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Unger
Discusses "Fine Tapestry" of Oversight
The SEC intends to
inspect financial service subsidiaries of bank holding
companies, emphasized Commissioner Laura S. Unger in
remarks made to the Financial Services Roundtable last
week. The Gramm-Leach-Bliley Act gives the SEC
regulatory province over broker-dealers, investment
advisers and mutual funds affiliated with financial
holding companies, Ms. Unger said. If a holding
company decides to shift risk management systems from
the broker-dealer, mutual fund, or adviser subsidiary
to the parent bank holding company, the SEC will
review the procedures being relied on by the bank
holding company when it examines the institution's
activities. Commissioner Unger assured the industry
that the SEC will work with banking and other
financial regulators to design a "fine tapestry
of financial oversight." In her view, the
watchwords for the new financial services landscape
are "conglomeration, cooperation, consultation,
and consistency."
Agency Cooperation
The most noteworthy and
challenging aspect of the Gramm-Leach-Bliley Act,
Commission Unger said, is that it will lead to greater
cooperation between the SEC and banking regulators. A
single agency should not carry out disparate missions
in regulating financial conglomerates, she said, but
rather the agencies must jointly exercise oversight.
In her view, the biggest challenge is to strike the
delicate balance enabling various regulators to
coordinate oversight without duplicating efforts.
Under the Act's
"Fed Lite" provisions, banking regulators
may examine or require reports from an SEC-regulated
entity only if the information is not otherwise
already available from the Commission. Even then,
cautioned Ms. Unger, regulators would need to work
through the SEC to obtain the information. Bank
regulators cannot "just walk in" and examine
SEC regulated entities, noted Ms. Unger, but the
Commission is obligated to share its exam results with
banking agencies. The Act does carve out an exception
to the "lite" provisions so that the FDIC
can examine SEC-regulated entities "as
necessary" to maintain full disclosure regarding
the relationship between depositary institutions,
affiliates and the effect of the relationship on the
depository institutions.
Broker-Dealers
The Gramm-Leach-Bliley
Act eliminated the blanket exemption banks enjoyed
from the Exchange Act's definitions of broker and
dealer. The Act replaced this exemption with a series
of thirteen targeted exceptions for bank securities
activities. Although the effective date of these
provisions is still a year away, the Commissioner
said, the SEC is trying to anticipate and resolve many
of the hard questions that may arise concerning
whether certain activities fall within the Act's
exceptions.
One of the most
commonly asked questions is whether thrifts can rely
on the same exceptions from broker-dealer registration
that are available to banks. Ms. Unger answered this
query with an emphatic "no," adding that
thrifts and commercial banks have traditionally been
treated differently under the federal securities laws
and Gramm-Leach-Bliley did not change this fact.
Regulating Hybrid
Products
One of the most
contentious parts of Gramm-Leach-Bliley, the
Commissioner said, is the rule allowing the Commission
to decide whether banks that sell new hybrid
securities products must register with the SEC. Ms.
Unger assured her audience that the SEC will first
seek the Fed's concurrence in any rulemaking before
the Commission undertakes regulating hybrid products
offered by banks. Before applying regulations, she
said, the Commission would have to determine the
product's characteristics and effects on investors,
and make findings regarding the appropriateness of any
regulation provided for under federal banking laws.
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