WASHINGTON - Financial services companies have succeeded in getting consumer protection rules for bank insurance sales watered down, but regulators did not back off as much as the industry had hoped.

On Tuesday the Federal Deposit Insurance Corp. approved rules obliging banks and thrifts to start warning consumers April 1 that insurance products are not federally guaranteed like deposits and may lose value.

The rules also bar banks from requiring loan applicants to buy insurance products as a condition of approval. In addition, banks must physically separate where insurance products are sold and where deposits are taken.

The Gramm-Leach-Bliley Act of 1999 required regulators to have these rules in place this month. The Federal Reserve Board and Office of the Comptroller of the Currency signed off on their versions of the joint regulations last week. The Office of Thrift Supervision is expected to follow suit soon.

Industry reaction to the new rules was generally positive.

Paul A. Smith, a senior counsel at the American Bankers Association, described the regulations as a significant improvement upon the initial proposal in August.

The agencies removed a part of the proposal that would have required consumer disclosures if an insurance company had the same name and logo as a bank or thrift, even when it was not selling insurance on behalf of the financial institution.

The final rules require disclosures only if the insurance company uses the bank or thrift's name in its advertising and marketing materials.

Similarly, disclosures are necessary if the insurance sales are made by, or directly on behalf of, the bank. The earlier proposal would have applied that requirement to all of an insurance company's sales.

"We got a lot of what we asked for," Mr. Smith said. "We were deeply troubled by the original proposal. It was just unworkable."

Community bank representatives complained that some of the fixes primarily benefited large institutions. Robert G. Rowe, regulatory counsel for the Independent Community Bankers of America, noted, for example, that easing the rules on sharing corporate names or logos does little to help small banks because they are less likely to have affiliates.

The industry won some key victories on technical points that led to a narrower application of the regulations.

Under the rules, disclosures to consumers will not have to be made under cross-marketing arrangements between banks and insurance affiliates that involve sharing customer lists. However, the disclosure requirements will kick in if a bank or thrift receives referral fees for sending business to insurers.

Officials at America's Community Bankers welcomed the distinction between cross-marketing and referrals. "We think it is a clarification that makes the rule more workable and hopefully less burdensome," said Michael W. Briggs, a senior regulatory specialist.

Mr. Smith said that this distinction requires banks to maintain separate customer lists: one for cross-marketing arrangements and another for referrals.

This may cause confusion for banks whether their relationships with insurance companies should be classified as cross-marketing or referrals, Mr. Rowe said. To avoid confusion, community banks may instead make disclosures in both cases, he said.

Industry officials said they were pleased that the rules' requirements apply only to individuals who purchase insurance for personal, family, or household use, and not to small businesses and sole proprietorships as the earlier proposal had indicated.

Banks, though, did not win their argument to exclude certain insurance products from consumer disclosure requirements, such as credit insurance. Regulators met them halfway by adding a statement that the disclosures will be required only where appropriate. For example, banks and thrifts will have fewer disclosures to make about crop and flood insurance, because those products are federally guaranteed.

Some industry officials said that the rules will not cause too much of a shock, because it is built on a 1994 interagency statement on how banks handle nondeposit product sales.

But others said they are worried that the April 1 effective date does not leave them much time to get in compliance, especially because they are also trying to meet other Gramm-Leach-Bliley deadlines, such as the July 1 effective date for consumer privacy regulations.

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