The Securities and Exchange Commission (SEC) has issued a proposed rule (“Regulation B”) that would grant credit unions some of the exemptions from the broker-dealer registration requirements that banks currently receive and provide new exemptions for banks. These exceptions are provided under the Securities Exchange Act of 1934 “Exchange Act,” as amended by the Gramm-Leach-Bliley Act (“GLBA”). These exceptions and how the SEC proposes to treat credit unions under Regulation B are described below:
- First, the proposal would allow credit unions to enter into the same networking arrangements with broker-dealers that banks can. Currently, credit unions may enter into networking arrangements with broker-dealers under the conditions set forth in an SEC opinion letter (“Chubb letter”). However, banks can network with broker-dealers under the terms of the Exchange Act bank exception for third-party brokerage arrangements. This proposal extends that Exchange Act exception to include credit unions, and would thereby supercede the Chubb letter.
- Second, the proposal would permit credit unions to sweep deposit accounts into no-load money market funds under the same terms as banks can under the bank exception in the Exchange Act. The SEC states that the statutory exception is limited and should place financial institutions offering similar services on a more level playing field.
- Third, the proposal permits credit unions to buy and sell securities for investment purposes for themselves, or for accounts for which they act as trustee or fiduciary under the terms of the investments transaction exception in the Exchange Act.
The proposal would permit all credit unions, including federal- and state-chartered credit unions, as well as federally insured and privately insured credit unions to utilize the exemptions that are described above. Although the proposal would grant credit unions these three exceptions, it would not automatically give them any associated exemptions given to banks in the future. Moreover, the proposal does not grant credit unions all the exceptions that banks currently have. The SEC requests comments on whether all credit unions should be included in the current proposal, and asks for information on the regulatory oversight given all types of credit unions.
The proposal does not extend to credit unions an exemption to conduct safekeeping and custody activities because the SEC claims it did not find that credit unions engage in activities included in the safekeeping and custody exemption. Under this exception, a bank does not have to register as a broker, if it engages in certain specified types of safekeeping and custody services with respect to securities on behalf of its customers. The SEC invites comment on whether credit unions engage in these types of activities and what legal authority they use to do so. CUNA asked in its comment letter that credit unions be given this authority.
SEC has issued Regulation B and it amends a previous proposal (“Interim Rules”) that provided guidance on the bank exceptions for banks and thrifts under the Exchange Act.
