Nowadays, most banks conduct investment sales activities through broker-dealer affiliates registered with the National Association of Securities Dealers. But will it make sense for them to continue doing so? That's the provocative question posed by Robert D. Flowers, president of BA Investment Services, in a Feb. 14 letter of comment to the NASD, which has proposed a new regulatory regime for bank-affiliated brokerages. Excerpts follow:
The adoption of the proposed rule would result in increased costs and regulatory risk (for brokerages and banks) without providing corresponding benefits to customers.
We are also very concerned that the proposed rule targets a portion of the NASD's membership for treatment different than that accorded to the rest of the membership.
Other members of the NASD are affiliated with insurance companies, trust companies, financial planners, retailers, and other entities(; they) sell federally insured certificates of deposit, make mortgage loans, and offer checking accounts and credit cards through limited-purpose financial institution affiliates.
The proposed rule does not address their activities at all, though many of the matters apparently of concern to the NASD should also be of equal concern with respect to the businesses of other such firms.
Finally, the proposed rule would establish requirements with respect to matters that are strictly within the regulatory province of federal banking regulators, who acted effectively on such matters some time ago.
If the proposed rule is adopted without the foregoing serious concerns (being) addressed, the management of financial institutions will need to reconsider conducting an investment product sales program through an affiliated or unaffiliated NASD member firm.
The activities engaged in by our firm can be engaged in directly by our affiliate, Bank of America National Trust and Savings Association. To maintain competitive parity with our competitors not targeted by the proposed rule, we may need to conduct our business through Bank of America and give up our broker-dealer charter.
