[Federal Register Volume 64, Number 220 (Tuesday, November 16, 1999)]
[Rules and Regulations]
[Pages 62103-62105]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-29853]


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FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Part 343

RIN 3064-AC19


Insured State Nonmember Banks Which Are Municipal Securities 
Dealers

AGENCY: Federal Deposit Insurance Corporation.

ACTION: Final rule.

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SUMMARY: The Federal Deposit Insurance Corporation (FDIC) published a 
notice of proposed rescission of a rule in the Federal Register on May 
16, 1997, which proposed to rescind its regulation entitled ``Insured 
State Nonmember Banks Which Are Municipal Securities Dealers''. The 
regulation requires insured state nonmember banks which are municipal 
securities dealers to file with the FDIC certain information about 
those persons who are or seek to be associated with these dealers as 
municipal securities principals or municipal securities 
representatives. The FDIC has determined for a number of reasons, as 
set forth in the original notice and discussed in SUPPLEMENTARY 
INFORMATION, that the regulation is unnecessary and duplicative, and 
therefore, the FDIC is rescinding it.

EFFECTIVE DATE: The rescission of this regulation will be effective 
December 16, 1999.

FOR FURTHER INFORMATION CONTACT: Amy A. Mitchell, Senior Capital 
Markets Specialist, Division of Supervision (202) 898-3670, or Karen L. 
Main, Counsel, Legal Division (202) 898-8838.

SUPPLEMENTARY INFORMATION:

I. Background

    Part 343 of the FDIC's rules and regulations requires insured state 
nonmember banks and certain of their subsidiaries, departments and 
divisions which are municipal securities dealers, as defined in section 
3(a)(30) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(30)) 
(Exchange Act), to file certain information with the FDIC. State 
nonmember banks must file information about persons who are associated 
with their subsidiaries, departments and divisions as municipal 
securities principals or municipal securities representatives. The 
Exchange Act delegates responsibility to the Municipal Securities 
Rulemaking Board (MSRB) to formulate rules regulating the activities of 
municipal securities dealers. The FDIC is authorized, pursuant to 
section 3(a)(34)(A)(iii) of the Exchange Act, to enforce compliance 
with MSRB rules by any insured state nonmember bank, as well as a 
subsidiary or a department or a division thereof, which is a municipal 
securities dealer (hereafter referred to as a state nonmember bank 
municipal securities dealer).
    One of the areas in which the Exchange Act directs the MSRB to 
promulgate rules is the qualification of persons associated with 
municipal securities dealers. Under paragraph (b) of MSRB Rule G-7, 
persons who are or seek to be associated with municipal securities 
dealers as municipal securities principals or municipal securities 
representatives must provide certain background information and 
conversely, the municipal securities dealers must obtain the 
information from such persons. The FDIC, the Office of the Comptroller 
of the Currency (OCC), and the Board of Governors of the Federal 
Reserve System (FRB) (collectively, the Banking Agencies) developed 
Form MSD-4 to satisfy this requirement. The FDIC requires state 
nonmember bank municipal securities dealers to file Form MSD-4 with the 
FDIC. 12 CFR 343.3(a).
    Under paragraph (c) of MSRB Rule G-7, a person who is or seeks to 
be associated with a municipal securities dealer is required to provide 
the dealer with a statement correcting information furnished under 
paragraph (b), to the extent that such information becomes materially 
inaccurate or incomplete. The FDIC requires state nonmember bank 
municipal securities dealers to file with the FDIC copies of MSRB Rule 
G-7 paragraph (c) statements and Form MSD-5s. Form MSD-5, also 
developed by the Banking Agencies, is a notification by a municipal 
securities dealer that a municipal securities principal or a municipal 
securities representative has terminated association with the dealer 
and the reasons for such termination. 12 CFR 343.3 (b) and (c).
    Paragraphs (e) and (f) of the MSRB Rule G-7 contain record 
retention requirements. The FDIC has imposed substantially the same 
requirements on state nonmember bank municipal securities dealers. 12 
CFR 343.3(d).
    Paragraph (g) of the MSRB's Rule G-7 requires every bank municipal 
securities dealer to file with the appropriate regulatory agency for 
such bank dealer the information prescribed by the MSRB's Rule G-7, as 
the appropriate regulatory agency shall require by rule or regulation. 
As noted above, the FDIC requires that each state nonmember bank 
municipal securities dealer file Form MSD-4, MSRB Rule G-7 paragraph 
(c) statement, and Form MSD-5 with the FDIC for each person associated 
with the dealer as a municipal securities principal or municipal 
securities representative.

II. Basis for Rescission of Part 343

    The reasons supporting the rescission of part 343 of the FDIC's 
rules and regulations were thoroughly discussed in the original 
proposal to rescind. (62 FR 26994, May 16, 1997). A summary of the most 
compelling justifications are provided below.

A. MSRB's Rule G-7 Requires the Provision of Much of the Same 
Information as Sec. 343.3

    The requirements of Sec. 343.3 are largely duplicative of those 
requirements in MSRB Rule G-7. Therefore, there is no need to retain 
these redundant requirements in part 343 of the FDIC's rules and 
regulations. Paragraph (b) of the MSRB's Rule G-7 requires bank 
municipal securities dealers to obtain certain information from persons 
who are or seek to be associated with them as municipal securities 
principals or municipal securities representatives. Paragraph (c) 
requires filing of statements to correct materially inaccurate or 
incomplete information. MSRB's Rule G-7 paragraphs (e) and (f) provide 
recordkeeping requirements, including that the information required in 
paragraphs (b) and (c) be maintained for three years after the 
associated person's employment with the municipal securities dealer or 
broker has terminated.
    In order to implement MSRB Rule G-7, the FDIC will continue to 
provide the Forms MSD-4 and MSD-5 to state nonmember bank municipal 
securities

[[Page 62104]]

dealers. These forms will be reviewed by the FDIC during the regular 
examination process. Section 15B(c)(5) of the Exchange Act authorizes 
the FDIC to enforce MSRB regulations in accordance with section 8 of 
the Federal Deposit Insurance Act (12 U.S.C. 1818).

B. The Number of Covered Entities is Declining

    The FDIC has noted a steady decline in the number of state 
nonmember bank municipal securities dealers over the last several 
years. Withdrawal of several banks previously registered as bank 
municipal securities dealers, as well as the consolidation of the 
industry, has caused the number of state nonmember bank municipal 
securities dealers to decline to 12. In the interests of efficiency and 
reducing duplicative requirements for this very small number of covered 
entities, the FDIC is rescinding its part 343 and relying on MSRB Rule 
G-7.

C. Implementing Regulations Are Not Required by the Exchange Act

    Section 23(a)(1) of the Exchange Act states that the FDIC shall 
have power ``to make such rules or regulations as may be necessary or 
appropriate to implement the provisions of this title for which [it is] 
responsible''. Although section 15B(b)(2)(A) of the Exchange Act 
requires the MSRB to promulgate regulations addressing the 
qualification of persons who are or seek to be associated with bank 
municipal securities dealers, there is no corresponding statutory 
requirement imposed upon the Banking Agencies, including the FDIC. 
Therefore, the FDIC may exercise its discretion to determine whether it 
is necessary or appropriate to adopt regulations such as part 343 or, 
in this case, to decide that such a regulation is no longer necessary 
or appropriate.

D. Maintenance of Uniformity Among Banking Agencies

    The FDIC undertook the review of part 343 of its rules and 
regulations as part of a systematic review of its regulations and 
written policies mandated by section 303(a) of the Riegle Community 
Development and Regulatory Improvement Act of 1994 (CDRI) (12 U.S.C. 
4803(a)). Section 303(a) of CDRI requires each of the Banking Agencies 
to remove inconsistencies and outmoded and duplicative requirements 
from its regulations and written policies. The FDIC has determined that 
part 343 is duplicative of many of the requirements of the MSRB's Rule 
G-7.
    Section 303(a)(2) of CDRI requires the FDIC to work jointly with 
the other federal banking agencies to make uniform all regulations ``* 
* * implementing common statutory or supervisory policies''. The 
Banking Agencies will continue to take a uniform approach to this 
substantive legal area, although the means of reaching that end is not 
uniform. The FRB has rescinded its regulation, 12 CFR 208.8(j) (63 FR 
37629, July 13, 1998); however, it intends that the applicable state 
member banks which are municipal securities dealers will continue to 
file the requisite reports and maintain the applicable records. (62 FR 
15272, 15278, March 31, 1997). The OCC streamlined its regulation, 12 
CFR part 10, by cross-referencing the relevant MSRB rules and deleting 
certain redundant provisions (63 FR 29092, May 28, 1998). Therefore, 
the Banking Agencies have succeeded in moving toward the objective 
stated in section 303(a)(2) of CDRI as well as accomplishing the 
overall goal of eliminating duplicative and unnecessary regulations.

III. Comments Received

    The FDIC published its notice of proposed rescission in the Federal 
Register on May 16, 1997 (62 FR 26994), and accepted comments through 
July 15, 1997. No comments were received on the proposal.

IV. Paperwork Reduction Act

    In accordance with the Paperwork Reduction Act (44 U.S.C. 3501 et 
seq.), the FDIC may not conduct or sponsor, and a person is not 
required to respond to, a collection of information unless it displays 
a currently valid Office of Management and Budget (OMB) control number. 
The collection of information requirements contained in part 343 (Form 
MSD-4, the MSRB Rule G-7(c) statement and Form MSD-5) have been 
approved by OMB under control number 3064-0022 which expires August 31, 
2002. The rescission of part 343 will not alter this collection. The 
requirement under the MSRB's Rule G-7 that bank municipal securities 
dealers collect the prescribed information from the persons who are or 
seek to be associated with them as municipal securities principals or 
municipal securities representatives still remains in effect.

V. Regulatory Flexibility Act

    Under section 605(b) of the Regulatory Flexibility Act (RFA) (5 
U.S.C. 605(b)), the regulatory flexibility analysis otherwise required 
under section 604 of the RFA (5 U.S.C. 604) is not required if the head 
of the agency certifies that the rule will not have a significant 
economic impact on a substantial number of small entities and the 
agency publishes such certification and a statement providing the 
factual basis for such certification in the Federal Register along with 
the final rule.
    The FDIC estimates that, currently, there are 12 state nonmember 
bank municipal securities dealers under its jurisdiction, none of which 
have $100 million or less in assets. The rescission of part 343 would 
result in the elimination of duplicative and unnecessary informational 
requirements found in the FDIC's regulation and allow the covered 
entities to refer to the MSRB's Rule G-7 requirements instead. 
Basically, the state nonmember bank's reporting and recordkeeping 
obligations will remain the same. Thus, the FDIC Board of Directors 
hereby certifies that the rescission of part 343 of its rules and 
regulations will not have a significant economic impact on a 
substantial number of small entities within the meaning of the RFA. 
Therefore, the provisions of the RFA regarding a final regulatory 
flexibility analysis (Id. At 604) do not apply here.

VI. Small Business Regulatory Enforcement Fairness Act

    The Office of Management and Budget has determined that this rule 
is not a ``major rule'' within the meaning of the relevant sections of 
the Small Business Regulatory Enforcement Fairness Act of 1996 
(SBREFA), 5 U.S.C. 801, et seq. As required by SBREFA, the FDIC will 
file the appropriate reports with Congress and the General Accounting 
Office so that the rescission of part 343 can be reviewed.

VII. Assessment of Impact of Federal Regulation on Families

    The FDIC has determined that the rescission of this rule will not 
affect family well-being within the meaning of section 654 of the 
Treasury and General Government Appropriations Act, 1999, Public Law 
105-277, 112 Stat. 2681 (1998).

List of Subjects in 12 CFR Part 343

    Banks, banking, Reporting and recordkeeping requirements, 
Securities.
    Under the authority of 12 U.S.C. 1819(a) (Tenth), the Board of 
Directors of the Federal Deposit Insurance Corporation hereby removes 
part 343 of title 12 of the Code of Federal Regulations.

[[Page 62105]]

PART 343--[REMOVED AND RESERVED]

    1. Part 343 is removed and reserved.

    By Order of the Board of Directors.

    Dated at Washington, D.C. this 8th day of November, 1999.

Federal Deposit Insurance Corporation.
Robert E. Feldman,
Executive Secretary.
[FR Doc. 99-29853 Filed 11-15-99; 8:45 am]
BILLING CODE 6714-01-P