On March 24, the Office of Thrift Supervision (OTS) released a memorandum to chief executive officers regarding Regulation R and bank brokerage activities. Importantly, Regulation R is effective on the first day of an institution’s fiscal year beginning after September 30, 2008. For savings associations that utilize a calendar year, it is effective as of January 1.
Regulation R implements certain broker exceptions for banks and savings associations from the definition of “broker” in the Securities Exchange Act, as amended by the Gramm-Leach-Bliley Act. Such exceptions include those related to third-party networking arrangements, trust and fiduciary activities, deposit “sweep” activities, and custody and safekeeping activities. In addition, Regulation R includes exemptions related to foreign securities transactions, non-custodial securities lending transactions conducted in an agency capacity, and the execution of transactions other than through a broker-dealer.
The memorandum also suggests certain compliance actions that should be undertaken by OTS-regulated entities, including: (i) making a determination if the savings association is engaging in any securities activities; (ii) developing written policies and procedures and establishing an effective training program to ensure compliance with certain statutory provisions in the Securities Exchange Act and Regulation R; and (iii) adjusting risk management, audit and compliance systems to include securities activities.