WASHINGTON - The Federal Reserve Board on Monday issued a proposal that would broaden the powers of financial holding companies by permitting them to act as intermediaries between buyers and sellers of goods and services.
The Fed proposal comes in response to industry requests to let diversified holding companies created under the Gramm-Leach-Bliley Act of 1999 serve as "finders," or third parties that bring together buyers and sellers of financial or nonfinancial products for transactions the buyers and sellers negotiate themselves.
Among other things, the proposal would authorize holding companies to host an "Internet marketplace" linking customers to other companies' Web sites.
"At first glance, it looks like a great step," said Richard M. Whiting, executive director of the Financial Services Roundtable. "It is especially promising that it provides opportunities in the area of electronic commerce."
The proposal did not include more controversial powers sought by the industry such as operating a real estate brokerage or providing data services beyond those currently permitted.
An important goal for regulators is to ensure that financial companies may take full advantage of the Internet and compete technologically with nonbanks on an equal basis. Banking organizations already act as finders to a limited degree when they include commercial advertisements in customer mailings or make referrals when providing advisory services, and they have rapidly established advertising links on their Web pages.
"The activity of acting as a finder has taken on increased significance as technological developments in communications, computing, and the Internet have spurred innovations in the way buyers and sellers of products and services come together," according to the Fed's proposal.
Though finder services are not restricted to the Internet, the Fed envisions that banking companies would most likely deliver these services electronically. The proposal provides several other examples, including hosting a Web site where merchants and potential customers could post information on products and services they want to buy and sell. Another example would be operating a telephone call center that provides information about benefits from government agencies and clerical help to apply for those services.
After consulting with the Treasury Department, the Fed said it would define finder services as "incidental" to financial powers under Gramm-Leach-Bliley. Under the proposal, finders may identify and introduce third parties that might be interested in engaging in a transaction, arrange meetings, as well as transmit bids and other information between them.
However, a finder would be prohibited from acting as a broker or agent on behalf of one of the parties, and from engaging in any activity that would require a real estate agent or broker license. The finder could not have an ownership stake in the product or services sold, or own any property that is used to manufacture, store, or sell the products involved.
To clarify its role, a financial holding company would be required to disclose the difference between its products and those offered by third parties through the finder service.
The Fed is accepting comments through Sept. 5 on the 15-page proposal, which is available at www.federalreserve.gov.
