WASHINGTON - Securities and Exchange Commissioner Richard Roberts was expected to strongly urge the securities industry last night to press federal regulators to aggressively enforce rules against banks' illegal "tying" of the services they provide to municipal issuers.
In a shift from his earlier position, however, Roberts said banking regulators, such as the Office of the Comptroller of the Currency and the Federal Reserve Board, should take the lead in cracking down on tying, not the SEC.
Roberts' remarks were contained in a speech he was scheduled to deliver at a Securities Industry Association meeting here.
Bank tying, which is barred under the Bank Holding Company Act of 1970, occurs when a bank illegally links one service to another. It can occur in the municipal bond arena when a bank says it will not provide a credit enhancement unless it is made an underwriter of a deal.
Roberts has received complaints from regional dealers about bank tying and said in speeches earlier this year that the SEC should consider enacting a rule to block illegal tying. The agency had proposed a similar rule in 1974 but later withdrew it.
Last night, however, the commissioner was scheduled to say in his prepared speech that tying reforms should be in the bailiwick of banking regulators, not the SEC. "I am not interested in second-guessing the [Federal Reserve] Board. The SEC has enough rule-making problems of its own, which do not allow me the latitude to ~armchair quarterback' the board's decisions."
In the speech draft, Roberts said current law already gives banking regulators the jurisdiction to tackle bank-tying abuses, and the SEC does not need a new enforcement arsenal in that area. "I do not foresee any legislative broadening of SEC jurisdiction that will enable the commission to reach bank tying through rule-making proceedings, inspections, or enforcement actions," the draft says.
But, the draft says, industry representatives should push for more action by regulators and by the courts. "The securities industry has a window of opportunity to, in effect, put up or shut up," the draft says. "I challenge the industry to at least press for more aggressive enforcement action."
In his prepared speech, Roberts repeats an earlier statement that he has been referring tying complaints to the Office of the Comptroller of the Currency at the request of that agency. "I have been most impressed with the OCC's interest in pursuing potential tying violations," the draft says.
Owen Carney, senior adviser for investments at the comptroller's office, confirmed in a recent interview that the office is investigating tying in the municipal arena and that the agency's initial read is that legitimate violations may be occurring.
Roberts was scheduled to tell the Securities Industry Association in his speech, "Current law does give banking regulators the jurisdiction to address bank-tying abuses ... I have referred some of the bank tying complaints that I have received to the OCC. The securities industry should lodge complaints directly with the banking regulators if the circumstances surrounding a transaction indicate a violation of the bank-tying prohibitions. I challenge the industry today to do so.
"The burden is on the securities industry to bring bank tying violations to the attention of the bank regulators for appropriate enforcement action or to encourage private actions," the draft says. "If bank tying abuses are occurring, the exercise of bank regulatory enforcement jurisdiction is one of the solutions."
