Banks that sell investments through NASD-member brokerages may soon find their own employees under the regulatory agency's supervision.
Under a proposal published Friday by securities regulators, bank employees who mention services provided by an affiliated brokerage when promoting the bank's products would come under scrutiny of the National Association of Securities Dealers.
Though these employees would not have to register with NASD, they would have to abide by its rules, or else their affiliated brokerages would be penalized.
"This rule basically impacts the bank and its employees," said Sarah A. Miller, senior government relations counsel for the American Bankers Association.
The proposal, filed with the SEC in July, replaces an earlier version which would have required any employee who tells customers about brokerage services to register with the NASD.
Ms. Miller acknowledged that the new proposal is less onerous than its predecessor. Still, she said, it is unfair to banks with brokerage affiliates that are registered with the NASD.
"They would have a greater burden than those banks that have chosen a go-it-alone strategy and are selling securities through a bank," Ms. Miller said.
About 92% of banks in the securities business have an NASD-registered broker-dealer, according to the ABA and American Brokerage Consultants of St. Petersburg, Fla.
Under the proposal, nonregistered bank employees that "cold call" customers would have to agree, in writing, to adhere to NASD rules. They would be allowed to mention brokerage products and services that are available, but they could not discuss product specifics.
They would also be permitted to invite customers to brokerage-sponsored events and ask clients whether they want to discuss investments with a registered broker or get investment information from the firm.
But these employees would have to be trained and supervised by registered brokers to ensure that their marketing efforts do not amount to securities sales. A bank's broker-dealer would have to designate an official to supervise these bank employees.
The proposal, which appeared in the Federal Register on Friday, is part of an increased effort by securities regulators to protect investors from abuse without impeding a brokerage's marketing efforts.
The regulators say they are reviewing the banks' criticisms. "Right now the rule would apply to banks, but we're seeking comments on the issue," said Gary L. Goldsholle, assistant general counsel for the NASD's regulation arm.
Some bank broker-dealers say guidance on the role non-registered bank employees can play in securities sales could be helpful.
"Our interpretation up to this point has been, unlicensed people just don't do securities business of any type, shape, or form," said Patrick L. Haney, acting director of compliance at First Union Brokerage Services Inc., a registered broker-dealer affiliated with First Union Corp. of Charlotte, N.C.
J. Heywood E. Sloane of the Bank Securities Association said NASD should more clearly state how the rules would apply to banks.
"Examples would be helpful," said Mr. Sloane, administrative director of the Wayne, Pa.-based trade association whose members include 200 banks, brokerages, and mutual fund complexes. He added that the group plans to submit comments to the SEC.
Ms. Miller said the ABA plans to file a comment with the SEC, which must approve the proposal before it can take effect. The agency is accepting comments through Jan. 8.
