A government plan to require bank employees who sell securities to obtain brokerage licenses has prompted an outcry from officials at small institutions.
In comment letters due to the three banking agencies by Feb. 28, community bank and trade group officials said the plan could force small institutions out of the securities business.
"The volume of business we would do in this area certainly could not justify the added administrative and regulatory burden the proposal would create," wrote Thurlene Ruggels, president of $47 million-asset United National Bank, Natoma, Kan.
The proposal would require bank employees who sell mutual funds and other investment products to earn licenses by taking Series 6 or Series 7 tests, which are administered by the National Association of Securities Dealers.
The Series 6 test qualifies brokers to sell mutual funds and variable annuities, while the Series 7 is a more rigorous test for a full-fledged brokerage license.
Community bankers argued that larger institutions can afford to sell securities through registered salespeople in affiliated or unaffiliated broker-dealers. However, smaller banks usually rely on bank employees.
"The larger banks have securities departments and enough volume of business to offset the expense of requiring bank representatives to obtain Series 6 and 7 licenses," wrote C. Scott Williams, executive director of the Community Bankers Association of Ohio. "This may not have the impact that it would on the smaller community banks."
Indeed, officials at several large banks greeted the plan as a way to retain qualified brokers. Under NASD rules, brokers lose their licenses two years after leaving registered broker-dealer firms.
As a result, banks have found it difficult to attract and keep licensed brokers, said Guilliaem Aertsen, executive vice president of Bank of Boston Corp.
"We have found that our present inability to license representatives places us at a competitive disadvantage in hiring, as experienced securities representatives are reluctant to lose their registrations," Mr. Aertsen said. "The regulation will assist in our efforts to ensure that we have a trained and tested force of securities sales representatives."
While large-bank officials supported the overall plan, several recommended clarifications.
For example, Marcia Z. Sullivan, the Consumer Bankers Association's government relations director, suggested the agencies clarify the definition of "retail" sales of securities.
"It is unclear ... whether 'retail' refers to the type of customers to whom the covered products are sold, the setting, or other factors," Ms. Sullivan said.
Under the proposal, issued Dec. 11, bank employees with broker licenses would be listed in NASD's Central Registration Depository, the securities industry's main licensing and enforcement data base. They also would be required to comply with continuing education requirements.