WASHINGTON - Charging that the Securities and Exchange Commission is trying to barge into the regulation of banking products, trade groups and an influential Senate Banking Committee staffer have called on the agency to withdraw a rule it issued last month implementing the broker-dealer provisions of the Gramm-Leach-Bliley Act.
The interim final rule, published May 18 by the SEC, is meant to implement Title II of the financial reform law, which outlines the extent of the agency's authority over bank securities offerings.
The law created 15 exemptions that let banks continue offering traditional banking products, such as trust services and loan participations, without registering as broker-dealers. Banks whose securities products do not fall under any of the exemptions must register with the SEC and are subject to the agency's regulation.
Bankers charge that the SEC's rule uses a too-narrow interpretation of Gramm-Leach-Bliley's exemptions and extends the agency's authority well beyond the limits Congress envisioned in the law.
In a speech before the Bank Securities Association on Monday, Senate Banking staff director Wayne A. Abernathy reminded his audience that he helped draft the 1999 law, and he said the SEC's interim rule goes further than the law intended. He argued that the rule gives the agency too much authority to regulate traditional banking products and should be withdrawn and rewritten.
In a Monday letter to the SEC, James D. McLaughlin, director of regulatory affairs for the American Bankers Association, and Beth L. Climo, executive director of the ABA Securities Association, said the rule is "replete with examples where the SEC has ignored congressional directives."
The letter, addressed to Annette L. Nazareth, the SEC's director of market regulation, says the rule would unnecessarily require banks that offer self-directed individual retirement accounts to register as broker-dealers. It also contends the rule could make many banks' employee compensation plans illegal.
Under Gramm-Leach-Bliley, banks that offer "incentive compensation" to employees for brokerage transactions made by their clients must register as broker-dealers. But under the SEC rule, if the amount of securities transactions executed by a business unit is considered in determining individuals' yearend bonus payments, that unit must register as a broker-dealer.
"The rule is an ill-conceived exercise at this juncture and needs, in one way or another, to go back to the drawing board," said Robert M. Kurucza, a partner at the law firm Morrison & Foerster and general counsel of the Bank Securities Association. "It exceeds what appears to us to be clear limitations on the scope of their jurisdiction and is an unauthorized intrusion into traditional bank activities."
SEC officials did not respond to requests for comment, but in a speech to the BSA on Monday, Robert L.D. Colby, the agency's deputy director of market regulation, said it would be willing to make adjustments to the rule in response to industry comment.
The rule does not take effect until Oct. 1 and is open for comment until June 17.
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