SEC-Fed Reg. R: The Gramm-Leach-Bliley Bank Broker Exception Rules

Ending eight years of stalled negotiations and impasse, the SEC and the Federal Reserve Board have adopted rules that will finally implement the bank broker provisions of the Gramm-Leach-Bliley Act of 1999. The joint rules, codified as Regulation R, are designed to accommodate the business practices of banks while protecting investors. (Release No. 34-56501). Please see my white paper on Regulation R for more details.

The Gramm-Leach-Bliley Act repealed the blanket exemption banks had historically enjoyed from the Exchange Act definition of broker and replaced it with a set of limited exemptions that allow the continuation of traditional activities performed by banks. Thus, a bank will be considered a broker under the Exchange Act and subject to the full panoply of SEC regulation if it engages in the business of effecting transactions in securities for the accounts of others. However, at the same time, the Act carves out a number of exemptions from the definition of broker.

The joint SEC-Fed rules are designed to implement GLB’s removal of the blanket exemption from SEC registration for banks that engage in securities activities. The exemptions embrace a number of activities and transactions traditionally performed by banks and those involving identified excepted banking products. If a bank limits its brokerage activities to those described in the exceptions, the bank will not be subject to broker-dealer registration.