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A Joint Commissioners' Study on Financial Services Modernization

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A Joint Commissioners' Study on Financial Services Modernization FINANCIAL SERVICES MODERNIZATION FOR TEXAS Impact of the Gramm-Leach-Bliley Act of 1999 O August 15, 2000 A Joint Study Conducted by: Texas Department of Banking Texas Department of Insurance Texas Savings and Loan Department Texas State Securities Board Acknowledgements This study was conducted under the direction of the Commissioners of the four agencies and their allocation of resources to complete this task is greatly appreciated. Task Force Members provided invaluable contributions of time, research, and personal commitment to complete this endeavor. Sincere appreciation is extended to all the participants of this study. Commissioners Randall S. James Texas Department of Banking Jose Montemayor Texas Department of Insurance James L. Pledger Texas Savings and Loan Denise Voigt Crawford Texas State Securities Board Task Force Participants Robert Bacon Department of Banking Kevin Brady Department of Insurance Lynda Drake Department of Banking Ryan Eckstein Department of Banking Gayle Griffin Department of Banking Don Hanson Department of Insurance Jack Hohengarten Attorney General’s Office Tim Irvine Savings and Loan Department Everette Jobe Department of Banking Steve Martin Department of Banking David Mattax Attorney General’s Office John Morgan State Securities Board Tom Spradin State Securities Board David Weaver State Securities Board FINANCIAL SERVICES MODERNIZATION FOR TEXAS Impact of the Gramm–Leach–Bliley Act of 1999 August 15, 2000 Glossary of Acronyms and Other Shortened References in this Report .........................................ii I. EXECUTIVE SUMMARY AND REPORT OVERVIEW............................. 1 A. BACKGROUND.................................................................................................................. 1 B. THE TEXAS RESPONSE ..................................................................................................... 2 C. SUMMARY OF CONSENSUS CONCLUSIONS AND LEGISLATIVE RECOMMENDATIONS............... 4 D. MATTERS FOR FURTHER CONSIDERATION AND RESEARCH ................................................. 8 II. FINDINGS, ANALYSIS AND RECOMMENDATIONS............................... 9 A. STATE LAWS PREEMPTED OR IMPAIRED BY GLBA ............................................................ 9 B. ENHANCED AUTHORITY FOR STATE–CHARTERED BANKS AND TRUST COMPANIES ............ 15 C. FORMATION OF FINANCIAL HOLDING COMPANIES (FHCS)................................................ 24 D. UNIFORM LICENSING AND EDUCATION FOR INSURANCE AGENTS AND COMPANIES............. 27 E. COORDINATION AND INFORMATION SHARING AMONG REGULATORY AGENCIES ................. 30 F. AGENCY DISCRETION AND FLEXIBILITY FOR ADAPTATION TO FUTURE DEVELOPMENTS...... 36 G. BANKING COMMISSIONER AUTHORITY TO APPROVE NEW FINANCIAL ACTIVITIES............... 38 III. COLLECTED QUESTIONS ON GLBA AND TEXAS LAW ..................... 41 A. FINANCIAL HOLDING COMPANY (FHC) ELECTIONS.......................................................... 42 B. DEPOSITORY INSTITUTION FINANCIAL SUBSIDIARIES......................................................... 47 C. BANKS AND AFFILIATES CONDUCTING SECURITIES ACTIVITIES.......................................... 49 D. INSURANCE AGENT LICENSING FOR DEPOSITORY INSTITUTIONS AND AFFILIATES ............... 53 E. REGULATION OF INSURANCE ACTIVITIES.......................................................................... 56 F. COMMISSIONS AND REFERRAL FEES FROM INSURANCE OR SECURITIES ACTIVITIES ............ 58 G. MERCHANT BANKING..................................................................................................... 60 H. MISCELLANEOUS QUESTIONS.......................................................................................... 61 Appendices follow page 63. Table of Contents Report Dated August 15, 2000 Glossary Financial Services Modernization for Texas GLOSSARY ACRONYMS AND OTHER SHORT FORM REFERENCES USED IN REPORT Agencies---------------------------------------DOB, SSB, TDI, and TSLD BHC -------------------------------------------Bank holding company BHC Act --------------------------------------Bank Holding Company Act of 1956 Commissioners -------------------------------Texas Banking Commissioner, Savings and Loan Commissioner, Insurance Commissioner, and Securities Commissioner Committees -----------------------------------Texas Senate Economic Development Committee, House Financial Institutions Committee, and House Insurance Committee Committees’ Letter --------------------------Letter from the Committees to the Commissioners dated March 31, 2000, requesting a study of the impact of GLBA on state law, excluding the impact of the financial privacy provisions of GLBA CRA -------------------------------------------Community Reinvestment Act of 1977 CSBS ------------------------------------------Conference of State Bank Supervisors DOB -------------------------------------------Texas Department of Banking and/or Commissioner FDI Act----------------------------------------Federal Deposit Insurance Act FDIC-------------------------------------------Federal Deposit Insurance Corporation FRB--------------------------------------------Board of Governors of the Federal Reserve System FHC--------------------------------------------financial holding company, a category of a bank holding company FTC --------------------------------------------Federal Trade Commission GLBA -----------------------------------------Gramm-Leach-Bliley Act of 1999 NAIC ------------------------------------------National Association of Insurance Commissioners NARAB ---------------------------------------National Association of Registered Agents and Brokers NASAA ---------------------------------------North American Securities Administrators Association, Inc. NASD -----------------------------------------National Association of Securities Dealers OCC -------------------------------------------Office of the Comptroller of the Currency OTS--------------------------------------------Office of Thrift Supervision SEC --------------------------------------------Securities and Exchange Commission SSB --------------------------------------------Texas State Securities Board and/or Commissioner TAC--------------------------------------------Texas Administrative Code TDI---------------------------------------------Texas Department of Insurance and/or Commissioner Thrift-------------------------------------------A state or federal savings bank or savings and loan association Thrift holding company ---------------------Savings and loan holding company Treasury ---------------------------------------U.S. Secretary of the Treasury TSLD ------------------------------------------Texas Savings and Loan Department and/or Commissioner Unitary thrift----------------------------------A savings and loan holding company that owns only one savings bank and is empowered to engage in unlimited nonbanking activities Report Dated August 15, 2000 Page ii FINANCIAL SERVICES MODERNIZATION FOR TEXAS Impact of the Gramm–Leach–Bliley Act of 1999 August 15, 2000 I. EXECUTIVE SUMMARY AND REPORT OVERVIEW A. Background In November 1999, Congress passed the Gramm–Leach–Bliley Act (“GLBA”), commonly referred to as Financial Services Modernization. (See Appendix A for the GLBA Congressional Conference Committee Report.) The enactment of GLBA followed several years of difficult negotiations, not just among the banking, thrift, securities and insurance industries, but also among the regulators with regulatory responsibility over these industries. The negotiation difficulties were due in part to the historical separation of banking from insurance and securities. In 1934, federal law separated securities and commercial banking. In 1955, federal law separated insurance and commercial banking. In the intervening years, the industries developed separately to the point that each now has its own distinct culture. The nature of state and federal regulation of these industries likewise developed separately and distinctly. The implementation of GLBA in a manner that is both practical and effective therefore presents a unique challenge for the industries and the regulators and will require cooperation and communication among these groups to an extent that has not been practiced or needed in the past. A brief description of the provisions of GLBA that, from the state’s perspective, most impact Texas will facilitate an understanding of this Executive Summary and Report Overview. First, GLBA eliminates pre-existing federal and state restrictions that prohibited common ownership of entities that engage in insurance, securities, and banking activities. GLBA also preempts state agent licensing laws that prevent or significantly interfere with the ability of a depository institution to engage in the sale, solicitation or cross marketing of insurance. Second, GLBA directs the states to develop more uniform and efficient insurance agent licensing laws. If the states fail to adopt laws consistent with the GLBA mandate, the Act provides for the establishment of a national-level, self-regulatory insurance body, the National Association of Registered Agents and Brokers (“NARAB”). Report Dated August 15, 2000 Page 1 Section I. Executive Summary And Report Overview Financial Services Modernization for Texas Third, GLBA directs that functional regulation concepts will govern the regulation of these combined businesses and activities. Congress has chosen the concept of functional regulation to establish the general regulatory parameters for the primary regulatory agencies at both the
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