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Federal R eserve Bank
OF DALLAS
ROBERT

D. M c T E E R , J R .

DALLAS, TEXAS

p re s id e n t
A N D C H IE F E X E C U T I V E O F F I C E R

^

February 5, 1997

7 5 2 6 5 -5 9 0 6

Notice 97-12

TO:

The Chief Executive Officer of each
financial institution and others concerned
in the Eleventh Federal Reserve District

SUBJECT
Proposal to Adopt Qualification
Requirements for Transactions
in Certain Securities
DETAILS

The Board of Governors of the Federal Reserve System, along with the Federal
Deposit Insurance Corporation and the Office of the Comptroller of the Currency (banking
agencies), is requesting public comment on proposed regulations regarding qualification
requirements for bank employees who sell mutual funds and certain other securities. The
proposed regulations would promote the safe and sound operation of bank retail securities
sales programs and customer protection by establishing standardized qualification require­
ments for bank personnel engaged in the retail sale of certain securities.
In addition, the banking agencies are proposing to adopt four forms to be used in
connection with the regulation: Form SB (Uniform Notice for Sponsoring Bank), Form SBW
(Uniform Notice for Sponsoring Bank Withdrawal), Form U-4B (Uniform Application for
Bank Securities Representative Registration or Transfer), and Form U-5B (Uniform Termina­
tion Notice for Bank Securities Representative Registration). The proposed forms are based
on the uniform forms used in the securities industry for broker-dealers and their registered
representatives. The use of these forms, along with the proposed regulation, will promote the
safe and sound operation of bank retail securities sales programs and customer protection by
standardizing the qualification requirements of bank personnel engaged in the retail sale of
certain securities.
The Board must receive comments by February 28, 1997. Please address com­
ments to William W. Wiles, Secretary, Board of Governors of the Federal Reserve System,
20th Street and Constitution Avenue, N.W., Washington, D.C. 20551. All comments should
refer to Docket No. R-0950.

For additional copies, bankers and others are encouraged to use one of the following toll-free numbers in contacting the Federal
Reserve Bank of Dallas: Dallas Office (800) 333 -4460; El Paso Branch Intrastate (800) 592-1631, Interstate (800) 351-1012; Houston
Branch Intrastate (800) 392-4162, Interstate (800) 221-0363; San Antonio Branch Intrastate (800) 292-5810.

This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org)

ATTACHMENT

A copy of the Board’s notice as it appears on pages 68823-42, Vol. 61, No. 251,
of the Federal Register dated December 30, 1996, is attached.
MORE INFORMATION

For more information, please contact Daniel Kirkland at (214) 922-6256. For
additional copies of this Bank’s notice, please contact the Public Affairs Department at (214)
922-5254.
Sincerely yours,

Monday
December 30, 1996

Part II
Department of the Treasury
Comptroller of the Currency
12 CFR Part 12

Federal Reserve System
12 CFR Parts 208 and 211

Federal Deposit Insurance
Corporation
12 CFR Part 342
Qualification Requirements for
Transactions in Certain Securities,
Proposed Rule and Proposed Information
Collection Comment Request; Notice

68823

68824

Federal Register / Vol. 61, No. 251 / Monday, December 30, 1996 / Proposed Rules

DEPARTMENT OF THE TREASURY
Office of the Comptroller of the
Currency
12 CFR Part 12
[Docket No. 96-29]
RIN 1557-AB42

FEDERAL RESERVE SYSTEM
12 CFR Parts 208 and 211
[Docket No. R-0950]

FEDERAL DEPOSIT INSURANCE
CORPORATION
12 CFR Part 342
RIN 3064-AB85

Qualification Requirements for
Transactions in Certain Securities
AGENCIES: Office of the Comptroller of
the Currency, Treasury; Board of
Governors of the Federal Reserve
System; Federal Deposit Insurance
Corporation.
ACTION: Joint notice of proposed
rulemaking.

The Office of the Comptroller
of the Currency (OCC), Board of
Governors of the Federal Reserve
System (Board), and the Federal Deposit
Insurance Corporation (FDIC) (banking
agencies) propose to adopt a
qualification regulation for those banks
that engage in bank-direct retail sales or
recom m endations of certain securities
through their employees. Because banks
are not required to register as a brokerdealer u nder the Securities Exchange
Act of 1934, as am ended, 15 U.S.C. 78
et seq. (Securities Exchange Act), the
proposed regulation establishes
requirem ents for banks and bank
securities representatives that are
consistent w ith the professional
qualification requirem ents for brokerdealers and registered representatives
u n d er the Securities Exchange Act and
rules thereunder and the rules of the
securities self regulatory organizations
(SSROs). The banking agencies invite
com m ent on all aspects of the proposal
as w ell as on the specific issues
identified in the “ Section-by-Section
Sum mary and Request for Com m ent.”
In a separate docum ent published
elsew here in this separate part of the
Federal Register as a com panion Notice
of Forms, the banking agencies are
proposing to adopt four forms to be used
in connection w ith the regulation; Form
SB (Uniform Notice for Sponsoring
Bank), Form SBW (Uniform Notice for
Sponsoring Bank W ithdrawal), Form
SUMMARY:

U^IB (Uniform A pplication for Bank
Securities Representative Registration or
Transfer), and Form U-5B (Uniform
Term ination Notice for Bank Securities
Representative Registration). The
proposed forms are based on the
uniform forms used in the securities
industry for broker-dealers and their
registered representatives. The use of
these proposed forms, along w ith this
proposed regulation, w ill prom ote the
safe and sound operation of bank retail
securities sales programs and custom er
protection by standardizing the
qualification requirem ents of bank
personnel engaged in the retail sale of
certain securities.
DATES: Comments on the proposed
regulation m ust be received by February
28, 1997.
ADDRESSES: Comments should be
directed to:
OCC: Com munications Division,
Office of the Comptroller of the
Currency, 250 E Street, S.W.,
W ashington DC 20219, Attention:
Docket No. 96-29. Comments w ill be
available for public inspection and
photocopying at the same location. In
addition, com m ents may be sent by
facsimile transm ission to FAX num ber
(202) 874-5274 or by Internet m ail to
REGS.COMMENTS@OCC.TREAS.GOV.
Board: W illiam W. Wiles, Secretary,
Board of Governors of the Federal
Reserve System, 20th and Constitution
Avenue, N.W., W ashington, D.C. 20551,
Attention: Docket No. R-0950, or
delivered to room B-2222 of the Eccles
Building betw een 8:45 a.m. and 5:15
p.m. Comments may be inspected in
room M P-500 betw een 9:00 a.m. and
5:00 p.m. weekdays, except as provided
in § 261.8 of the Board of Governors’
rules regarding availability of
information, 12 CFR 261.8.
FDIC: Jerry L. Langley, Executive
Secretary, Attention: Room F-402,
Federal Deposit Insurance Corporation,
550 17th Street, N.W., W ashington, D.C.
20429. Comments may be hand
delivered to Room F-402, 1776 F Street,
N.W., W ashington, DC 20429, on
business days betw een 8:30 a.m. and
5:00 p.m. or transm itted by fax or the
internet. The FDIC’s fax num ber is (202)
898-3838 and its Internet address is:
COMMENTS@FDIC.GOV. Comments
w ill be available for inspection and
photocopying in Room 100, 801 17th
Street, NW, W ashington, DC between
9:00 a.m. and 5:00 p.m. on business
days.
FOR FURTHER INFORMATION CONTACT:

OCC: Joseph W. Malott, Examiner,
Capital Markets (202) 874-5070, and
Joel Miller, Senior Attorney, Securities
and Corporate Practices (202) 874-5210.

Board: H oward Amer, A ssistant
Director, Division of Banking
Supervision and Regulation (202) 45 2 2958, and Angela Desmond, Senior
Counsel, Division of Banking
Supervision and Regulation (202) 45 2 3497.
FDIC: W illiam A. Stark, Assistant
Director, Division of Supervision, (202)
898-6972; Lisa D. Arquette, Senior
Capital Markets Specialist, Division of
Supervision, (202) 898-8633; Ann
Hume Loikow, Counsel, Regulations
and Legislation Section, Legal Division,
(202) 898-3796; and Patrick J. McCarty,
Counsel, Regulations and Legislation
Section, Legal Division, (202) 898-8708.
SUPPLEMENTARY INFORMATION:

Background
In recent years, sales of securities and
other nondeposit investm ent products
on bank prem ises have increased as
banks have m ade these products
available to retail custom ers either
directly as b ro k ers1 or through third
parties. As this business has evolved,
both the banking agencies and the
banking industry have identified the
need for banks to manage the
reputational and legal risks to banks that
could result from custom er confusion,
to disclose that these investm ent
products are not guaranteed by the bank
or insured by the FDIC, and to ensure
that banks are aware of the application
of the antifraud provisions of the
Federal securities laws if material
m isstatem ents or omissions occur in
connection w ith sales of securities on
bank premises. These concerns arise
w hether the bank is selling directly to
custom ers or w hether SEC-regulated
broker-dealers are selling on bank
prem ises.2
To address these needs, in 1994, the
banking agencies and the Office of
Thrift Supervision issued the
Interagency Statem ent on Retail Sales of
N ondeposit Investm ent Products
(Interagency Statement), w hich sets
forth guidelines for conducting sales of
nondeposit investm ent products,
consistent w ith principles of safety and
1Banks specifically are excluded from the
definition of “broker” in section 3(a)(4) of the
Securities Exchange Act, 15 U.S.C. 78c(a)(4), and
m ay engage in brokerage transactions w ithout
having to register w ith the Securities and Exchange
Commission (SEC).
2 It is estim ated that approxim ately 87 percent of
all sales of securities on bank prem ises are effected
by SEC-regulated broker-dealers. See U.S. General
Accounting Office, Report to Congressional
Requesters: B ank M utual F unds Sales Practices and
Regulatory Issues GAO/GGD-95-210, at p. 52
(September 1995); U.S. General Accounting Office,
Report to Congressional Requesters: B anks’
Securities A ctivities— Oversight Differs D epending
on A ctivity and Regulator, GAO/GGD-95-214, at p.
25 (Septem ber 1995).

Federal Register / Vol. 61, No. 251 / Monday, December 30, 1996 / Proposed Rules
soundness and custom er protection.3
Among other things, the Interagency
Statem ent provides that banks that
engage in the retail recom m endation or
sale of securities should provide sales
personnel w ith training that is the
substantive equivalent of that provided
to their securities industry counterparts.
Since adoption of the Interagency
Statement, industry participants have
com m ented that it is difficult to
m easure their com pliance w ith the
equivalent training requirem ent w hen
there are no objective m easures of a
bank salesperson’s training comparable
to that provided by the securities
industry professional qualifications
exam inations for broker-dealer sales
personnel. To address this issue, the
banking agencies approached the SSROs
that ow n the exam inations that pertain
to the sale of m utual funds 4 and general
securities products 5 and requested that
the SSROs make the Investm ent
Com pany/Variable Contracts Products
Limited Representative Qualification
Exam ination (Series 6 Examination) and
the General Securities Registered
Representative Exam ination (Series 7
Examination) available to bank
personnel. The SSROs agreed on the
condition that the banking agencies
adopt regulations establishing
registration and qualification
requirem ents analogous to those
applicable to the securities industry.
A doption of a qualifications
regulation for banks and their
em ployees w ho 2make retail
solicitations, recom m endations,
purchases, or sales of securities w ill
provide a num ber of benefits in addition
to ensuring com pliance w ith the
equivalent training requirem ents of the
Interagency Statement. The regulation
w ill ensure that bank sales
representatives have adequate product
and regulatory knowledge pertaining to
those securities being recom m ended
and sold at the retail level. This will
promote the safe and sound operation of
bank- sponsored sales programs and
enhance custom er protection. The
regulation also w ill enhance the banking
3 5 Fed. Bnkg. L. Rep. (CCH) PP 70-001, et seq.;
Federal Reserve Supervisory Letter, SR 94-11 (FIS)
(February 17,1994); Federal Reserve Supervisory
Letter, 95-46 (SPE) (September 14,1995),
interpreting the Interagency Statement; OCC
Bulletin 94-13 (Nondeposit Investm ent Sales
Exam ination Procedures) (February 24,1994); OCC
B ulletin 95-52 (Clarification of Interagency
Guidelines) (September 22,1995); FDIC Financial
Institutions Letter 9 -9 4 (February 17,1994); and
FDIC Financial Institutions Letter 61-95 (September
13,1995).
4 The National Association of Securities Dealers,
Inc. (NASD).
5 The NASD, New York Stock Exchange, Inc.
(NYSE), and M unicipal Securities Rulemaking
Board (MSRB).

agencies’ ability to identify and restrict
individuals w ho are subject to a
statutory disqualification and therefore
not qualified u nder the securities laws
from soliciting, recom mending,
purchasing, or selling securities at the
retail level on behalf of banks.
Moreover, adoption of the proposed
qualification requirem ents is likely to
facilitate individuals seeking to move
betw een banks and broker-dealers
w ithout losing their qualifications to
sell certain securities in either
industry.6 This w ould create additional
efficiencies for banks and securities
firms and opportunities for their
employees.
Accordingly, the banking agencies
propose to adopt qualification
regulations that establish filing
requirem ents for banks and registration,
testing, and continuing education
requirem ents for bank securities
representatives that are analogous to the
professional qualification requirem ents
for broker-dealers u nder the Securities
Exchange Act, and rules thereunder,
and the rules of the SSROs. Any filing
required to be m ade to a banking agency
w ill be m ade at the NASD, w hich w ill
m aintain all inform ation in its Central
Registration Depository (CRD), the
national/state com puter-based registry
for broker-dealers and securities
personnel.
The proposed use of securities
industry qualification exam inations and
continuing education m aterials w ill not
alter the statutory scheme for banks or
their brokerage activities. No SSRO,
including the NASD, obtains
jurisdiction over any sponsoring bank or
bank securities representative as a result
of the proposed rule or the subm ission
of filings to the appropriate Federal
banking agency at the NASD. Legal and
supervisory authority over banks
rem ains vested exclusively w ith the
appropriate Federal banking agency.
Authority to Issue Regulation
This rulem aking is authorized
p ursuant to the banking agencies’
statutory authority u nder section 8 of
the Federal Deposit Insurance Act
(FDIA), 12 U.S.C. 1818, to prevent
unsafe and u n sound practices by, and to
adopt regulations defining safe and
6 Under current SSRO rules, a bank securities
representative seeking to m ove to a broker-dealer
m ust request a w aiver from the exam ination
requirem ents from h is or her designated SSRO. To
the extent a bank securities representative seeks to
engage in the recom m endation or sale of m unicipal
securities, the MSRB’s 90-day apprenticeship
requirem ent applies. See MSRB Rule G—
3(a)(iii). To
the extent a bank securities representative seeks to
become a candidate for registration w ith an
exchange, a training requirem ent m ay be required.
See, e.g., NYSE Rule 345.15(2).

68825

sound practices for, banks u nder their
respective jurisdictions.7 In addition,
the banking agencies have the authority
to prescribe specific operational and
managerial standards, as deemed
appropriate, pursuant to section 3 9 p 1(a)(2) of the FDIA, 12 U.S.C. 83 1 p 1(a)(2).
Section-by-Section Summary and
Request for Comment
D efinitions
A ppropriate Qualification Examination.
The proposal defines “appropriate
qualification exam ination” as the Series
6 Exam ination or the Series 7
Examination, both of w hich are
adm inistered by the NASD.
The Series 6 Exam ination is the
appropriate qualification exam ination
for a bank employee engaged solely in
covered transactions of open-end
investm ent com pany shares, original
distribution closed-end investm ent
com pany shares, u n it investm ent trusts,
or variable contracts, including variable
life insurance contracts and variable
annuity contracts. The Series 7
Exam ination is the appropriate
exam ination for a bank securities
representative w ho effects transactions
in other securities, such as equities and
corporate bonds, in addition to the
products covered by the Series 6
Examination. A person w ho passes the
Series 7 Examination need not pass the
Series 6 Examination.
Bank
The proposal defines “bank” as each
institution regulated by the banking
agencies, respectively, b u t does not
include affiliates, subsidiaries, or
foreign branches of such institutions.
(“Foreign branches” located in any
Territory of the U nited States, Puerto
Rico, Guam, Am erican Samoa, the Trust
Territory of the Pacific Islands, or the
Virgin Islands, however, are included in
the definition of “bank.”) Bank
subsidiaries and affiliates engaged in
securities sales are already registered
w ith the SEC and are subject to the rules
and requirem ents of the SEC and
SSROs.
Bank Securities Representative
The proposal defines “bank securities
representative” as any bank officer,
director, or employee (collectively,
employee) who engages in covered
transactions or is designated as the
supervisor of a bank employee engaged
7 In dependent Bankers A ssociation v. H eim ann,
613 F.2d 1164,1168-69 (D.C. Cir. 1979), cert,
denied, 449 U.S. 823; see also National Petroleum
Refiners A ssoc, v. FTC, 482 F.2d 672, 680-81 (D.C.
Cir. 1973), cert, denied, 415 U.S. 951 (1973).

68826

Federal Register / Vol. 61, No. 251 / Monday, December 30, 1996 / Proposed Rules

in covered transactions. Each employee
seeking to qualify as a bank securities
representative m ust be sponsored by his
or h er employing bank. A sponsoring
bank m ust file proposed Form U-4B on
behalf of its employees. The Form U-4B
includes an application for a bank
employee to take either the Series 6 or
Series 7 Examination.
U nder the section captioned
“O ptional D esignation as a Bank
Securities Representative,” a bank also
may choose to have legal, compliance,
and audit personnel take a qualification
examination. Even though those
individuals are not engaged in retail
sales or recom m endations of securities,
for purposes of this regulation, they w ill
be deem ed to be bank securities
representatives if they pass a
qualification exam ination and w ill be
required to com ply w ith all the other
provisions of the regulation to m aintain
their registration.
Continuing Education
The proposal defines “continuing
education” as the course of study
specified in the section captioned
“Continuing Education and Training
R equirem ents.” These requirem ents
correspond to SSRO continuing
education requirem ents applicable to
registered representatives.
Covered Product
The proposal defines “covered
product” as having the same m eaning as
“security” as defined at section 3(a)(10)
of the Securities Exchange Act, 15
U.S.C. 78c(a)(10). The definition
specifically excludes a government
security as defined at section 3(a)(42) of
the Securities Exchange Act, 15 U.S.C.
78c(a)(42), because the government
securities markets already are subject to
a com prehensive statutory and
regulatory scheme that addresses the
concerns underlying the proposed rule.8
The definition specifically states that
deposits, as defined in section 3(1) of the
FDIA, 12 U.S.C. 1813(1), are not covered
products.
Covered Transaction
The proposal defines “ covered
transaction” as a retail solicitation,
recom m endation, purchase, or sale of a
covered product by a bank through its
employee regardless of the means
8See Section 15C of the Securities Exchange Act,
15 U.S.C. 78o-5, and SEC an d Treasury rules
adopted thereunder. In addition, the banking
agencies recently issued a notice of proposed
rulem aking, titled G overnm ent Securities Sales
Practices, that w ould establish standards
concerning the recom m endations to customers and
the conduct of business by a bank that is a
governm ent securities broker or dealer. 61 FR 18470
(April 25, 1996).

through w hich the solicitation,
recom m endation, purchase, or sale
occurs.9 For instance, a transaction that
takes place via telephone, mail, or other
electronic m eans such as the Internet is
included in the definition. Sales
personnel in a bank’s dealer departm ent
w ho engage in covered transactions (i.e.,
a retail solicitation, recom m endation,
purchase, or sale of securities other than
governm ent or m unicipal securities)
m ust comply w ith this regulation. The
term “covered transaction” does not
differentiate betw een those banks that
engage in only occasional or a lim ited
num ber of covered transactions for a
retail customer and those banks that
establish programs for the retail sale of
covered products. Therefore, consistent
w ith the current requirem ents
applicable to the securities industry, all
banks that engage in covered
transactions, regardless of frequency or
volume, w ould be considered to be in
the business of effecting covered
transactions and w ould be required to
com ply w ith the regulation.10
Consistent w ith the scope of the
Interagency Statement, the term does
not include a sale to a fiduciary account
adm inistered by a bank, such as
statutory and w ritten trust accounts,
employee benefit plans, and other types
of pension plans norm ally adm inistered
by a trust departm ent. Self-directed
IRAs, certain types of Keogh accounts,
and other accounts w here the customer
retains investm ent discretion are,
however, included in the term. Sales of
m unicipal securities by dealer banks
registered under section 15B of the
Securities Exchange Act, 15 U.S.C.
78o0044, also are excluded because the
bank and its sales personnel already are
subject to registration and professional
qualifications requirem ents u nder the
Securities Exchange Act and the rules of
the MSRB.
Consistent w ith Rule 3a4—
1
prom ulgated u nder the Securities
Exchange Act, 17 CFR 240.3a4-l, equity
and debt offerings by banks of their own
securities, such as mutual-to-stock
conversions, also are excluded from the
definition of “covered transaction” if
the securities offerings are consistent
w ith the conditions set forth in that
9 U nder the Interagency Statem ent, bank
em ployees located in the routine deposit taking area
are generally prohibited from soliciting or
recom m ending nondeposit investm ent products.
Such em ployees may, however, direct or refer bank
custom ers to bank securities representatives and
m ay receive a fee from the bank for such referral.
10The scope of the regulation is in tended to be
the same as that for SEC-regulated broker-dealers.
If the SEC liberalizes the registration or other
professional qualification requirem ents for such
broker-dealers, the banking agencies w ill interpret
the regulation in a sim ilar manner.

Rule.1 These offerings tend to be
1
infrequent and generally are subject to
special oversight by the banking
agencies. Banks engaged solely in the
direct retail sale of their ow n securities
are therefore not required to become
sponsoring banks. However, if a bank
has filed Form SB and becomes a
sponsoring bank, it m ust use its bank
securities representatives to solicit,
recom m end or sell its ow n securities.
Disciplinary Action
The proposal defines “ disciplinary
action” for purposes of this regulation
as an action resulting in: (1) an
employee being “subject to
disqualification;” (2) a civil money
penalty or fine of $5,000 or more by the
SEC or an SSRO; (3) a civil m oney
penalty of $5,000 or more by a banking
agency pursuant to 12 U.S.C. 1818 for
either a violation of a securities law or
regulation, or an unsafe or unsound
practice related to a covered transaction;
(4) an agreement w ith the SEC, an
SSRO, or a banking agency in
connection w ith a disciplinary
proceeding; or (5) an order by the SEC,
an SSRO, or a banking agency to enter
the continuing education program.
D isciplinary actions m ust be reported
on the forms referred to in the
com panion Notice of Forms that is being
published w ith this proposal.
Information on disciplinary actions w ill
be available to the public. Bank
securities representatives that are
subject to a disciplinary action as
defined u nder the regulation w ill be
subject to additional continuing
education requirem ents that begin as of
the date of the disciplinary action. The
“$5,000 or m ore” figure used in the
definition is consistent w ith the
threshold used in the definition of
“ disciplinary action” in the SSRO rules.
NASD
The proposal defines “NASD” as the
National A ssociation of Securities
Dealers, Inc., w hich is an SSRO
11 The bank employee m ust not be subject to a
statutory disqualification u n d er the Securities
Exchange Act of 1934, m ay n ot receive a
com m ission or other rem uneration for selling bank
securities, and may not be an associated person of
a broker or dealer. In addition, the bank employee
m ust restrict his or h er offer and sale activities to
certain groups or entities. Further, the bank
employee m ust perform prim arily other substantial
duties on behalf of the bank, not be an associated
person of a broker or dealer w ith in the last 12
m onths or participate in selling an offering of any
issuers securities m ore than once every 12 months.
Finally, a bank employee m ust restrict h is or her
activities to preparing and delivering written
com m unications or other m eans w hich do not
involve oral solicitations, responding to inquiries
initiated by a potential purchaser, and performing
m inisterial and clerical work in effecting any
transaction.

Federal Register / Vol. 61, No. 251 / Monday, December 30, 1996 / Proposed Rules
registered u n d er section 15 A of the
Securities Exchange Act, 15 U.S.C. 78o,
and NASD Regulation, Inc., the
regulatory subsidiary of NASD. The
NASD w ill accept filings and m aintain
in the CRD inform ation filed w ith the
banking agencies u nder this regulation.
Sponsoring Bank
The proposal defines “ sponsoring
b ank” as a bank that engages or seeks to
engage in the business of effecting
covered transactions. A bank th at enters
into an agreement w ith a registered
broker-dealer enabling registered
representatives of the broker-dealer to
engage in covered transactions w ith
bank customers, regardless of location,
is not a “sponsoring bank,” even though
the broker-dealer m ay use dual
em ployees em ployed by both the bank
and the broker-dealer.
Subject to Disqualification
The proposal defines the term
“ subject to disqualification” as having
the same m eaning as “statutory
disqualification” in section 3(a)(39) of
the Securities Exchange Act, 15 U.S.C.
78c(a)(39). Individuals w ho are subject
to an order of removal, prohibition, or
suspension by a Federal banking agency
pursuant to section 8 (e) or (g) of the
FDIA, 12 U.S.C. 1818 (e) or (g), or banks
or individuals subject to an order or
tem porary order pursuant to section 8
(b) or (c) of the FDIA, 12 U.S.C. 1818 (b)
or (c), that restricts their fiduciary or
securities activities at a depository
institution or are subject to a prohibition
pursuant to section 19 of the FDIA, 12
U.S.C. 1829(a), are also subject to
disqualification. The definition,
therefore, makes a bank employee or
sponsoring bank subject to
disqualification if the employee or bank
has been barred, suspended, or enjoined
from the banking or securities
industries; convicted of any felony in
the past 10 years; convicted of a felony
or m isdem eanor involving the purchase
or sale of a security, or other financial
crime (such as theft, robbery, or
m isappropriation of funds); or restricted
in his or her em ploym ent pursu an t to
Section 19(a) of the FDIA, 12 U.S.C.
1829(a).
Q ualification Requirem ents
Disqualifications
The proposal sets forth the
qualification requirem ents for both
sponsoring banks and bank employees.
A bank that is or becomes subject to
disqualification shall not engage in a
covered transaction unless the
appropriate banking agency has granted
the bank relief from being subject to

disqualification and perm its the bank to
engage in covered transactions. This
section also prohibits a bank employee
w ho is, or becomes, subject to
disqualification from engaging in
covered transactions unless the
em ployee’s sponsoring bank has applied
for and obtained the banking agency’s
approval for that em ployee to act as a
bank securities representative.
Sponsoring Bank Notices
This section requires a bank seeking
to engage in covered sales to file a
notice. A bank is required to file a
com pleted Form SB 12 w ith the
appropriate Federal banking agency at
the NASD containing the bank’s name,
address, bank identification number,
and contact person. Upon receipt of a
Form SB, the sponsoring bank w ill be
assigned a unique CRD num ber for use
on all of the filings required u nder the
proposed regulation. Banks that choose
to term inate their status as sponsoring
banks m ust file the Form SBW w ith the
appropriate banking agency at the
NASD.
Sponsoring Bank Requirements
This section requires a bank
sponsoring an employee to act as a bank
securities representative to ensure that
each employee engaged in a covered
transaction is not subject to
disqualification and has passed the
appropriate qualification examination.
A sponsoring bank also m ust make
independent inquiry regarding the
background of each sponsored
employee. A sponsoring bank should, at
a m inim um , consult the em ployee’s
employers from the last three years and
should investigate the good character,
business repute, qualifications, and
experience of any person the bank
intends to sponsor. The sponsoring bank
also m ust com plete the designated
portion of the Form U-4B and file it,
along w ith a fingerprint card for the
employee w ith the appropriate Federal
banking agency at the NASD. The NASD
in turn w ill subm it the fingerprint
record cards to the Federal Bureau of
Investigation for review. A fingerprint
card w ill be required each tim e an
individual is h ired by a bank to act as
a bank securities representative and w ill
be used to check w hether the employee
has a civil or crim inal record that could
subject the individual to
disqualification.13
12Form SB, Form SBW, Form U-4B, and Form U 5B are p ublished elsew here in this separate part of
the Federal Register contem poraneously w ith the
proposed regulation.
13 The securities industry is subject to
fingerprinting requirem ents under section 17f of the
Securities Exchange Act, 15 U.S.C. 78q(f)(2), and

68827

A bank m ay not sponsor an employee
to become a bank securities
representative if the individual is
“subject to disqualification” unless the
bank has applied for and received
approval from the appropriate banking
agency for the individual to engage in
covered transactions. The banking
agencies w ill consider, on a case-by-case
basis, w hether it is in the public interest
to authorize either a sponsoring bank
that, or a bank employee who, is, or
becomes, subject to disqualification to
engage in covered transactions. The
banking agencies anticipate they w ill
consider factors such as those detailed
in SEC Rules of Practice, Rule 193,17
CFR 201.193 (Applications by Barred
Individuals for Consent to Associate), in
their evaluation of the particular facts
and circumstances. The banking
agencies seek comm ent on w hether
additional factors should be considered
for banks and persons w ho are, or
become, “subject to disqualification.”
The banking agencies may adopt various
processes for considering these
applications.
W ith the exception of those bank
em ployees sponsored under the
optional designation as a Bank
Securities Representative provision, a
bank m ay n ot sponsor an employee to
become a bank securities representative
if the bank does not intend for that
individual to engage in the solicitation,
recom m endation, purchase, or sale of
covered products or to supervise
covered transactions.
A sponsoring bank is required to file
a Form U-5B w hen a bank securities
representative ceases to be an employee
of the bank for any reason or ceases to
engage in covered sales on behalf of the
bank. A bank m ust provide a copy of
Form U-5B and subsequent
am endm ents to the employee.
A sponsoring bank is required to
designate one or more individuals, as
necessary, to supervise the activities of
its bank securities representatives. A
supervisor designated by a sponsoring
bank need n ot engage in covered sales
b u t m ust com ply w ith the qualification
requirem ents for bank securities
representatives. Supervisors m ust take
and pass the appropriate qualification
exam ination (either the Series 6 or
Series 7 Examination) for the bank
securities representatives they
supervise.
The banking agencies request
comm ent on w hether supervisors
should be required to take one of the
securities industry supervisor’s
(principal’s) examinations. Commenters
Rule 17f-2 prom ulgated thereunder, 15 CFR
240.17f—
2.

68828

Federal Register / Vol. 61, No. 251 / Monday, December 30, 1996 / Proposed Rules

are requested to discuss w hether the
General Securities P rincipal’s
Exam ination (Series 24), w hich focuses
on the managem ent of an investm ent
banking or securities business,
including supervision, solicitation,
conduct of business, and training of
registered representatives, is relevant or
w hether one of the other supervisor’s
exam inations (Series 26—Investm ent
Com pany Products/Variable Contracts
Limited Principal; Series 28—
Introducing Broker/Dealer Financial and
Operations Principal; or Series 8—
General Securities Sales Supervisor
Examination, for example) w ould be
more appropriate for individuals
supervising bank securities
representatives w hose activities and
product offerings are likely to be more
limited.
Bank Securities Representative
Requirements
This section requires a bank employee
seeking to qualify as a bank securities
representative to com plete designated
portions of the Form U-4B and subm it
this form and a fingerprint card to his
or h er sponsoring bank. The employee
th en m ust pass the appropriate
qualification exam ination and the
sponsoring bank m ust receive approval
from the appropriate Federal banking
agency prior to the employee engaging
in covered transactions. Fingerprint
cards and com pleted Forms U-4B m ust
be filed for employees transferring
registration from another sponsoring
bank or securities firm but the employee
w ill not have to retake an examination.
The Form U-4B requires disclosure of
personal and em ploym ent information,
including w hether the employee has
been the subject of any disciplinary
action (as that term is defined in the
proposed regulation) or certain types of
custom er com plaints involving claims
of greater than $5,000 or settlem ents of
$10,000 or more. A bank securities
representative m ust advise h is or her
sponsoring bank w ith in 30 days of an
event that renders any inform ation filed
on a Form U -4B or U-5B incom plete or
inaccurate and m ust cooperate w ith the
sponsoring bank in filing an am endm ent
to the Form.
Any employee w ho fails an
exam ination w ill be perm itted to retake
the test after a period of 30 days has
elapsed from the date of the prior
exam ination, except that any employee
w ho fails to pass an exam ination three
or more tim es in succession (and each
additional tim e thereafter) m ust w ait
180 days from the date of the last
attem pt before he or she m ay again
retake the exam. A bank securities
representative w ho has not engaged in

covered transactions for a period of two
years, or w ho has not supervised a bank
sales representative for a period of two
years, m ust pass the appropriate
exam ination before engaging in covered
transactions again. An employee
engaged in legal, com pliance, internal
audit, or sim ilar responsibilities related
to covered transactions w ho has taken
an exam ination pursuant to the optional
designation provision and w ho does not
perform any of those functions for a
period of two years also m ust retake the
exam ination before engaging in covered
transactions.
Exam ination Exemptions
This section establishes two
exemptions from the exam ination
requirem ents. First, a bank employee
w ho is qualified as a registered
representative pursuant to the rules of
an SSRO at the time he or she seeks to
qualify as a bank securities
representative w ill not have to retake
the examination. As noted earlier,
however, a bank securities
representative seeking to transfer
em ploym ent from a sponsoring bank to
a broker-dealer w ill have to apply to the
appropriate SSRO for a w aiver from
retaking any exam inations required
under applicable SSRO rules and
policies.
Second, a sponsoring bank m ay apply
in writing to its appropriate Federal
banking agency on behalf of an
employee for a waiver of the
exam ination requirem ent. Applications
w ill be approved only in exceptional
cases w here good cause is shown. In
considering these requests, the banking
agencies may accept other evidence of
an em ployee’s qualifications to act as a
bank securities representative.
A dvanced age, physical infirmity, or
experience in fields ancillary to the
investm ent banking or securities
business, w ould not individually of
them selves constitute sufficient grounds
to w aive the exam ination requirem ent.
The banking agencies intend to exercise
their waiver authority in a m anner
consistent w ith the w aiver policies of
the SSROs.14 Any bank employee who
is eligible for the exam ination
exem ption u n d er this paragraph still
m ust satisfy all other qualification,
reporting and continuing education
requirem ents of the regulation. A bank
securities representative w ho obtains an
exam ination w aiver from a banking
agency u nder this section and w ho
subsequently seeks to w ork in the
securities industry may be required to
14 See, e.g., NASD M em bership and Registration
Rule 1070 (Qualification Exam inations and W aiver
of Requirements), NASD M anual (CCH), p. 3291.

take an exam ination or apply to the
appropriate SSRO for a w aiver of that
exam ination requirem ent.
Approval of Bank Securities
Representative A pplications
This section prohibits a sponsoring
bank from perm itting an employee to act
as a bank securities representative until
the appropriate banking agency has
notified the sponsoring bank that the
bank em ployee’s Form U-4B
application has been approved. The
appropriate banking agency w ill
approve the registrations of bank
em ployees w hose applications do not
disclose grounds for disqualification
and who pass the appropriate
qualification examination. Registration
m ay be revoked if, for example, the
fingerprint record identifies any action
or item indicating that the individual is
subject to disqualification.
Grace Period
This section establishes a one-year
grace period following the adoption of
the final rule for banks and bank
em ployees to comply w ith the
regulation. The grace period w ill perm it
banks to file the required notices and
arrange for testing and registration of
em ployees w ithout un d u ly interrupting
bank operations. Any bank that is not in
com pliance w ith the rule after the grace
period expires m ust cease engaging in
covered transactions un til the ru le’s
requirem ents are met. Similarly, any
individual w ho engages in covered
transactions w ho has not com plied w ith
all testing and registration requirem ents
by the end of the grace period m ust
cease all covered transaction activities
u n til such requirem ents are met.
Filing Requirem ents, A m endm ents, and
Record Retention
This section requires all filings made
w ith the banking agencies u nder the
regulation to be m ade at the NASD.15
The NASD ultim ately w ill m aintain this
filing inform ation on its CRD, the
com puter-based registry for brokerdealers and securities personnel.
Information on the CRD w ill be made
available to the public on the same basis
that the NASD makes information
regarding broker-dealers and registered
representatives available through its
Public Disclosure Program.16 The
15 Filings subm itted by m ail should be sent to the
NASD address indicated on the Forms SB, SBW, U 4B and U-5B. W hen the NASD’s CRD becomes
available to sponsoring banks, banks w ill either be
required to purchase personal com puter software
from the NASD to make and access filings directly
or w ill be required to utilize a private service
bureau or vendor to make electronic filings.
16This inform ation includes disclosure of any
investm ent-related consum er-initiated com plaint or

Federal Register / Vol. 61, No. 251 / Monday, December 30, 1996 / Proposed Rules
banking agencies expect that members
of the public w ill be able to inquire
about the record of sponsoring banks
and bank securities representatives
using the NASD’s toll free telephone
num ber or other m eans that may
become available for CRD inquiries.
The NASD charges cost-based fees for
processing all filings, adm inistering
tests taken by bank employees,
processing fingerprint cards, and for
access to the CRD. W hile the exact fees
the NASD w ill charge sponsoring banks
have not yet been established, the
banking agencies anticipate that these
fees w ill be consistent w ith those levied
by the NASD upon broker-dealers for
comparable services.17 The NASD may
also charge sponsoring banks an initial
software m odification fee in order to
provide banks access to the CRD.
This section also provides that all
inform ation subm itted on any filing
m ade u nder the regulation m ust be true,
current, complete, and not m isleading at
the tim e and in light of the
circum stances u nder w hich it is
reported. A sponsoring bank m ust
subm it an am ended filing w ith in 30
days after it learns of any fact or
circum stance that causes a filing to be
inaccurate or incomplete.
This section further establishes record
retention requirem ents for filings made
under the regulation. A bank m ust
retain copies of Forms U-4B and U-5B
filed on behalf of any bank employee for
at least three years after the employee
ceases to act as a bank securities
representative or term inates his or her
em ploym ent w ith the sponsoring bank.
A bank m ust retain copies of Forms SB
and SBW and any applications for
w aiver of being subject to
disqualification for at least three years
after it files a Form SBW and term inates
covered sales.
The banking agencies welcome
com m ent regarding the tim ing and
content of the proposed filing
requirem ents, including the public
availability of inform ation regarding
sponsoring banks and their bank
securities representatives.
proceeding that: (1) alleges com pensatory damages
of $5,000 or more, fraud, or wrongful taking of
property; or (2) w as settled or decided against a
sponsoring bank or bank securities representative
for $10,000 or more, or found fraud or the wrongful
taking of property. See Form U -4 (Uniform
Application for S ecurities Industry Registration or
Transfer) Q uestion 221.
17 See generally Schedule A (Section 2) to the
NASD By-Laws, NASD M anual (CCH), pp. 1101-03.
The NASD m ay also levy an initial fee to defray the
cost of modifying the CRD database for banks. An
additional nom inal fee m ay also be collected by the
NASD on behalf of the MSRB to defray the MSRB’s
cost of developing questions for the Series 7
Examination.

68829

O ptional Designation as a B ank
Securities Representative

sponsoring banks that are comparable to
requirem ents for broker-dealers.

Consistent w ith SSRO rules, a bank
m ay choose to sponsor an employee
engaged in legal, com pliance, internal
audit, or sim ilar responsibilities for
covered transactions, or w ho provides
adm inistrative support functions for
bank securities representatives, to take a
qualification exam ination. U nder these
circum stances, the employee m ust m eet
the registration, testing, reporting, and
continuing education requirem ents of a
bank securities representative. As long
as the individual fills one of the
enum erated positions or engages in
covered transactions for a sponsoring
bank, the em ployee’s registration w ill
rem ain active.

Bank Securities Representative
Requirements

A pplications by B anks and B ank
Em ployees Subject to D isqualification
A bank may file a w ritten application
w ith the appropriate banking agency
seeking relief from a disqualification on
behalf of itself or an employee. The
appropriate banking agency may perm it
the bank or the employee to engage in
covered transactions or act as a bank
securities representative if the bank
dem onstrates to the banking agency w hy
granting relief from a disqualification is
consistent w ith safety and soundness,
the public interest, and the protection of
investors. In cases in w hich a
disqualification results from an action
brought u nder 12 U.S.C. 1818 or by
operation of law u nder 12 U.S.C. 1829,
applications for relief m ust be sought
pursuant to those sections.
Relief granted u nder this section w ill
not result in the perm anent elim ination
of a disqualification but instead
represents approval of a sponsoring
bank, or em ploym ent as a bank
securities representative w ith the
sponsoring bank, u nder specified terms
and conditions. For example, if a bank
obtains relief for an employee u nder this
section and the employee later becomes
em ployed by another bank, that bank
w ill have to seek relief from
disqualification on behalf of the
employee and agree to any special terms
or conditions im posed by the
appropriate Federal banking agency.
Any m aterial change in the terms or
conditions u n d er w hich relief is granted
w ould require the sponsoring bank to
seek appropriate relief on behalf of the
employee.

The first subsection requires a bank
securities representative to complete the
securities industry’s com puterized
training program “Regulatory E lem ent”
covering securities regulation issues
following the individual’s second, fifth,
and tenth anniversaries of passing the
appropriate qualification examination. If
an SSRO takes a disciplinary action
against an individual based upon
activities prior to that person becoming
a bank securities representative, a
banking agency takes a disciplinary
action against a bank securities
representative, or an individual is
otherwise the subject of a disciplinary
action, then the bank securities
representative m ust take the continuing
education training program w ithin 120
days of the occurrence of a disciplinary
action and following the second, fifth,
and tenth anniversaries of the
occurrence of a disciplinary action.18
The proposed regulation requires a bank
securities representative w ho does not
comply w ith the continuing education
requirem ents to cease activities u n til the
representative meets the requirements.
Sponsoring Bank Requirements
The second subsection incorporates
the requirem ents of the SSROs’ “Firm
Elem ent” and requires sponsoring banks
to develop in-house education programs
appropriate to the size, structure, scope
of products offered, and the b ank’s
policies and procedures for covered
transactions. These programs should
address, at a m inim um , the general
investm ent features of the products and
services being offered as w ell as
associated risk factors, suitability and
sales practice considerations, and
applicable regulatory requirem ents
(including the Interagency Statement).
W hile a bank may choose to use
commercial training material and
outside vendors to assist in meeting this
education requirem ent, the bank m ust
ensure that the material or program
meets the content standards of the
proposed rule.
C onfidentiality o f Qualification
E xam inations

Continuing Education and Training
Requirem ents

This section requires banks and bank
em ployees to m aintain the
confidentiality of the professional
qualification exam inations and not to

This section im poses continuing
education requirem ents upon bank
securities representatives and

18 This is consistent w ith com parable SSRO rules.
See, e.g., NASD M em bership and Registration Rule
1120(a)(3), NASD M anual (CCH) pp. 3381-82.

68830

Federal Register / Vol. 61, No. 251 / Monday, December 30, 1996 / Proposed Rules

act in a m anner that could compromise
the integrity of an examination.
Paperwork Reduction Act
The banking agencies invite com ment
on:
(1) W hether the proposed collection
of inform ation contained in this notice
of proposed rulem aking is necessary for
the proper perform ance of each agency’s
functions, including w hether the
inform ation has practical utility;
(2) the accuracy of each agency’s
estimate of the b urden of the proposed
inform ation collection;
(3) ways to enhance the quality,
utility, and clarity of the inform ation to
be collected; and
(4) ways to m inim ize the b u rd en of
the inform ation collection on
respondents, including through the use
of autom ated collection techniques or
other forms of inform ation technology.
Respondents/recordkeepers are not
required to respond to this collection of
inform ation unless it displays a
currently valid Office of M anagement
and Budget (OMB) control number.
OCC: The collection of inform ation
requirem ents contained in this notice of
proposed rulem aking have been
subm itted to the OMB for review in
accordance w ith the Paperw ork
R eduction Act of 1995 (44 U.S.C.
3507(d)). Comments on the collections
of inform ation should be sent to the
Office of Management and Budget,
Paperw ork R eduction Project (15570142), W ashington, DC 20503, w ith
copies to the Legislative and Regulatory
Activities Division, Office of the
Comptroller of the Currency, 250 E
Street, SW, W ashington, DC 20219.
The collection of inform ation
requirem ents in this proposed rule are
found in § 12.12 (c)(l)(iii), (c)(3), and
(e)(2), § 12.13 (c) and (d), § 12.15, and
§ 12.16 (a)(4) and (b)(3).19 This
inform ation is required to identify
national banks as sponsoring banks, to
qualify bank employees to take the
appropriate qualification examination,
and to term inate the status as a
sponsoring bank or licensed bank
securities representative. The
inform ation also is required to evidence
com pliance w ith the registration and
inform ation collection requirem ents set
forth in the proposed regulation. The
OCC w ill use the inform ation to m onitor
the securities activities in national
banks and to assess the qualifications of
a national bank employee that wishes to
become a bank securities representative.
19 The Paperwork Reduction Act analysis of the
required forms appears in the com panion Notice of
Forms published by the banking agencies elsewhere
in this separate part of the Federal Register.

The likely respondents/recordkeepers
are national banks.
Estim ated average annual burden
hours p e r respondent/recordkeeper: 18
hours.
Estim ated num ber o f respondents:
120 national banks.
Estim ated total annual reporting and
recordkeeping burden: 2,184 hours.
Start-up costs to respondents: None.
Certain records pertaining to the
sponsoring b ank’s filings are to be
m aintained for the period of time
respondent/recordkeeper serves as a
sponsoring bank, plus three years
thereafter. Records pertaining to bank
employees are to be retained for not less
th an three years after the employee
term inates em ploym ent w ith the
sponsoring bank or ceases to act as a
bank securities representative.
Board: In accordance w ith section
3506 of the Paperw ork R eduction Act of
1995 (44 U.S.C. Ch. 35; see also 5 CFR
1320 A ppendix A Item 1), the Board
review ed the proposed rule under the
authority delegated to the Board by the
Office of M anagement and Budget. Send
com ments on the collections of
inform ation to: the Office of
M anagement and Budget, Paperwork
Reduction Project (7100-0282),
W ashington DC 20503, w ith copies of
such comm ents to be sent to Mary M.
McLaughlin, Federal Reserve Board
Clearance Officer, Division of Research
and Statistics, Mail Stop 97, Board of
Governors of the Federal Reserve
System, W ashington DC 20551.
The requirem ents in this proposed
collection of inform ation w ill be
included in 12 CFR 208. This
inform ation collection is needed to
register state m em ber banks (Form SB),
to qualify certain bank em ployees to
take the appropriate qualification
exam ination (Form U-4B), and to
term inate the b ank’s status as a
registered bank (Form SBW) or the
em ployee’s status as a licensed bank
securities representative (Form U-5B).
The Federal Reserve w ill use the
inform ation to m onitor the securities
sales activities of state member banks
and to assess the qualifications of state
m ember bank em ployees to become
registered bank securities
representatives. This inform ation
collection w ill be m andatory. The likely
respondents are state member banks.
Small businesses w ill not be affected.
The Federal Reserve may not conduct
or sponsor, and an organization (or a
person) is not required to respond to,
any collection of inform ation unless it
displays a currently valid OMB control
num ber. The OMB control num ber for
this inform ation collection is 71000282.

The reporting b urden im posed by the
proposed rule is estim ated to be 18.2
hours per response. It is estim ated that
there w ill be 100 respondents/
recordkeepers and a total of 1,820 hours
of annual paperw ork burden. This
burden represents the tim e needed to
complete the four proposed reporting
forms: U-4B, U-5B, SB, and SBW. The
estim ated burden is averaged over the
estim ated num ber of filings during the
first three years that the proposed rule
w ill be in effect, w ith m ost of the filings
presum ed to occur in the first year, as
qualification and registration programs
are set up, and w ith the burden for the
second and third years representing
estim ated turnover in registered bank
securities representatives. The estim ated
b urden is further averaged over the size
distribution of the likely respondents.
The b urden associated w ith other
requirem ents of the proposed rule is
discussed in a separate notice published
in this issue.
FDIC: The collections of information
contained in this notice of proposed
rulem aking have been subm itted to the
Office of M anagement and Budget for
review in accordance w ith the
Paperw ork R eduction Act of 1995 (44
U.S.C. 3507(d)). Comments on the
collections of inform ation should be
sent to the Office of M anagement and
Budget, Paperw ork Reduction Project
(1557-0142), W ashington DC 20503,
w ith copies of such comm ents to be sent
to Steven F. Hanft, Office of the
Executive Secretary, Room F-454,
Federal Deposit Insurance Corporation,
550 17th Street, N.W., W ashington, DC
20429.
The collection of inform ation
requirem ents in this proposed rule are
found in 12 CFR 342.3(b), 342.3(c) (1)
and (3), (e)(2), 342.4(c) and (d), 342.6
and 342.7. The collections consist of
notice filings for the Sponsoring Bank as
wells as registration applications on
behalf of the Bank Securities
Representative, 342.3 (b) and (c);
exam ination exem ption requests,
342.3(e); required am endm ents to
Sponsoring Bank notices and Bank
Securities Representative registrations,
342.4(c); records w hich the Sponsoring
Bank m ust retain w ith respect to notice
filings, Bank Securities Representative
registrations, applications for relief from
being “subject to disqualification,” and
any am endm ents or other filings
subm itted, 342.4(d); applications by
Sponsoring Banks for relief for itself or
a Bank Securities Representative, from
being “ subject to disqualification,”
342.6; and continuing education
training programs by Sponsoring Banks
and attendance/com pliance by Bank
Securities Representatives w ith respect

Federal Register / Vol. 61, No. 251 / Monday, December 30, 1996 / Proposed Rules
to such continuing education
requirem ents, 342.7.
The likely respondents/recordkeepers
are insured nonm em ber banks.
Estim ated average annual burden
hours per respondent/recordkeeper: 18
hours.
E stim ated num ber o f respondents
and/or recordkeepers: 70 state
nonm em ber banks.
E stim ated total annual reporting and
recordkeeping burden: 1260 hours.
Start-up costs to respondents: None.
Records are to be m aintained for the
period of tim e respondent/recordkeeper
serves as a sponsoring bank.
Regulatory Flexibility Act
Pursuant to section 605(b) of the
Regulatory Flexibility Act (RFA) (5
U.S.C. 605(b)), the initial regulatory
flexibility analysis otherwise required
u nder section 603 of the RFA (5 U.S.C.
603) is not required if the head of the
agency certifies that the rule w ill not
have a significant economic im pact on
a substantial num ber of small entities
and the agency publishes such
certification and a succinct statem ent
explaining the reasons for such
certification in the Federal Register
along w ith its general notice of
proposed rulemaking.
The banking agencies hereby certify
that the proposal w ill not have a
significant economic im pact on a
substantial num ber of small entities.
The proposal should result in a net
benefit to all banks regardless of size
that elect to engage in securities
activities through licensed bank
securities representatives, b ut the
economic im pact on small banks w ill
not be significant. Most banks w ith total
assets of u nder $100 m illion w ill not
engage in securities activities in a
m anner covered by this regulation.
Rather, a small bank typically w ill use
either a registered broker/dealer who
has rented space on the b ank’s premises
or an “introducing broker” w ho will
refer a custom er to a dealer that can
effect the desired transaction. The few
banks w ith total assets u nder $100
m illion that choose to have employees
licensed u nder the proposal w ill incur
costs associated w ith the securities
activities. However, a bank w ill incur
these costs only if it elects to engage in
securities activities through bank
securities representatives.
Executive Order 12866
The OCC has determ ined that this
proposal is not a significant regulatory
action as defined in Executive Order
12866.

Unfunded Mandates Reform Act of
1995
Section 202 of the U nfunded
M andates Reform Act of 1995, Pub. L.
104— 109 Stat. 48 (1995) (Unfunded
4,
M andates Act), requires that covered
agencies prepare a budgetary im pact
statem ent before promulgating a rule
that includes any Federal m andate that
may result in the expenditure by State,
local, and tribal governments, in the
aggregate, or by the private sector, of
$100 m illion or more in any one year.
If a budgetary im pact statem ent is
required, section 205 of the U nfunded
Mandates Act also requires covered
agencies to identify and consider a
reasonable num ber of regulatory
alternatives before promulgating a rule.
The OCC has determ ined that the
proposal will not result in expenditures
by State, local, and tribal governments,
or by the private sector, of more than
$100 m illion in any one year.
Accordingly, the OCC has not prepared
a budgetary im pact statem ent or
specifically addressed the regulatory
alternatives considered.
List of Subjects
12 CFR Part 12

68831

PART 12— RECORDKEEPING AND
CONFIRMATION REQUIREMENTS FOR
SECURITIES TRANSACTIONS;
QUALIFICATION REQUIREMENTS FOR
TRANSACTIONS IN CERTAIN
SECURITIES

1. The part heading is revised to read
as set forth above.
la . The authority citation for part 12
is revised to read as follows:
Authority: 12 U.S.C. 24, 92a, 93a, 1818,
and 1831p-l(a)(2).

2. Sections 12.1 through 12.7 are
designed as subpart A and a new
subpart heading is added to read as
follows:
Subpart A— Recordkeeping and
Confirmation Requirements for
Securities Transactions

3. In the first line of § 12.1(a), the
w ord “p art” is changed to “subpart.”
4. In the introductory text to § 12.2,
the w ord “p art” is changed to
“ subpart.”
5. In the introductory text to § 12.7,
the w ord “p art” is changed to
“subpart.”
6. A new subpart B, consisting of
§§ 12.10 through 12.17, is added to read
as follows:

National banks, Reporting and
recordkeeping requirem ents, Securities.

Subpart B— Qualification
Requirements for Transactions in
Certain Securities

12 CFR Part 208

Sec.

Accounting, Agriculture, Banks,
banking, Confidential business
information, Crime, Currency, Federal
Reserve System, Mortgages, Reporting
and recordkeeping requirem ents,
Securities.

12.10 Scope.
12.11 Definitions.
12.12 Qualification requirements.
12.13 Filing requirements, amendments,
and record retention.
12.14 Optional designation as a bank
securities representative.
12.15 Applications by banks and bank
employees “subject to disqualification.”
12.16 Continuing education and training
requirements.
12.17 Confidentiality of qualification
examinations.

12 CFR Part 211
Exports, Federal Reserve System,
Foreign banking, Holding companies,
Investments, Reporting and
recordkeeping requirements.
12 CFR Part 342
Banks, banking, Reporting and
recordkeeping requirem ents, Securities.
Office of the Comptroller of the
Currency
12 CFR Chapter I

Authority and Issuance
For the reasons set forth in the joint
preamble, part 12 of chapter I of title 12
of the Code of Federal Regulations is
proposed to be am ended to read as
follows:

Subpart B— Qualification
Requirements for Transactions in
Certain Securities
§12.10

Scope.

This subpart is issued by the
Comptroller of the Currency pursuant to
12 U.S.C. 24, 93a, 1818 and 1831p1(a)(2). It contains rules prescribing
operational and managerial standards
for national banks, and prescribes
training and qualification requirem ents
for bank employees making retail
solicitations, recom mendations,
purchases, or sales of certain securities
on behalf of a national bank. It applies
to all national banks that engage through
bank em ployees in bank-direct retail

68832

Federal Register / Vol. 61, No. 251 / Monday, December 30, 1996 / Proposed Rules

solicitations, recom m endations,
purchases, or sales of certain securities.
§12.11

Definitions.

For purposes of this subpart:
(a) Appropriate qualification
exam ination m eans either the
Investm ent Company/Variable Contracts
Products Limited Representative
Qualification Exam ination (Series 6
Examination) or the General Securities
Registered Representative Exam ination
(Series 7 Examination), both of w hich
are adm inistered by the NASD. The
Series 6 Examination is the appropriate
qualification exam ination for a bank
employee engaged solely in covered
transactions of open-end investm ent
com pany shares, original distribution
closed-end investm ent com pany shares,
u n it investm ent trusts, or variable
contracts, including variable life
insurance contracts and variable
annuity contracts. The Series 7
Exam ination is the appropriate
qualification exam ination for a bank
employee soliciting, recom mending,
purchasing, or selling any other covered
product.
(b) B ank m eans any national banking
association, any District bank, or any
Federal branch or agency of a foreign
bank. The term “bank” shall not include
a branch of a bank located outside of
any State, as defined in section 3(a)(3)
of the Federal Deposit Insurance Act, as
am ended, 12 U.S.C. 1813(a)(3).
(c) B ank securities representative
m eans any bank officer, director, or
employee (collectively referred to as
“em ployee”) w ho engages in a covered
transaction or is designated as the
supervisor of a bank securities
representative w ho engages in a covered
transaction.
(d) Continuing education
requirem ents m eans the course of study
specified in § 12.16.
(e) Covered product has the same
m eaning as “ security” as defined at
section 3(a)(10) of the Securities
Exchange Act, 15 U.S.C. 78c(a)(10). The
term shall not include any product that
is a deposit as defined in section 3(1) of
the Federal Deposit Insurance Act, 12
U.S.C. 1813(1), or any “government
security” as defined at section 3(a)(42)
of the Securities Exchange Act, 15
U.S.C. 78c(a)(42).
(f) Covered transaction m eans a retail
solicitation, recom m endation, purchase,
or sale of a covered product by a bank
through its employee regardless of the
m eans through w hich the solicitation,
recom m endation, purchase, or sale
occurs. The term shall not include a
covered transaction involving a
fiduciary account adm inistered by a
bank, a sale of a m unicipal security by

(2) No bank securities representative
shall engage in a covered transaction if
he or she is, or becomes, subject to
disqualification, unless the bank that
employs the bank securities
representative has applied for and
received approval from the OCC
pursuant to § 12.15 for that person to
qualify as a bank securities
representative.
(b) Sponsoring bank notices. (1) A
bank seeking to engage in covered
transactions shall file a com pleted
Uniform Notice for Sponsoring Bank
(Form SB).
(2) A bank seeking to term inate its
status as a Sponsoring Bank shall file a
Uniform Request for Sponsoring Bank
W ithdraw al (Form SBW).
(c) Sponsoring ba nk requirem ents. (1)
A bank seeking to sponsor an employee
as a bank securities representatives
shall:
(1) Make independent inquiry into the
indiv id u al’s em ploym ent history,
including contacting the em ployee’s
previous employers for the past three
years and investigating the character,
business reputation, qualifications, and
experience of the individual;
(ii) Review, complete as appropriate,
and file the Uniform A pplication for
Bank Securities Representative
Registration or Transfer (Form U-4B)
and am endm ents thereto on behalf of
the employee; and
(iii) File a fingerprint record for the
employee.
(2) A bank may not sponsor an
employee to qualify as a bank securities
representative or perm it a previously
qualified bank securities representative
to engage in covered transactions if the
individual is, or becomes, subject to
disqualification unless the sponsoring
bank has applied and received approval
for the individual to engage in covered
transactions from the OCC under
§ 12.15. A bank shall not sponsor an
employee to qualify as a bank securities
representative if it does not intend for
the employee to engage in or supervise
covered transactions or participate in
one of the activities enum erated in
§12.14.
(3) A sponsoring bank shall file a
Uniform Term ination Notice for Bank
Securities Representative Registration
(Form U-5B) w hen the em ploym ent of
a bank securities representative
§12.12 Qualification requirements.
term inates or w hen a bank securities
(a) Disqualifications. (1) A bank shall representative ceases to engage in
covered transactions on behalf of the
not engage in a covered transaction if it
bank. The Form U-5B shall be filed
is, or becomes, subject to
w ith in 30 days of such term ination or
disqualification, unless it has applied
for and received approval to engage in
cessation and a copy of the Form U-5B,
and of any am endm ents to the Form U covered transactions from the OCC
5B, shall be provided concurrently to
p ursuant to § 12.15.

a m unicipal securities dealer bank
registered under section 15B of the
Securities Exchange Act, 15 U.S.C. 78o4, or a transaction by a bank in its own
securities consistent w ith the conditions
set forth in Securities Exchange Act
Rule 3a4-l(a)(4), 17 CFR 240.3a41(a)(4).
(g) Disciplinary action m eans an
action resulting in:
(1) An individual being “subject to
disqualification” as defined in this
subpart;
(2) A civil m oney penalty or fine of
$5,000 or more by the Securities and
Exchange Commission (SEC) or a
securities self regulatory organization
(SSRO) as defined in section 3(a)(26) of
the Securities Exchange Act, 15 U.S.C.
78c(a)(26);
(3) A civil m oney penalty of $5,000 or
more by a Federal banking agency
pursuant to section 8 of the Federal
Deposit Insurance Act, 12 U.S.C. 1818,
for a securities law violation, or an
unsafe or unsound practice related to a
covered transaction;
(4) An agreement w ith the SEC, an
SSRO, or Federal banking agency, in
connection w ith a disciplinary
proceeding; or
(5) An order by the SEC, an SSRO, or
a Federal banking agency to enter the
continuing education program.
(h) NASD m eans the National
A ssociation of Securities Dealers, Inc.,
w hich is an SSRO registered under
section 15A of the Securities Exchange
Act, 15 U.S.C. 78o, and NASD
Regulation, Inc., the regulatory
subsidiary of the NASD.
(i) Sponsoring bank m eans a bank that
engages in or seeks to engage in the
business of effecting covered
transactions.
(j) Subject to disqualification means:
(1) Subject to a “ statutory
disqualification” as that term is used in
section 3(a)(39) of the Securities
Exchange Act, 15 U.S.C. 78c(a)(39);
(2) Subject to an order of removal,
prohibition, or suspension by a Federal
banking agency pursuant to 12 U.S.C.
1818(e) or (g);
(3) Subject to an order or temporary
order p ursuant to 12 U.S.C. 1818(b) or
(c) that restricts the fiduciary or
securities activities of a bank or
individual; or
(4) Subject to a prohibition pursuant
to 12 U.S.C. 1829(a).

Federal Register / Vol. 61, No. 251 / Monday, December 30, 1996 / Proposed Rules
the former bank securities
representative.
(4) A sponsoring bank shall designate
one or more bank securities
representatives, as necessary, to
supervise the sponsoring b ank’s covered
transactions. A supervisor designated
u nder this subpart shall pass the
appropriate qualification exam ination
for any bank securities representative(s)
u n d er his or h er supervision.
(d) B ank securities representative
requirem ents. (1) A bank employee
seeking to qualify as a bank securities
representative shall complete the Form
U— provide a fingerprint record, and
4B,
pass the appropriate qualification
examination.
(2) A bank employee w ho is eligible
for an exam ination exem ption under
paragraph (e) of this section m ust
complete a Form U— and receive
4B
approval u nder paragraph (f) of this
section prior to being qualified as a bank
securities representative.
(3) A bank employee w ho fails to pass
the appropriate qualification
exam ination may take the exam ination
again after a period of 30 calendar days
has elapsed from the date of the prior
exam ination. However, any bank
employee w ho fails to pass an
exam ination three or more tim es in
succession may n ot take the
exam ination u ntil 180 days has elapsed
from the date of his or her last attem pt
to pass the examination.
(4) A bank employee shall advise the
sponsoring bank w ithin 30 days of any
event or occurrence that causes any
inform ation on the Form U-4B or Form
U-5B to become inaccurate or
incom plete and shall cooperate w ith the
sponsoring bank in filing an am endm ent
to the relevant form.
(5) A bank securities representative
w ho does not engage in or supervise
covered transactions for a period of two
years m ust retake and pass the
appropriate qualification exam ination
prior to acting as a bank securities
representative. A bank securities
representative is deem ed to be engaging
in covered transactions if the employee
acts in one of the capacities listed in
§12.14.
(e) Exam ination exem ptions. (1) A
bank employee is not required to take
the appropriate qualification
exam ination if he or she already has
qualified by taking that examination
pursuant to the rules of an SSRO and
rem ains qualified as a registered
representative.
(2) U pon w ritten request from a
sponsoring bank, the OCC may, in
exceptional cases and w here good cause
is shown, w aive the appropriate
qualification exam ination requirem ent

for a bank employee and may accept
other evidence of the em ployee’s
qualifications to act as a bank securities
representative. A dvanced age, physical
infirmity, or experience in fields
ancillary to the investm ent banking or
securities business generally are
insufficient for the OCC to waive the
exam ination requirement.
(f) A pproval o f bank securities
representative qualifications. No
sponsoring bank may perm it any bank
employee to, and no bank employee
shall, act as a bank securities
representative un til the OCC has
approved the bank em ployee’s
application for registration or transfer
on Form U-4B.
(g) Grace period. These qualification
requirem ents apply to all banks and
bank em ployees w ith respect to covered
transactions transacted after [Date One
Year After Effective Date of the Final
Rule], Any bank or bank employee that
is not in com pliance w ith this subpart
after the grace period shall cease
engaging in covered transactions until
the requirem ents are met.
§12.13 Filing requirements, amendments,
and record retention.

(a) All filings required u n der this
subpart shall be filed w ith the OCC at
the NASD.
(b) All inform ation subm itted on any
filing required u nder this subpart m ust
be true, current, complete, and not
m isleading at the time and in light of
the circumstances u nder w hich it is
reported.
(c) A bank shall file an am endm ent no
later than 30 days after learning of facts
or circum stances causing a filing to be
inaccurate or incomplete.
(d)(1) A bank shall retain copies of all
filings m ade on Forms U-4B and U-5B,
including am endm ents, for n ot less than
three years after the employee
term inates em ploym ent w ith the
sponsoring bank or ceases to act as a
bank securities representative.
(2) A bank shall retain copies of all
filings m ade on Forms SB and SBW and
any applications under § 12.15,
including am endm ents, for not less than
three years after the bank term inates its
status as a sponsoring bank.
§ 12.14 Optional designation as a bank
securities representative.

A bank may sponsor an employee
who is engaged in legal, compliance,
internal audit, or sim ilar responsibilities
related to covered transactions or w ho
provides adm inistrative support
functions for a bank securities
representative, and who is not subject to
disqualification (unless a w aiver is
granted pursuant to § 12.15), to take

68833

either the Series 6 or Series 7
Examination. Such sponsored employee
m ust m eet all filing and continuing
education requirem ents in order to be
deem ed to be a bank securities
representative for purposes of this
subpart.
§ 12.15 Applications by banks and bank
employees “subject to disqualification.”

A sponsoring bank m ay seek, by
w ritten application to the OCC on behalf
of itself or an employee, relief from
being subject to disqualification and
perm ission to engage in covered
transactions or to qualify as a bank
securities representative, as appropriate.
The OCC may, consistent w ith safety
and soundness, the public interest, and
the protection of investors, grant such
relief consistent w ith its enforcement
powers and on such terms and
conditions as the OCC considers
necessary or appropriate.
§ 12.16 Continuing education and training
requirements.

A bank securities representative and a
sponsoring bank shall comply w ith the
following continuing education
requirem ents:
(a) B ank securities representative
requirem ents. (1) Each bank securities
representative shall complete, w ithin
120 days of the second, fifth, and tenth
anniversaries of passing the appropriate
qualification examination, the
Continuing Education Program
adm inistered by the NASD.
(2) The required training intervals for
bank securities representatives who
were registered w ith an SSRO prior to
being em ployed by the sponsoring bank
are m easured from the date of SSRO
registration. The bank securities
representative requirem ents of the
continuing education requirem ent w ill
be m et as of the tenth anniversary of a
bank securities representative’s
registration w ith a banking agency and/
or SSRO, provided the bank securities
representative is not subject to
paragraph (a)(4) of this section.
(3) If a bank securities representative
has been subject to a disciplinary action
w ithin the ten years prior to the
effective date of this subpart, or at any
time since that effective date, the bank
securities representative m ust complete
the Continuing Education Program
adm inistered by the NASD w ithin 120
days of the disciplinary action and no
later than the second, fifth, and tenth
anniversaries of the disciplinary action.
(4) Unless otherwise determ ined by
the OCC, any bank securities
representative who does not complete
the requirem ents w ith in the prescribed
time frames may not perform any bank

68834

Federal Register / Vol. 61, No. 251 / Monday, December 30, 1996 / Proposed Rules

Dated: December 10,1996.
securities representative duties. The
Eugene A. Ludwig,
OCC may, u p o n application and a
showing of good cause, allow additional Comptroller o f the Currency.
time for a bank securities representative
Federal Reserve System
to satisfy the Continuing Education
12 CFR Part 208
program requirements.
For the reasons set forth in the
(b) Sponsoring bank requirements. (1)
preamble, the Board proposes to am end
A sponsoring bank shall n ot perm it any
12 CFR Parts 208 and 211 as follows:
employee to act as a bank securities
representative unless the employee has
PART 208— MEMBERSHIP OF STATE
com plied w ith the requirem ents set
BANKING INSTITUTIONS IN THE
forth in paragraphs (a)(1) through (a)(4)
FEDERAL RESERVE SYSTEM
of this section.
(REGULATION H)
(2) A sponsoring bank shall m aintain
1. The authority citation for part 208
a continuing education program for its
is revised to read as follows:
bank securities representatives. A
Authority: 12 U.S.C. 36, 248, 321-338a,
sponsoring bank, at least annually, shall 371d, 461, 481-486, 601, 611, 1814, 1816,
evaluate and prioritize its training needs 1818, 1823(j), 1828(o), 1831p-l, 1831p1(a)(2), 1831r-l, 2901-2907, 3105, 3310,
and develop or update, as appropriate,
3331-3351, and 3906-3909; 15 U.S.C. 78b,
a w ritten training plan. The plan m ust
781(b), 781(g), 781(1), 78o-4(c)(5), 78q, 78q-l,
take into consideration the b ank’s size,
and 78w; 31 U.S.C. 5318; 42 U.S.C. 4012a,
organizational structure, and scope of
4104a, 4104b, 4106, and 4128.
business activities. Programs used to
2. A new § 208.25 is added at the end
im plem ent a sponsoring bank’s training
of Subpart A to read as follows:
plan m ust be appropriate for the
business of that bank and, at a
§208.25 Qualification requirements for
transactions in certain securities.
m inim um , m ust cover the following
(a) Scope. This section contains rules
m atters concerning securities products,
prescribing operational and managerial
services, and strategies offered by the
standards for state m em ber banks,
bank:
prescribes training and qualification
(i) General investm ent features and
requirem ents for bank employees
associated risk factors;
making retail solicitations,
(ii) Suitability and sales practice
recom m endations, purchases, or sales of
considerations;
certain securities on behalf of a state
member bank. It applies to all state
(iii) Applicable regulatory
member banks that engage through bank
requirements; and
employees in bank-direct retail
(iv) Bank policies and procedures for
solicitations, recomm endations,
covered transactions.
purchases, or sales of certain securities.
(b) Definitions. For purposes of this
(3) A sponsoring bank shall
section:
adm inister its continuing education
(1) A ppropriate qualification
programs in accordance w ith its annual
exam ination m eans either the
evaluation and w ritten plan and m ust
Investm ent Company/Variable Contracts
m aintain records docum enting the
content of the programs and com pletion Products Limited Representative
Q ualification Exam ination (Series 6
of the programs by its bank securities
Examination) or the General Securities
representatives.
Registered Representative Examination
(Series 7 Examination), both of w hich
§ 12.17 Confidentiality of qualification
are adm inistered by the National
examinations.
Association of Securities Dealers, Inc.
Every bank and bank employee shall
(NASD). The Series 6 Exam ination is the
m aintain the confidentiality of
appropriate qualification exam ination
qualification exam inations and shall not for a bank employee engaged solely in
remove from an exam ination center,
covered transactions of open-end
reproduce, disclose, receive from or
investm ent com pany shares, original
pass to any person, or use for study or
distribution closed-end investm ent
any other purposes, any portion of an
com pany shares, unit investm ent trusts,
exam ination, w hether of a present or
or variable contracts, including variable
past series, that w ould com prom ise the
life insurance contracts and variable
annuity contracts. The Series 7
integrity of the exam inations, or use in
Exam ination is the appropriate
any m anner and at any time the
qualification exam ination for a bank
questions or answers to the
employee soliciting, recomm ending,
examination.
purchasing, or selling any other covered
product.

(2) B ank m eans any state member
bank. The term bank shall not include
a branch of a bank located outside of
any State, as defined in section 3(a)(3)
of the Federal Deposit Insurance Act, as
am ended, 12 U.S.C. 1813(a)(3).
(3) B ank securities representative
m eans any bank officer, director, or
employee (collectively referred to as
employee) w ho engages in a covered
transactions or is designated as the
supervisor of a bank securities
representative w ho engages in a covered
transaction.
(4) Continuing education
requirem ents means the course of study
specified in paragraph (g) of this
section.
(5) Covered product has the same
m eaning as “security” as defined at
section 3(a)(10) of the Securities
Exchange Act, 15 U.S.C. 78c(a)(10). The
term shall not include any product that
is a deposit as defined in section 3(1) of
the Federal Deposit Insurance Act, 12
U.S.C. 1813(1), or any “government
security” as defined at section 3(a)(42)
of the Securities Exchange Act, 15
U.S.C. 78c(a)(42).
(6) Covered transaction m eans a retail
solicitation, recom m endation, purchase,
or sale of a covered product by a bank
through its employee regardless of the
m eans through w hich the solicitation,
recom m endation, purchase, or sale
occurs. The term shall not include a
such a transaction in a covered product
to a fiduciary account adm inistered by
a bank, a sale of a m unicipal security by
a m unicipal securities dealer bank
registered under section 15B of the
Securities Exchange Act, 15 U.S.C. 78o4, or a transaction by a bank in its own
securities consistent w ith the conditions
set forth in Securities Exchange Act
Rule 3a4—
1(a)(4), 17 CFR 240.3a41(a)(4).
(7) D isciplinary action m eans an
action resulting in:
(i) An individual being subject to
disqualification as defined in paragraph
(b)(10) of this section;
(ii) A civil m oney penalty or fine of
$5,000 or more by the Securities and
Exchange Commission (SEC) or a
securities self-regulatory organization
(SSRO) as defined in section 3(a)(26) of
the Securities Exchange Act, 15 U.S.C.
78c(a)(26);
(iii) A civil m oney penalty of $5,000
or more by a Federal banking agency
pursuant to section 8 of the Federal
Deposit Insurance Act, 12 U.S.C. 1818,
for a securities law violation, or an
unsafe or u nso u n d practice related to a
covered transaction;

Federal Register / Vol. 61, No. 251 / Monday, December 30, 1996 / Proposed Rules
(iv) An agreement w ith the SEC, an
SSRO, Federal banking agency, in
connection w ith a disciplinary
proceeding; or
(v) An order by the SEC, an SSRO, or
a Federal banking agency to enter the
continuing education program.
(8) N ASD m eans the National
A ssociation of Securities Dealers, Inc.,
w hich is an SSRO registered under
section 15 A of the Securities Exchange
Act, 15 U.S.C. 78o, and NASD
Regulation, Inc., the regulatory
subsidiary of the NASD.
(9) Sponsoring bank m eans a bank
that engages in or seeks to engage in the
business of effecting covered
transactions.
(10) Subject to disqualification means
subject to:
(1) A “ statutory disqualification” as
that term is used in section 3(a)(39) of
the Securities Exchange Act, 15 U.S.C.
78c(a)(39);
(11) An order of removal, prohibition,
or suspension by a Federal banking
agency p ursu an t to 12 U.S.C. 1818 (e) or
(g);
(iii) A n order or tem porary order
pursuant to 12 U.S.C. 1818 (b) or (c) that
restricts the fiduciary or securities
activities of a bank or individual; or
(iv) A prohibition p ursu an t to 12
U.S.C. 1829(a).
(c)
Q ualification requirem ents—(1)
Disqualifications, (i) A bank shall not
engage in a covered transaction if it is,
or becomes, subject to disqualification,
unless it has applied for and received
approval to engage in covered
transactions from the Board pursuant to
paragraph (h) of this section.
(ii) No bank securities representative
shall engage in a covered transaction if
he or she is, or becomes, subject to
disqualification, unless the bank that
employs the bank securities
representative has applied for and
received approval from the Board
pursuant to paragraph h of this section
for that person to qualify as a bank
securities representative.
(2) Sponsoring bank notices, (i) A
bank seeking to engage in covered
transactions shall file a com pleted
Uniform Notice for Sponsoring Bank
(Form SB).
(ii) A bank seeking to term inate its
status as a Sponsoring Bank shall file a
Uniform Request for Sponsoring Bank
W ithdraw al (Form SBW).
(3) Sponsoring bank requirem ents, (i)
A bank seeking to sponsor an employee
as a bank securities representative shall:
(A) Make independent inquiry into
the ind ivid u al’s em ploym ent history,
including contacting the em ployee’s
previous employers for the past three
years and investigating the character,

business reputation, qualifications and
experience of the individual;
(B) Review, com plete as appropriate,
and file the Uniform A pplication for
Bank Securities Representative
Registration or Transfer (Form U—
4B)
and am endm ents thereto on behalf of
the employee; and
(C) File a fingerprint record for the
employee.
(ii) A bank m ay not sponsor an
em ployee to qualify as a bank securities
representative or perm it a previously
qualified bank securities representative
to engage in covered transactions if the
individual is, or becomes, subject to
disqualification unless the sponsoring
bank has applied and received approval
for the individual to engage in covered
transactions from the Board u nder
paragraph (h) of this section. A bank
shall not sponsor an em ployee to qualify
as a bank securities representative if it
does not intend for the employee to
engage in or supervise covered
transactions or participate in one of the
activities enum erated in paragraph (e) of
this section.
(iii) A sponsoring bank shall file a
Uniform Term ination Notice for Bank
Securities Representative Registration
(Form U-5B) w hen the em ploym ent of
a bank securities representative
term inates or w hen a bank securities
representative ceases to engage in
covered transactions on behalf of the
bank. The Form U-5B shall be filed
w ith in 30 days of such term ination or
cessation and a copy of the Form U-5B,
and of any am endm ents to the Form U—
5B, shall be provided to the former bank
securities representative.
(iv) A sponsoring bank shall designate
one or more bank securities
representatives to supervise the
sponsoring bank’s covered transactions.
A supervisor designated u n d er this
section shall pass the appropriate
qualification exam ination for any bank
securities representative(s) u nder his or
her supervision.
(4)
B ank securities representative
requirements, (i) A bank employee
seeking to qualify as a bank securities
representative shall com plete the
designated sections of the Form U-4B,
provide a fingerprint record, and pass
the appropriate qualification
examination.
(ii) A bank employee w ho is eligible
for an exam ination exem ption under
paragraph (c)(5)(i) of this section m ust
com plete a Form U-4B and receive
approval u nder paragraph (c)(6) of this
section prior to being qualified as a bank
securities representative.
(iii) A bank employee w ho fails to
pass the appropriate qualification
exam ination m ay take the exam ination

68835

again after a period of 30 calendar days
has elapsed from the date of the prior
exam ination. However, any bank
employee w ho fails to pass an
exam ination three or more times in
succession may not take the
exam ination u ntil 180 days has elapsed
from the date of his or her last attem pt
to pass the examination.
(iv) A bank employee shall advise the
sponsoring bank w ithin 30 days of any
event or occurrence that causes any
inform ation on the Form U-4B or Form
U-5B to become inaccurate or
incom plete and shall cooperate w ith the
sponsoring bank in filing an am endm ent
to the relevant form.
(v) A bank securities representative
w ho does not engage in or supervise
covered transactions for a period of two
years m ust retake and pass the
appropriate qualification examination
prior to acting as a bank securities
representative. A bank securities
representative is deem ed to be engaging
in covered transactions if the employee
acts in one of the capacities listed in
paragraph (e) of this section.
(5) E xam ination exem ptions, (i) A
bank employee is not required to take
the appropriate qualification
exam ination if he or she already has
qualified by taking that exam ination
pursuant to the rules of an SSRO and
rem ains qualified as a registered
representative.
(ii) Upon w ritten request from a
sponsoring bank, the Board may, in
exceptional cases and w here good cause
is shown, w aive the appropriate
qualification exam ination requirem ent
for a bank employee and m ay accept
other evidence of the em ployee’s
qualifications to act as a bank securities
representative. Advanced age, physical
infirmity, or experience in fields
ancillary to the investm ent banking or
securities business generally are
insufficient for the Board to w aive the
exam ination requirem ent.
(6) A pproval o f bank securities
representative qualifications. No
sponsoring bank may perm it any bank
employee to, and no bank employee
shall, act as a bank securities
representative until the Board has
approved the bank em ployee’s
application for registration or transfer
on Form U-4B.
(7) Grace period. These qualification
requirem ents apply to all banks and
bank em ployees w ith respect to covered
transactions transacted after Date One
Year After Effective Date of the Final
Rule. Any bank or bank employee that
is not in com pliance w ith this section
after the grace period shall cease
engaging in covered transactions until
the requirem ents are met.

68836

Federal Register / Vol. 61, No. 251 / Monday, December 30, 1996 / Proposed Rules

(d) Filing requirem ents, am endm ents,
a nd record retention. (1) All filings
required u n d er this section shall be filed
w ith the Board at the NASD.
(2) All inform ation subm itted under
this section m ust be true, current,
com plete, and not m isleading at the
tim e and in light of the circum stances
u n d er w hich it is reported.
(3) A bank shall file an am endm ent no
later than 30 days after learning of facts
or circum stances causing a filing to be
inaccurate or incomplete.
(4) A bank shall retain copies of all
filings:
(i) Made on Forms U-4B and U-5B,
including am endm ents, for not less than
three years after the employee
term inates em ploym ent w ith the
sponsoring bank or ceases to act as a
bank securities representative; and
(ii) M ade on Forms SB and SBW and
any applications u nder paragraph (f) of
this section including am endm ents for
not less than three years after the bank
term inates its status as a sponsoring
bank.
(e) O ptional designation as a bank
securities representative. A bank may
sponsor an employee w ho is engaged in
legal, com pliance, internal audit, or
sim ilar responsibilities related to
covered transactions or w ho provides
adm inistrative support functions for a
bank securities representative, and who
is not subject to disqualification (unless
a w aiver is granted pursuant to
paragraph (f) of this section), to take the
appropriate qualification examination.
Such sponsored employee m ust m eet all
filing and continuing education
requirem ents of this section in order to
be deem ed to be a bank securities
representative for purposes of this
section.
(f) A pplications by banks and bank
em ployees “subject to disqualification.”
A sponsoring bank may seek, by w ritten
application to the Board on behalf of
itself or an employee, relief from being
subject to disqualification and
perm ission to engage in covered
transactions or to qualify as a bank
securities representative, as appropriate.
The Board may, consistent w ith safety
and soundness, the public interest, and
the protection of investors, grant such
relief consistent w ith its enforcement
powers and on such terms and
conditions as the Board considers
necessary or appropriate.
(g) Continuing education a nd training
requirem ents. A bank securities
representative and a sponsoring bank
shall comply w ith the following
continuing education requirements:
(1) B ank securities representative
requirem ents, (i) Each bank securities
representative shall complete, w ithin

120 days of the second, fifth, and tenth
anniversaries of passing the appropriate
qualification examination, the
Continuing Education Program
adm inistered by the NASD.
(ii) The required training intervals for
bank securities representatives who
were registered w ith an SSRO prior to
being em ployed by the sponsoring bank
are m easured from the date of SSRO
registration. The bank securities
representative requirem ents of the
continuing education requirem ent w ill
be m et as of the tenth anniversary of a
bank securities representative’s
registration w ith a banking agency and/
or SSRO, provided the bank securities
representative is not subject to
paragraph (g)(l)(iv) of this section.
(iii) If a bank securities representative
has been subject to a disciplinary action
w ithin the ten years prior to the
effective date of this section, or at any
tim e since that effective date, the bank
securities representative m ust complete
the Continuing Education Program
adm inistered by the NASD w ithin 120
days of the disciplinary action and no
later than the second, fifth, and tenth
anniversaries of the disciplinary action.
(iv) Unless otherwise determ ined by
the Board, any bank securities
representative w ho does not complete
the requirem ents w ith in the prescribed
tim e frames may not perform any bank
securities representative duties. The
Board may, upon application and a
showing of good cause, allow additional
tim e for a bank securities representative
to satisfy the Continuing Education
program requirem ents of the bank
securities representative requirem ents.
(2)
Sponsoring bank requirements, (i)
A sponsoring bank shall not perm it any
employee to act as a bank securities
representative unless the employee has
com plied w ith the requirem ents set
forth in paragraph (g)(1) of this section.
(ii) A sponsoring bank shall m aintain
a continuing education program for its
bank securities representatives. A
sponsoring bank, at least annually, shall
evaluate and prioritize its training needs
and develop or update, as appropriate,
a w ritten training plan. The plan m ust
take into consideration the b ank’s size,
organizational structure, and scope of
business activities. Programs used to
im plem ent a sponsoring bank’s training
plan m ust be appropriate for the
business of that bank and, at a
m inim um , m ust cover the following
matters concerning securities products,
services, and strategies offered by the
bank:
(A) General investm ent features and
associated risk factors;
(B) Suitability and sales practice
considerations;

(C) A pplicable regulatory
requirements; and
(D) Bank policies and procedures for
covered transactions.
(iii)
A sponsoring bank shall
adm inister its continuing education
programs in accordance w ith its annual
evaluation and w ritten plan and m ust
m aintain records docum enting the
content of the programs and com pletion
of the programs by its bank securities
representatives.
(h) Confidentiality o f qualification
examinations. Every bank and bank
employee shall m aintain the
confidentiality of qualification
exam inations and shall not remove from
an exam ination center, reproduce,
disclose, receive from or pass to any
person, or use for study or any other
purposes, any portion of an
exam ination, w hether of a present or
past series, that w ould com prom ise the
integrity of the exam inations, or use in
any m anner and at any time, the
questions or answers to the
examination.
PART 211— INTERNATIONAL
BANKING OPERATIONS
(REGULATION K)

1. The authority citation for Part 211
continues to read as follows:
Authority: 12 U.S.C. 221 et seq., 1818,
1841 et seq., 3101 et seq., 3901 et seq.

2. Section 211.28 is am ended as
follows:
a. The section heading is revised;
b. Paragraphs (a) and (b) are
redesignated as paragraphs (a)(1) and
(a)(2) respectively;
c. A heading is added to paragraph
(a);
d. All references to “paragraph (a)”
and “paragraph (b)” are revised to read
“paragraph (a)(1)” and “paragraph
(a)(2)” respectively; and,
e. A new paragraph (b) is added.
The revisions and additions read as
follows:
§ 211.28 Provisions applicable to state
branches and agencies.

(a) Limitation on loans to one
borrower—(1) Limitation. * * *
*

*

*

*

*

(b) Retail securities transactions—(1)
Requirements. To the extent that an
uninsured state branch or a state agency
is excluded from the definition of
“broker” u nder section 3(a)(4) of the
Securities Exchange Act of 1934 (15
U.S.C. 78c(a)(4)) and engages in an
activity that w ould constitute a covered
transaction as defined in § 208.25 of the
Board’s Regulation H (12 CFR 208.25)
for a state member bank, the state
branch or agency shall be subject to the

Federal Register / Vol. 61, No. 251 / Monday, December 30, 1996 / Proposed Rules
requirem ents of 12 CFR 208.25 in the
same m anner th at such requirem ents
apply to a state m em ber bank.
(2) Exception. Nothing in paragraph
(b)(1) of this section is intended to apply
the requirem ents of 12 CFR 208.25 to
the lawful deposit-taking activities of an
u n insured state branch or state agency.

68837

Investm ent Company/Variable Contracts Rule 3a4—
1(a)(4), 17 CFR 240.3a4Products Lim ited Representative
1(a)(4).
Qualification E xam ination (Series 6
(g) D isciplinary action m eans an
action resulting in:
Examination) or the General Securities
(1) An individual being “subject to
Registered Representative Exam ination
disqualification” as defined in this part;
(Series 7 Examination), both of w hich
(2) A civil m oney penalty or fine of
are adm inistered by the NASD. The
$5,000 or more by the Securities and
Series 6 Examination is the appropriate
Exchange Comm ission (SEC) or a
qualification exam ination for a bank
By order of the Board of Governors of the
securities self-regulatory organization
em ployee engaged solely in covered
Federal Reserve System, December 11,1996.
(SSRO) as defined in section 3(a)(26) of
transactions of open-end investm ent
William W. Wiles,
com pany shares, original distribution
the Securities Exchange Act, 15 U.S.C.
Secretary of the Board.
closed-end investm ent com pany shares,
78c(a)(26);
Federal Deposit Insurance Corporation
(3) A civil m oney penalty of $5,000 or
u nit investm ent trusts, or variable
m ore by a Federal banking agency
contracts, including variable life
12 CFR Part 342
pursuant to section 8 of the Federal
insurance contracts and variable
Authority and Issuance
annuity contracts. The Series 7
Deposit Insurance Act, 12 U.S.C. 1818,
Exam ination is the appropriate
for a securities law violation, or an
For the reasons set forth in the joint
qualification exam ination for a bank
unsafe or u nso u n d practice related to a
preamble, part 342 of title 12 of the
covered transaction;
Code of Federal Regulations is proposed employee soliciting, recomm ending,
purchasing, or selling any other covered
(4) An agreement w ith the SEC, an
to be added as follows:
product.
SSRO, or Federal banking agency, in
PART 342— QUALIFICATION
(b) B ank m eans any State nonm em ber connection w ith a disciplinary
REQUIREMENTS FOR TRANSACTIONS insured bank (except a D istrict bank) or
proceeding; or
IN CERTAIN SECURITIES
a foreign bank having an insured
(5) An order by the SEC, an SSRO, or
branch. The term “bank” shall not
a Federal banking agency to enter the
Sec.
include a branch of a bank located
continuing education program.
342.1 Scope.
outside of any State, as defined in
(h) N A SD m eans the National
342.2 Definitions.
section 3(a)(3) of the Federal Deposit
Association of Securities Dealers, Inc.,
342.3 Qualification requirements.
Insurance Act, as am ended, 12 U.S.C.
w hich is an SSRO registered under
342.4 Filing requirements, amendments,
1813(a)(3).
and record retention.
section 15A of the Securities Exchange
(c) B ank securities representative
342.5 Optional designation as a bank
Act, 15 U.S.C. 78o, and NASD
securities representative.
m eans any bank officer, director, or
Regulation, Inc., the regulatory
342.6 Applications by banks and bank
employee (collectively referred to as
subsidiary of the NASD.
employees “subject to disqualification.”
“em ployee”) w ho engages in a covered
(i) Sponsoring bank m eans a bank that
342.7 Continuing education and training
transaction or is designated as the
engages in or seeks to engage in the
requirements.
supervisor of a bank securities
business of effecting covered
342.8 Confidentiality of qualification
representative w ho engages in a covered transactions.,
examinations.
transaction.
(j) Subject to disqualification means:
Authority: 12 U.S.C. 1818 and 1831p(d) Continuing education
(1) a “ Statutory disqualification” as
1(a)(2)
requirem ents m eans the course of study
that term is used in section 3(a)(39) of
specified in § 342.7.
§342.1 Scope.
the Securities Exchange Act, 15 U.S.C.
(e) Covered product has the same
This part is issued by the Federal
78c(a)(39);
m eaning as “security” as defined at
Deposit Insurance Corporation (the
(2) A n order of removal, prohibition,
Corporation) pursuant to 12 U.S.C. 1818 section 3 (a) (10) of the Securities
or suspension by a Federal banking
Exchange Act, 15 U.S.C. 78c(a)(10). The
and 1831p-l(a)(2). It contains rules
agency pursuant to 12 U.S.C. 1818(e) or
term shall not include any product that
prescribing operational and managerial
(g);
is a deposit as defined in section 3(1) of
(3) An order or tem porary order
standards for state nonm em ber insured
the Federal Deposit Insurance Act, 12
pursuant to 12 U.S.C. 1818 (b) or (c) that
banks (except a District bank) or a
U.S.C. 1813(1), or any “government
restricts the fiduciary or securities
foreign bank having an insured branch,
activities of a bank or individual; or
and prescribes training and qualification security” as defined at section 3(a)(42)
of the Securities Exchange Act, 15
(4) A prohibition p ursu an t to 12
requirem ents for bank em ployees
U.S.C. 78c(a)(42).
U.S.C. 1829(a).
making retail solicitations,
(f) Covered transaction m eans a retail
recom m endations, purchases, or sales of
solicitation, recom m endation, purchase, §342.3 Qualification requirements.
certain securities on behalf of a state
or sale of a covered product by a bank
(a) Disqualifications. (1) A bank shall
nonm em ber insured bank (except a
through its employee regardless of the
not engage in a covered transaction if it
District bank) or a foreign bank having
m eans through w hich the solicitation,
is, or becomes, subject to
an insured branch. It applies to all state
recom m endation, purchase, or sale
disqualification, unless it has applied
nonm em ber insured banks (except a
occurs. The term shall not include a
for and received approval to engage in
District bank) or a foreign bank having
covered transaction involving a
covered transactions from the
an insured branch that engage through
fiduciary account adm inistered by a
Corporation p ursuant to § 342.6.
bank em ployees in bank-direct retail
bank, a sale of a m unicipal security by
(2) No bank securities representative
solicitations, recom m endations,
a m unicipal securities dealer bank
shall engage in a covered transaction if
purchases, or sales of certain securities.
he or she is, or becomes, subject to
registered u nder section 15B of the
§342.2 Definitions.
disqualification, unless the bank that
Securities Exchange Act, 15 U.S.C. 78o4, or a transaction by a bank in its own
employs the bank securities
For purposes of this part:
(a)
A ppropriate qualification
securities consistent w ith the conditions representative has applied for and
exam ination m eans either the
set forth in Securities Exchange Act
received approval from the Corporation

68838

Federal Register / Vol. 61, No. 251 / Monday, December 30, 1996 / Proposed Rules

p ursuant to § 342.6 for that person to
qualify as a bank securities
representative.
(b) Sponsoring ba nk notices. (1) A
bank seeking to engage in covered
transactions shall file a com pleted
Uniform Notice for Sponsoring Bank
(Form SB).
(2) A bank seeking to term inate its
status as a Sponsoring Bank shall file a
Uniform Notice for Sponsoring Bank
W ithdraw al (Form SBW).
(c) Sponsoring b ank requirem ents. (1)
A bank seeking to sponsor an employee
as a bank securities representative shall:
(1) Make independent inquiry into the
in d iv id ual’s em ploym ent history,
including contacting the em ployee’s
previous employers for the past three
years and investigating the character,
business reputation, qualifications, and
experience of the individual;
(ii) Review, com plete as appropriate,
and file the Uniform A pplication for
Bank Securities Representative
Registration or Transfer (Form U-4B)
and am endm ents thereto on behalf of
the employee; and
(iii) File a fingerprint record for the
employee.
(2) A bank may not sponsor an
employee to qualify as a bank securities
representative or perm it a previously
qualified bank securities representative
to engage in covered transactions if the
individual is, or becomes, subject to
disqualification unless the sponsoring
bank has applied and received approval
for the individual to engage in covered
transactions from the Corporation under
§ 342.6. A bank shall not sponsor an
employee to qualify as a bank securities
representative if it does not intend for
the employee to engage in or supervise
covered transactions or participate in
one of the activities enum erated in
§342.5.
(3) A sponsoring bank shall file a
Uniform Term ination Notice for Bank
Securities Representative Registration
(Form U-5B) w hen the em ploym ent of
a bank securities representative
term inates or w h en a bank securities
representative ceases to engage in
covered transactions on behalf of the
bank. The Form U-5B shall be filed
w ithin 30 days of such term ination or
cessation and a copy of the Form U-5B,
and of any am endm ents to the Form U 5B, shall be provided concurrently to
the former bank securities
representative.
(4) A sponsoring bank shall designate
one or more bank securities
representatives, as necessary, to
supervise the sponsoring b ank’s covered
transactions. A supervisor designated
u nder this part shall pass the
appropriate qualification exam ination

for any bank securities representative(s)
u nder his or her supervision.
(d) B ank securities representative
requirem ents. (1) A bank employee
seeking to qualify as a bank securities
representative shall com plete the Form
U-4B, provide a fingerprint record, and
pass the appropriate qualification
examination.
(2) A bank employee w ho is eligible
for an exam ination exem ption under
paragraph (e) of this section m ust
com plete a Form U— and receive
4B
approval u nder paragraph (f) of this
section prior to being qualified as a bank
securities representative.
(3) A bank employee w ho fails to pass
the appropriate qualification
exam ination may take the exam ination
again after a period of 30 calendar days
has elapsed from the date of the prior
examination. However, any bank
employee w ho fails to pass an
exam ination three or more tim es in
succession m ay not take the
exam ination until 180 days has elapsed
from the date of his or her last attem pt
to pass the examination.
(4) A bank employee shall advise the
sponsoring bank w ithin 30 days of any
event or occurrence that causes any
inform ation on the Form U-4B or Form
U— to become inaccurate or
5B
incom plete and shall cooperate w ith the
sponsoring bank in filing an am endm ent
to the relevant form.
(5) A bank securities representative
w ho does not engage in or supervise
covered transactions for a period of two
years m ust retake and pass the
appropriate qualification exam ination
prior to acting as a bank securities
representative. A bank securities
representative is deemed to be engaging
in covered transactions if the employee
acts in one of the capacities listed in
§342.5.
(e) E xam ination exem ptions. (1) A
bank employee is not required to take
the appropriate qualification
exam ination if he or she already has
qualified by taking that examination
p ursuant to the rules of an SSRO and
rem ains qualified as a registered
representative.
(2) Upon w ritten request from a
sponsoring bank, the Corporation may,
in exceptional cases and w here good
cause is shown, waive the appropriate
qualification exam ination requirem ent
for a bank employee and may accept
other evidence of the em ployee’s
qualifications to act as a bank securities
representative. Advanced age, physical
infirmity, or experience in fields
ancillary to the investm ent banking or
securities business generally are
insufficient for the Corporation to waive
the examination requirement.

(f) A pproval o f bank securities
representative qualifications. No
sponsoring bank may perm it any bank
employee to, and no bank employee
shall, act as a bank securities
representative until the Corporation has
approved the bank em ployee’s
application for registration or transfer
on Form U-4B.
(g) Grace period. These qualification
requirem ents apply to all banks and
bank employees w ith respect to covered
transactions transacted after Date one
year after effective date of the Final
Rule. Any bank or bank employee that
is not in com pliance w ith this part after
the grace period shall cease engaging in
covered transactions u n til the
requirem ents are met.
§342.4 Filing requirements, amendments,
and record retention.

(a) All filings required u n der this part
shall be filed w ith the Corporation at the
NASD.
(b) All inform ation subm itted on any
filing required under this part m ust be
true, current, complete, and not
m isleading at the time and in light of
the circumstances u nder w hich it is
reported.
(c) A bank shall file an am endm ent no
later than 30 days after learning of facts
or circum stances causing a filing to be
inaccurate or incomplete.
(d)(1) A bank shall retain copies of all
filings m ade on Forms U— and U—
4B
5B,
including am endm ents, for not less than
three years after the employee
term inates em ploym ent w ith the
sponsoring bank or ceases to act as a
bank securities representative.
(2) A bank shall retain copies of all
filings m ade on Forms SB and SBW and
any applications u nder § 342.6,
including am endm ents, for not less than
three years after the bank term inates its
status as a sponsoring bank.
§ 342.5 Optional designation as a bank
securities representative.

A bank may sponsor an employee
w ho is engaged in legal, compliance,
internal audit, or sim ilar responsibilities
related to covered transactions or w ho
provides adm inistrative support
functions for a bank securities
representative, and w ho is not subject to
disqualification (unless a w aiver is
granted p ursu an t to § 342.6), to take the
appropriate qualification examination.
Such sponsored employee m ust m eet all
filing and continuing education
requirem ents in order to be deemed to
be a bank securities representative for
purposes of this part.

Federal Register / Vol. 61, No. 251 / Monday, December 30, 1996 / Proposed Rules
§342.6 Applications by banks and bank
employees “subject to disqualification."

A sponsoring bank m ay seek, by
w ritten application to the Corporation
on behalf of itself or an employee, relief
from being subject to disqualification
and perm ission to engage in covered
transactions or to qualify as a bank
securities representative, as appropriate.
The Corporation may, consistent w ith
safety and soundness, the public
interest, and the protection of investors,
grant such relief consistent w ith its
enforcem ent pow ers and on such terms
and conditions as the Corporation
considers necessary or appropriate.
§ 342.7 Continuing education and training
requirements.

A bank securities representative and a
sponsoring bank shall comply w ith the
following continuing education
requirements:
(a) B ank securities representative
requirem ents. (1) Each bank securities
representative shall complete, w ithin
120 days of the second, fifth, and tenth
anniversaries of passing the appropriate
qualification exam ination, the
Continuing Education Program
adm inistered by the NASD.
(2) The required training intervals for
bank securities representatives who
were registered w ith an SSRO prior to
being em ployed by the sponsoring bank
are m easured from the date of SSRO
registration. The bank securities
representative requirem ents of the
continuing education requirem ent will
be met as of the tenth anniversary of a
bank securities representative’s
registration w ith a banking agency and/
or SSRO, provided the bank securities
representative is not subject to
paragraph (a)(4) of this section.
(3) If a bank securities representative
has been subject to a disciplinary action

w ithin the ten years prior to the
effective date of this part, or at any time
since that effective date, the bank
securities representative m ust complete
the Continuing Education Program
adm inistered by the NASD w ithin 120
days of the disciplinary action and no
later than the second, fifth, and tenth
anniversaries of the disciplinary action.
(4) Unless otherwise determ ined by
the Corporation, any bank securities
representative who does not complete
the requirem ents w ithin the prescribed
tim e frames may not perform any bank
securities representative duties. The
Corporation may, upon application and
a showing of good cause, allow
additional tim e for a bank securities
representative to satisfy the program
requirements.
(b) Sponsoring ban k requirements. (1)
A sponsoring bank shall not perm it any
employee to act as a bank securities
representative unless the employee has
com plied w ith the requirem ents set
forth in paragraphs (a)(1) through (a)(4)
of this section.
(2) A sponsoring bank shall m aintain
a continuing education program for its
bank securities representatives. A
sponsoring bank, at least annually, shall
evaluate and prioritize its training needs
and develop or update, as appropriate,
a w ritten training plan. The plan m ust
take into consideration the b ank’s size,
organizational structure, and scope of
business activities. Programs used to
im plem ent a sponsoring b ank’s training
plan m ust be appropriate for the
business of that bank and, at a
m inim um , m ust cover the following
m atters concerning securities products,
services, and strategies offered by the
bank:
(i)
General investm ent features and
associated risk factors;

68839

(ii) Suitability and sales practice
considerations;
(iii) A pplicable regulatory
requirem ents; and
(iv) Bank policies and procedures for
covered transactions.
(3)
A sponsoring bank shall
adm inister its continuing education
programs in accordance w ith its annual
evaluation and w ritten plan and m ust
m aintain records docum enting the
content of the programs and com pletion
of the programs by its bank securities
representatives. A bank m ay choose to
use commercial training material and
outside vendors to assist in meeting this
education requirem ent if it ensures that
the training material or program meets
the content standards set forth in
paragraph (b)(2) of this section.
§ 342.8 Confidentiality of qualification
examinations.

Every bank and bank employee shall
m aintain the confidentiality of
qualification examinations and shall not
remove from an exam ination center,
reproduce, disclose, receive from or
pass to any person, or use for study or
any other purposes, any portion of an
exam ination, w hether of a present or
past series, that w ould compromise the
integrity of the examinations, or use in
any m anner and at any tim e the
questions or answers to the
examination.
By Order of the Board of Directors.
Dated at Washington, D.C., this 11th day of
December, 1996.
Federal Deposit Insurance Corporation.

Jerry L. Langley,
Executive Secretary.
[FR Doc. 96-32326 Filed 12-27-96; 8:45 am]
BILLING CODE 4810-33-P, 6210-01-P, 6714-01-P

Federal Register / Vol. 61, No. 251 / Monday, December 30, 1996 / Notice
DEPARTMENT OF THE TREASURY
Office of the Comptroller of the
Currency
FEDERAL RESERVE SYSTEM
FEDERAL DEPOSIT INSURANCE
CORPORATION
Proposed Collection; Comment
Request
AGENCIES: Office of the Comptroller of
the Currency, Treasury; Board of
Governors of the Federal Reserve
System; and Federal Deposit Insurance
Corporation.
ACTION: Notice and request for
comments.

The Office of the Comptroller
of the Currency (OCC), the Board of
Governors of the Federal Reserve
System (Board), and the Federal Deposit
Insurance Corporation (FDIC)
(collectively, the Agencies), as part of
their continuing efforts to reduce
paperw ork and respondent burden,
invite the general public and other
Federal agencies to com m ent on
proposed inform ation collections, as
required by the Paperw ork Reduction
Act of 1995. Currently, the Agencies are
soliciting com m ents concerning an
inform ation collection titled (MA)—
Financial Institutions Securities
Qualifications Forms.
DATES: W ritten com ments should be
subm itted by February 28,1997.
ADDRESSES: Direct all w ritten comments
to:
OCC: Com m unications Division,
Attention: 1557—
FISQ, T hird Floor,
Office of the Comptroller of the
Currency, 250 E Street, SW,
W ashington, DC 20219. In addition,
com ments may be sent by facsimile
transm ission to (202) 874-5274, or by
electronic m ail to
REGS.COMMENTS@OCC.TREAS.GOV.
Board: Mr. W illiam W. Wiles,
Secretary, Board of Governors of the
Federal Reserve System, 20th and C
Streets, N.W., W ashington, D.C. 20551,
or delivered to the Board’s m ail room
betw een 8:45 and 5:15 p.m., and to the
security control room outside of those
hours. Both the m ail room and the
security control room are accessible
from the courtyard entrance on 20th
Street betw een C onstitution A venue and
C Street, N.W. Comments received may
be inspected in room M -P -500 between
9:00 a.m. and 5:00 p.m., except as
SUMMARY:

provided in section 261.8 of the Board’s
Rules Regarding Availability of
Information, 12 CFR 261.8(a).
FDIC: Office of the Executive
Secretary, Federal Deposit Insurance
Corporation, 550 17th Street, N.W.,
W ashington, D.C. 20429. Comments
may be hand-delivered to room F-402,
1776 F Street, N.W., W ashington, D.C.
20429, on business days betw een 8:30
a.m. and 5:00 p.m. Comments may be
sent through facsimile to (202) 8 983838 or by the Internet to:
COMMENTS@FDIC.GOV. Comments
w ill be available for inspection at the
FDIC Public Inform ation Center, room
100, 801 17th Street, N.W., W ashington,
D.C., betw een 9:00 a.m. and 4:30 p.m.
on business days.
A copy of the com ments may also be
subm itted to the OMB desk officer for
the agencies: Alexander Hunt, Office of
Information and Regulatory Affairs,
Office of M anagement and Budget, New
Executive Office Building, Room 3208,
W ashington, D.C. 20503.
FOR FURTHER INFORMATION CONTACT:

Requests for additional inform ation or
copies of the collection may be obtained
by contacting:
OCC: Jessie Gates or Dionne Walsh,
(202) 874-5090, Legislative and
Regulatory A ctivities Division (1557—
FISQ), Office of the Com ptroller of the
Currency, 250 E Street, SW,
W ashington, DC 20219. Internet
address:
REGS.COMMENTS@OCC.TREAS.GOV.
Board: Mary M. McLaughlin, Board
Clearance Officer, (202) 452-3829,
Division of Research and Statistics,
Board of Governors of the Federal
Reserve System, 20th & C Streets, N.W.,
W ashington, D.C. 20551. For the hearing
im paired only, Telecom m unications
Device for the Deaf (TDD), Dorothea
Thom pson, (202) 452—
3544, Board of
Governors of the Federal Reserve
System, 20th & C Streets, N.W.,
W ashington, D.C. 20551.
FDIC: Steven F. Hanft, FDIC Clearance
Officer, (202) 898-3907, Office of the
Executive Secretary, Federal Deposit
Insurance Corporation, 550 17th Street,
N.W., W ashington, D.C. 20429. Internet
address: COMMENTS@FDIC.GOV.
SUPPLEMENTARY INFORMATION:

Title: (MA)—Financial Institutions
Securities Qualifications Forms OMB
Number: Not yet assigned.
Form Num ber: Forms SB, SBW, U-4B,
and U-5B.
Abstract: This inform ation collection
covers the securities qualifications

68841

forms for banks and bank employees
involved in retail securities sales
programs. This inform ation w ill
prom ote safe and sound operations of
financial institution-sponsored
securities sales programs and will
enhance custom er protection.
A dditionally, the collection w ill be
instrum ental in preventing unqualified
or disqualified individuals from
recom m ending or selling retail
securities on behalf of financial
institutions regulated by the OCC,
Board, and FDIC.
Type o f Review: New Collection.
A ffected Public: Businesses or other
for-profit.
OCC
N um ber o f Respondents: 120.
Total A n n u a l Responses: 1,248.
Frequency o f Response: Occasionally.
Total A n n u a l Burden Hours: 2,184.
Board
N um ber o f R espondents: 100.
Total A n n u a l Responses: 754.
Frequency o f Response: Occasionally.
Total A n n u a l Burden: 2,142.
FDIC
N um ber o f Respondents: 70.
Total A n n u a l Responses: 523.
Frequency o f Response: Occasionally.
Total A n n u a l Burden Hours: 1,483.
Comments
Comments subm itted in response to
this notice w ill be sum m arized and/or
included in the request for OMB
approval. All comm ents w ill become a
m atter of public record. Comments are
invited on:
(a) W hether the collection of
inform ation is necessary for the proper
performance of the functions of the
agency, including w hether the
inform ation has practical utility;
(b) The accuracy of the agency’s
estimate of the burden of the collection
of information;
(c) Ways to enhance the quality,
utility, and clarity of the inform ation to
be collected;
(d) Ways to m inim ize the burden of
the collection on respondents, including
through the use of autom ated collection
techniques or other forms of inform ation
technology; and
(e) Estimates of capital or start-up
costs and costs of operation,
m aintenance, and purchase of services
to provide information.

68842

Federal Register / Vol. 61, No. 251 / Monday, December 30, 1996 / Notice

Dated: December 16, 1996.

Karen Solomon,
Director, Legislative and Regulatory Activities
Division.
By order of the Board of Governors of the
Federal Reserve System, December 16,1996.

William W. Wiles,
Secretary o f the Board.
By Order of the Board of Directors.
Dated at Washington, D.C., this 11th day of
December, 1996.
Federal Deposit Insurance Corporation

Jerry L. Langley,
Executive Secretary.
BILLING CODE 4810-33-P, 6210-01-P, 6714-01-P


Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102