ORLANDO -- The National Association of Securities Dealers will unveil a proposal on Friday to create a new regulatory regime for bank brokerage affiliates, according to a senior official.
The announcement, which rocked a banking conference here on Monday, would mark the first time the NASD has laid out specific regulations for sales of investment products in bank offices.
The proposed regulations would dictate how investmentsales representatives at banks can be paid, what kinds of referral fees branch employees may receive, and what banks can and cannot do to promote their programs.
The rules also would take a swipe at banks' cross-selling efforts by discouraging them from using their logos on advertisements or letters that exclusively promote their securities sales programs.
Till now, banks chiefly have had to contend with guidelines, not rules, from the NASD and various banking regulatory agencies. Those guidelines, while stringent, lack the bite of formal regulations.
The proposal outlined by R. Clark Hooper, director of advertising for the Washington-based NASD, would dramatically raise the regulatory requirements for banks in the brokerage business.
For instance, the regulation would empower NASD examiners to recommend suspension and civil penalties for banks that step out of line, Ms. Hooper told the Bank Securities Association conference. These examiners also would expect to have access to bank premises and the ability to inspect operations related to investment sales, she added.
"People are shaken up," said Robert M. Kurucza, a law partner with Morrison & Foerster in Washington who serves as general counsel to the Bank Securities Association.
Mr. Kurucza added the NASD's proposals are bound to raise "a lot of turf and jurisdictional issues" between securities and banking regulators.
The Office of the Comptroller of the Currency is concerned about the possibility of the measures being at odds with bank regulators' guidelines, said Ellen Broadman, the agency's director of securities.
She added that the comptroller's office will be taking "a very close look" at the measures once they are released.
Bankers, too, are likely to scrutinize the rule.
"Banks need to look at the proposed regulations very closely and express their concerns," said C. McNeill Baker Jr., senior vice president at Barnett Banks Inc. "They shouldn't just assume someone else is going to do it."
The NASD, a self-regulatory body that sets professional standards for broker-dealers, will seek public comment on the proposed rule before taking final action. The measure would then undergo review by the Securities and Exchange Commission. Ms. Hooper said a final rule could be issued as early as next spring.
Ms. Hooper acknowledged that the proposals won't be "a slam-dunk" because "it's a long and involved process." The NASD's approach, she added, is "not inconsistent" with that of banking regulators.
All told, the proposed regulations run about four pages. The proposals reflect a number of standards the Securities and Exchange Commission mapped out last year, when giving Chubb Securities Corp. permission to help banks set up an investment product marketing program, Ms. Hooper said.
The measures would help establish "a clear picture in consumers' minds of what they're getting and who they're getting it from," Ms. Hooper said.