Insured State Nonmember Banks Which Are Municipal Securities Dealers

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

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.

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