Retail Investment Sales - FDIC

IX. Retail Sales — Investments 1 Retail Investment Sales exempt from these requirements. Once Title II of GLBA becomes effective, banks that offer securities will have a Introduction choice. They may either register with the SEC as broker dealers or confine their programs to a list of activities exempt These compliance examination procedures and guidance apply from registration. Due to the capital requirements imposed on to retail recommendations or sales of securities by, on behalf broker dealers by the SEC, most banks prefer to limit their of, or on the premises of FDIC supervised institutions. securities sales activities to those that do not require SEC “Retail” in this context means securities recommendations or registration. Pursuant to §1001 of GLBA, a

bank is exempt 5 sales activities which are conducted separately from a bank’s from registration as a broker when it sells securities as part 2 trust or fiduciary activities. While these “retail” activities are of: primarily conducted with consumers, they can be conducted with commercial customers under certain circumstances. • third party arrangements conducted pursuant to written agreements; Generally, securities are financial instruments that grant an • certain stock purchase plans; ownership position or the right to purchase one. They are not insured by the FDIC. Moreover, one of their most significant • sweep accounts; features is investment risk, i.e., the risk that purchasers may • affiliate transactions; lose part or all of their invested principal. Securities include • private securities offerings; individual stocks and bonds, mutual funds, self-directed 3 • safekeeping and custody activities; individual retirement accounts (IRA) that invest in securities , 4 and annuities. Securities sales activities have the potential to • transactions defined as permissible under GLBA; bolster bank earnings, increase bank competitiveness, and • banking products specifically identified by GLBA; provide bank customers with additional services. However, • municipal securities; these types of activities also have the potential to confuse • a de minimus number of transactions, i.e., less than 500 customers, expose banks to contingent liabilities, and damage per year; or the reputation of these institutions. Therefore, examiners must evaluate an institution’s retail securities activities with care. A • trust and fiduciary activities. list of key terms is available under the Job Aids section of this chapter. Under GLBA, federal bank regulators will eventually become responsible for verifying that banks accurately document Supervisory Responsibility compliance with exemptions from registration. The FDIC and other banking agencies will issue the regulations necessary to Generally, parties that recommend or sell securities must do so once the SEC defines the scope of the registration register with the Securities and Exchange Commission (SEC) 6 exemptions. Until then, compliance examiners are not as broker-dealers. Once registered, broker dealers are subject required to assess bank compliance with exemptions to to regulation by the SEC and National Association of registration. However, banks involved in securities sales Securities Dealers (NASD). However, until the Gramm- should be made aware of the GLBA provisions that relate to Leach-Bliley Act (GLBA) was enacted in 1999, banks were this area. ____________________ NOTE: It is important to understand that a bank, an affiliate 1 This section fully incorporates...

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