transactions for customers through a third-party disclose on the confirmation
statement or in a separate document the amount of the bank's commission. The waiver,
effective immediately, eliminates a disparity in the rules for state nonmember banks
in relation to state member banks and national banks, which are not required to
provide the disclosures. Even though the commission notice has been waived, bank
customers will continue to receive information about their transactions under
existing securities industry standards, including disclosure of the total fees paid
in connection with the securities transaction.
When a bank handles customer securities
transactions through a third party, the bank typically receives a portion of
the load, or commission, but the amount may vary depending on the monthly
volume and type of sales made. Many banks are unable to determine the
precise amount of their fee in advance or immediately after a trade, and
therefore are unable to disclose this information to the customer when the
transaction is confirmed.
As a result, the FDIC has agreed to
waive the disclosure requirements of section 344.4(a) of the
agency's regulations provided that: (1) with respect to mutual fund
transactions, no fees are added by the bank other than those
described in the prospectus; (2) the sale is made by a registered
broker-dealer subject to the rules and supervision of the National
Association of Securities Dealers (NASD) and the Securities Exchange
Commission (SEC); and (3) the sale is conducted in a fashion that
meets the requirements of the NASD and SEC. The waiver does not
apply in the case of services that are provided in a fiduciary
capacity or for services for which a flat fee has been paid that
includes securities brokerage.
The waiver is being granted
at the request of the American Bankers Association (ABA) and
the Independent Bankers Association of America (IBAA).
Attached is a copy of the letter to the ABA and IBAA
explaining the waiver. The FDIC also will pursue possible
amendments to its regulation on an interagency basis with
the other banking agencies.
For more
information, please contact Curtis Vaughn, an
Examination Specialist in the FDIC's Division of
Supervision (202-898-6759), or Cris Naser, a Senior
Attorney in the Legal Division (202-898-3587).
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Stanley J. Poling
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Director |
Attachment
Distribution:
FDIC-Supervised Banks
(Commercial and Savings)
Mr. James D. McLaughlin Director, Agency Relations Trust and Securities American Bankers Association 1120 Connecticut Avenue, N.W.
Mr. Kenneth A. Guenther Executive Vice President Independent Bankers Association of America One Thomas Circle, N.W., Suite 950 Washington, D.C. 20005-5802
Dear Mr. McLaughlin and Mr. Guenther:
On January 31, 1995, the Board
of Directors ("Board") of the Federal Deposit Insurance
Corporation ("FDIC") approved an amendment to Part 344 of the
FDIC's rules and regulations, entitled "Recordkeeping and
Confirmation Requirements for Securities Transactions,"
providing the Board with express authority to waive all or any
portion of Part 344 for good cause. By letter of July 27, 1994,
the American Bankers Association ("ABA") and the Independent
Bankers Association of America ("IBAA") jointly requested that
the FDIC amend Part 344 to delete the requirement in section
344.4 that the amount of a bank's remuneration be disclosed with
respect to mutual fund transactions effected for customers. The
issues raised in the ABA/IBAA letter were addressed by the Board
at its March 21, 1995, meeting. The Board believes that such an
amendment is best explored on an interagency basis and intends
to proceed on that basis. In the interim, however, the Board
determined that there is good cause to temporarily waive, in
certain circumstances, the requirement in section 344.4 that the
amount of the bank's remuneration be disclosed. Although your
letter was limited to mutual fund transactions, because the
Board believes that the same issues exist with respect to all
securities transactions, the waiver will apply to all types of
securities.
According to the ABA/I
BAA letter, insured nonmember banks presently are
subject to a competitive disparity vis-a-vis national
banks and securities brokers because they are required
to disclose the amount of the bank's remuneration in
connection with customer securities transactions either
on the confirmation or in a separate document. Many
insured nonmember banks that contract with registered
broker-dealers to lease space on the bank's premises
receive a portion of the commissions which varies
depending upon the volume of sales over a given period.
The result is that some banks are not able to determine
and disclose the amount of their remuneration within the
time frames provided for under the regulation. Although
the other federal bank regulatory agencies have
regulations virtually identical to Part 344, those
agencies do not presently require that the amount of
remuneration be disclosed. The Board understands that
the Comptroller of the Currency has waived the fee
disclosure requirement in instances where disclosure of
remuneration by a national bank might place the bank at
a competitive disadvantage with non-bank brokers that
are not required by the Securities and Exchange
Commission ("SEC") to make similar disclosures. That SEC
position was set forth in a 1979 no-action letter which
dropped the requirement that broker-dealers disclose the
commission on the confirmation in the case of mutual
fund transactions. Although your letter did not so
indicate, the Board further understands that the SEC is
reviewing whether to rescind or modify that no-action
letter. In addition to these circumstances, the Board is
aware that Congress currently is reviewing bank
involvement in securities activities, both under the
Glass Steagall Act and in general.
In view of the
above and the fact that the FDIC intends to
actively explore uniform agency treatment with
regard to the disclosure issue, the Board has
determined that there is good cause at this time
to grant a limited waiver of the requirement
contained in section 344.4 that a bank disclose
the amount of remuneration received. The waiver
will extend to any insured state nonmember bank
which receives on a regular basis,
transaction-based compensation with respect to
securities transactions effected for customers.
The waiver is subject to the further proviso
that (1) no additional fees are added by the
bank other than those described in the
prospectus; (2) the sale is made by a registered
broker-dealer subject to rules and supervision
of the National Association of Securities
Dealers ("NASD") and the SEC; and (3) the sale
is conducted in a fashion which meets the
requirements of the NASD and SEC.
The
waiver does not relieve banks of the
obligation to disclose the source of
their remuneration. Nor does the waiver
apply in the case of (1) services
provided in a fiduciary capacity, or (2)
services for which a flat fee has been
paid which includes securities
brokerage.
The waiver is effective
immediately and will remain in
effect unless and until
rescinded by the Board.
By direction of
the Board of Directors.
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Sincerely,
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Robert
E.
Feldman
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Acting
Executive
Secretary
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