The National Association of Securities Dealers proposed Thursday to block bank-related brokerages. from combing through lists of maturing bank deposits to drum up business.
The association, which sets professional standards for broker-dealers, also proposed to forbid bank brokerages from paying referral fees to bank employees, such as tellers and customer service representatives.
The proposals, unveiled by the NASD at a press conference Thursday, strike at two of the banking industry's most common techniques for building sales of mutual funds and other investments. The rules could be adopted by late summer, after public comment is solicited by the NASD and then by the Securities and Exchange Commission.
NASD officials said the proposals, which are part of a broad new regulatory regime for bank broker-dealers, are aimed at protecting novice investors.
The NASD is concerned that investors at bank-related brokerages "may be putting money into securities without understanding fully what they are doing," said John Pinto, executive vice president for compliance.
But bankers defended the practices of paying referral fees and using lists of maturing certificates of deposit to identify prospective investors, saying they have not been abused.
First Busey Securities has relied on "quality referrals," said Curt Anderson, president of the brokerage subsidiary of Busey Bank, Urbana, I11. "We do not have wholesale shipping of people over" to the brokerage, he said.
Cutting off use of CD lists "might deny customers the ability to know their bank could make available other, more suitable products like a mutual fund," said Sarah A. Miller, senior government relations counsel at the American Bankers Association.
But others said CD lists are a less important marketing device now that interest rates are rising. "I don't know of any top salespeople who use them anymore," said Peter DeBuona, president of the brokerage arm of North Fork Bancorp, Mattituck, N.Y.
The NASD's campaign to rein in bank-related brokerages has been in full swing for the past month. The association has criticized bank brokerages for identifying themselves too closely with their affiliated banks, and thereby confusing customers.
The proposals unveiled Thursday mark the association's first effort to craft a comprehensive framework for regulating the banking industry's booming investment-products business.
Over the past two years, federal banking regulators have taken similar steps, but their approach has stopped short of firm regulations, and has allowed the practices that the NASD now wants to
R. Clark Hooper, the NASD's vice president for advertising, said the NASD has begun to uncover problems with both bank-affiliated brokerages and the investment-marketing companies that many banks hire to handle brokerage sales.
Since last year, she said, the NASD has decided three cases against brokerages that operate programs at banks, and is considering enforcement actions against another 10. She was unable to name the companies.
The NASD also delivered some good news to banks, announcing that its board next month will consider forming a committee for bank brokerages. As a self-regulatory body, the NASD provides similar forums for other interest groups.
Industry leaders, who have complained in recent months that banks lack a voice at the NASD, welcomed the news.
"I'm feeling good about having input," said W. Christopher Maxwell, executive vice president overseeing mutual funds at Keycorp, Cleveland.