The flood of regulations produced by last year's financial reform law continued Monday as federal banking regulators proposed consumer protections for insurance sales.

After tackling sexier issues such as privacy in the nine months since President Clinton signed the Gramm-Leach-Bliley Act, the agencies are rushing to meet a Nov. 12 deadline to implement rules governing retail sales practices, solicitations, and advertising by banks and thrifts engaged in insurance activities.

The proposal would mandate certain disclosures to customers, reaffirm prohibitions against tying and other coercive practices, and establish physical separation between banking and nonbanking activities inside branches, Federal Deposit Insurance Corp. officials said.

Industry officials said that the plan dovetails with current practice and is not expected to open another front in the war over Gramm-Leach-Bliley's implementations.

Under the proposal, banks would have to tell the customer that - unlike, say, savings accounts - annuities and other insurance products are not backed by the FDIC and that they carry investment risks as a result.

Further, banks would have to say that they may not require borrowers to purchase insurance products in order to get a loan.

Bank employees would have to provide these disclosures orally and in writing before an insurance product's sale is completed. Disclosures, however, could be sent electronically, provided that banks get customer consent and make records available that can be printed or downloaded onto a computer.

The proposal makes clear that insurance activities should be physically segregated from where deposits are taken. Details were sparse, but banks would have to "clearly delineate" these insurance sales areas and distinguish them from the rest of the bank. However, an employee who takes deposits may direct customers to insurance sales personnel provided he receives no more than a "one-time, nominal fee" for each referral.

Also, the proposal reaffirms that only those appropriately licensed and qualified regarding the sale of the specific product being sold would be permitted to sell or offer insurance products through a financial institution.

Keith A. Ligon, the FDIC's policy chief for nontraditional banking products, said that Gramm-Leach-Bliley's consumer protection provisions closely tracked 1994 federal regulatory guidelines on sales of nondeposit investment products.

The industry has lived with those guidelines for uninsured products for years, said Charlotte Bahin, regulatory counsel for America's Community Bankers. She said, however, that industry representatives would pore over the latest proposal to make sure it does not impose any burdens on banks, especially small ones.

Regulators said their hands were basically tied by the law.

"It is important that people realize that the statute is extremely detailed" when making their comments, Office of Thrift Supervision Director Ellen Seidman said during the OTS board meeting. "It is really important for people to comment on practical means for achieving the contents of the statute."

The FDIC issued the proposal Monday at a public board meeting. According to spokesmen at the Federal Reserve Board, the Office of the Comptroller of the Currency, and the OTS, all three agencies have signed off on the proposal and have agreed to a 45-day public comment period. It is expected to be published in the Federal Register within the next two weeks.

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