Momentum Building for NASD's Plan to Regulate Bank Brokers

The National Association of Securities Dealers' controversial plan to create a distinct regulatory regime for bank broker-dealers is suddenly gathering considerable momentum.

On Tuesday, a senior staff member of the Securities and Exchange Commission voiced strong support for the plan, saying it sets "clear standards" for protecting consumers from potentially abusive sales practices.

The endorsement by Robert Colby, deputy director of the division of market regulation, is thought to mark the first time an SEC official has spoken out on the proposed rules, which the association unveiled in December.

Meanwhile, the NASD announced Tuesday that it has picked 12 brokerage executives - including 10 from banks and thrifts - to serve on a new advisory panel on bank broker-dealers.

The appointments clear the way for the NASD to begin formal deliberations on the proposed rules. The first order of business for the panel when it meets later this month will be to sift through 281 letters of comment that the association has received.

The NASD had put off considering the rules because it wanted to respond to bankers' complaints that they lacked a voice at the association, which sets professional standards for broker-dealers. The NASD's proposed rules are subject to review by its board and by the SEC.

Bankers responded to Tuesday's events with mixed emotions. Some said they were encouraged by the formation of the NASD panel, seeing in it an opportunity for bankers to influence the outcome of the NASD's rulemaking.

"What we heard is that they're going to listen to us," said A. William Schenck 3d, executive vice president of PNC Bank Corp.

But others - who, like Mr. Schenck, heard Mr. Colby of the SEC speak at a Consumer Bankers Association conference in Washington - expressed dismay and resignation.

Barbara Worth, general counsel for Fleet Investment Services, said Mr. Colby's remarks were consistent with a long-running campaign by the SEC to regulate banks' securities activities.

The comments "demonstrate their lack of understanding and appreciation for what bank regulatory efforts have achieved," Ms. Worth said.

Bankers have been up in arms over the NASD's proposed rules, maintaining that bank securities activities are already adequately regulated by banking regulators.

The Bank Securities Association has been especially critical, portraying the NASD's plans as a back door attempt to regulate banks - a characterization that the NASD rejects.

At the heart of the dispute is the NASD's position that broker-dealers that operate on bank premises should be regulated differently from brokerages not connected with banks.

NASD officials maintain that because consumers associate banks with riskless, insured deposits, bank-based brokerages need an extra level of regulation. To combat possible customer confusion over uninsured investments, the NASD is seeking to expand disclosures and limit the use of bank customer information by brokerages.

Bankers counter that the risks to consumers are no greater at bank brokerage firms than at nonbank firms that sell brokered deposits.

And they are seeking to quell criticism of their sales practices. The Bank Securities Association, at its annual convention in Phoenix, released a report that gave bank-based brokers high marks for "compliance and professionalism." (See related article on this page)

Executives named Tuesday to the NASD's bank broker-dealer panel were: Arnold E. Amstutz, Citicorp; Richard N. Blythe, Huntington Bancshares; Theodore F. Craver Jr., First Interstate Bancorp; Allan Croessman, Bank of Boston Corp.; and Brewster Ellis, Robert Thomas Securities.

Also: Robert D. Flowers, BankAmerica Corp.; William A. Hawkins, H.F. Ahmanson & Co.; Charles R. King, NationsBank Corp.; Harold S. (Mike) Overholt, Mellon Bank Corp.; William S. Papesh, Washington Mutual Savings Bank; and William N. Shiebler, Putnam Mutual Funds Corp.

The appointment of Dennis C. Hensley of J.P. Morgan & Co. as the committee's chairman had previously been announced.

- This article was written by Debra Cope in New York from reports by Karen Talley in Washington and Barton Crockett in Phoenix.

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