Speech by SEC Commissioner:
Statement at the SEC Open Meeting Regarding Proposed Regulation R
Commissioner Roel C. Campos
U.S. Securities and Exchange Commission
December 13, 2006
I too would like to thank Erik Sirri and the staff of Market Regulation for its hard work on this proposal. No one knows better than they what a challenging mandate Congress set forth in, not one, but two Acts: Gramm Leach Bliley and the Regulatory Relief Act of 2006. In addition, the Chairman is to be commended for his leadership in moving this project forward.
In reconstructing the Glass-Steagall divide between banking and brokerage that had been in place for over 70 years, Congress undertook the difficult task of trying to integrate old and new business practices within the regulatory framework without diminishing investor protections. Specifically, the task involved permitting historical business practices while recognizing that developments and competition in the banking business and the marketplace have resulted in an expansion of, or need to expand, banking activity into the securities realm, necessitating a shift in the prior prohibitions on securities activities outside of the protections of the securities laws. To address this change, Congress employed functional regulation in the GLB Act in a manner that attempts to balance the intersection of the financial and banking industries.
Congress then tasked the Commission, and recently the Federal Reserve Board, with implementing these rules consistent with its intent and in a manner that ensures the protection of investors in securities transactions. The joint proposal eliminates many of the sharp edges of regulation for banks electing to expand their existing practices and to compete in today's marketplace. Indeed, I believe the proposal succeeds to a large degree in addressing commenters' concerns raised in response to the Regulation B proposal, to develop accommodations so the banks do not have to significantly alter their models, and to preserve many of the protections afforded by the federal securities laws. This is evidenced by furthering the initiatives of Regulation B by maintaining not only the flexibility for banks to continue their customary banking activities but also the recognition of certain activities that were not specifically excluded from broker dealer registration but for which exemptions are warranted.
I do note that there is a noticeable widening of the permitted banking conduct between this proposal and the SEC's prior Regulation B proposal, evidencing the SEC's efforts at cooperation. For example, the proposed 90/10 formula provision in the trust and fiduciary activities exception has been modified to 70%. In addition, 12b-1 fees have been included within the scope of relationship compensation. I would encourage commenters to focus on whether this broader scope of permissive banking activity outside the reach of the securities laws provides investors with the necessary protections when conducting securities transactions. In this joint proposal, as regulators, have we achieved the appropriate balance between business interests and investor protections? Have we succeeded in preventing the creation of a "salesman's stake" in promoting securities transactions at banks? Is there any fear that under this proposal banks will have the ability to operate full-scale brokerage operations within various business lines as covered by the 11 exceptions?
This has truly been an ongoing and evolving process, and I hope for investors' sake we are close to the end. We have a long calendar in front of us today so I do not want to spend a lot of time repeating the details of the individual exemptions which you have already heard. I would, however, like to ask a number of questions.