Bank Securities Brokerage Summary
The Gramm-Leach-Bliley Financial Modernization Act, passed by Congress in late 1999, authorized a variety of new activities for banks in the securities and insurance fields. Although Missouri banks, trust companies and savings banks already possessed many of the new powers, Missouri enacted a law in 2000 that authorized the remaining powers for Missouri institutions. Because the Division of Finance routinely gets questions from bankers about what types of "financial modernization" powers are available for their charters, we have prepared the summary below as a short review of the current status of one of the most commonly sought financial modernization powers: securities brokerage.
The following is a brief summary of the current powers of Missouri state chartered banks, trust companies and savings banks to conduct securities brokerage activity.
Direct Discount Brokerage
All Missouri state chartered banks, savings banks and trust companies (both depository or nondepository) can directly sell investment securities, without recourse, solely upon order and for the account of customers. This power is also available through a regular operating subsidiary. Operating subsidiaries require no approval by or filings with the Division of Finance. Operating subsidiaries are different from the newly authorized "financial subsidiaries" created by Gramm-Leach-Bliley or the "securities subsidiaries" authorized under 20 CSR 1140-2.130, which are discussed below and have special regulatory requirements. Banks, savings banks and trust companies that have fiduciary powers can also provide full fiduciary advice to trust customers to carry out fiduciary duties under a trust, but cannot advertise or hold themselves out to the public as providing direct investment advice on securities matters except in carrying out trustee duties
Financial Subsidiary and Securities Subsidiary Full Brokerage
All Missouri state chartered banks, savings banks or trust companies (either depository or nondepository) may establish a "financial subsidiary" or a "securities subsidiary" to conduct full brokerage activities, including investment advising. A financial subsidiary is a new type of subsidiary created by Gramm-Leach-Bliley that is subject to certain regulatory requirements, such as capitalization standards and other safety and soundness considerations of the Division. A securities subsidiary is a special type of subsidiary authorized by 20 CSR 1140-2.130, which is subject to approval by the Division and to capitalization standards and other safety and soundness considerations of the Division.
Third Party Contract for Brokerage
All Missouri state chartered banks, savings banks or trust companies (either depository or nondepository) may contract with a third party which could conduct full or discount brokerage at any office of the institution. The third party could be an unaffiliated entity, an affiliate company or a holding company. These contracts may be subject to certain insider and related entity restrictions, such as 20 CSR 1140-2.110 and Section 23B of the Federal Reserve Act.
** Securities Licensing and Registration Requirements **
Whenever securities are sold through any type of brokerage activity to customers at a bank, trust company or savings bank office, including through a third party contract, Missouri or federal law may require brokerage registrations or licenses to be held by the bank, trust company or savings bank, as well as any affiliate or subsidiary involved. In addition, the institution and its affiliates should always be careful to verify that each agent making sales of securities products from the institution's premises is appropriately licensed or registered with the Missouri Securities Division and the Securities and Exchange Commission. http://www.sec.gov/divisions/marketreg/mrbanks.shtml