I
103D CONGRESS
1ST SESSION
H. R. 3306
To amend the Federal Deposit Insurance Act to regulate the retail sale
of nondeposit investment products by insured depository institutions to
prevent customer confusion about the uninsured nature of the products,
and for other purposes.
IN THE HOUSE OF REPRESENTATIVES
OCTOBER 19, 1993
Mr. GONZALEZ (for himself and Mr. SCHUMER) introduced the following bill;
which was referred to the Committee on Banking, Finance and Urban Affairs
A BILL
To amend the Federal Deposit Insurance Act to regulate
the retail sale of nondeposit investment products by in-
sured depository institutions to prevent customer confu-
sion about the uninsured nature of the products, and
for other purposes.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ‘‘Depository Institution
Retail Investment Sales and Disclosure Act’’.
SEC. 2. REGULATION OF RETAIL SALES OF NONDEPOSIT IN-
VESTMENT PRODUCTS BY INSURED DEPOSI-
TORY INSTITUTIONS.
The Federal Deposit Insurance Act is amended by
adding at the end the following new section:
‘‘SEC. 44. REGULATION OF RETAIL SALES OF NONDEPOSIT
INVESTMENT PRODUCTS BY INSURED DEPOS-
ITORY INSTITUTIONS.
‘‘(a) DEFINITIONS.—For purposes of this section:
‘‘(1) BANKING OFFICE.—The term ‘banking of-
fice’ means any office, or any part of any office, of
an insured depository institution that is commonly
accessible to the general public for the purpose of
accepting or withdrawing deposits.
‘‘(2) NONDEPOSIT
INVESTMENT
PRODUCT.—
The term ‘nondeposit investment product’—
‘‘(A) means any investment product which
is not a deposit;
‘‘(B) includes shares issued by a registered
investment company; and
‘‘(C) does not include—
‘‘(i) any loan or other extension of
credit by an insured depository institution;
‘‘(ii) any letter of credit; or
‘‘(iii) any other instrument or invest-
ment product specifically excluded from
the definition of such term by regulations
prescribed jointly by the Federal banking
agencies.
‘‘(b) SCOPE OF APPLICATION.—
‘‘(1) APPLICATION LIMITED TO RETAIL ACTIVI-
TIES.—The provisions of this section shall not apply
with respect to any transaction (which is otherwise
subject to the requirements of this section)
between—
‘‘(A) any insured depository institution,
any affiliate of such institution, or any other
person who is subject, directly or indirectly, to
the requirements of this section; and
‘‘(B) any other insured depository institu-
tion, any affiliate of another insured depository
institution, any broker or dealer registered
under the Securities Exchange Act of 1934, any
person who is, or meets the requirements for,
an accredited investor, as such term is defined
in section 2(15)(i) of the Securities Act of
1933, or any other customer who the appro-
priate Federal banking agency determines, on
the basis of the financial sophistication of the
customer, does not need the protection afforded
by this section.
‘‘(2) NO EFFECT ON OTHER AUTHORITY.—
‘‘(A) IN GENERAL.—No provision of this
section shall be construed as limiting or other-
wise affecting—
‘‘(i) any authority of the Securities
and Exchange Commission, any self-regu-
latory organization, the Municipal Securi-
ties Rulemaking Board, or the Secretary of
the Treasury under any Federal securities
law; or
‘‘(ii) the applicability of any Federal
securities law, or any rule or regulation
prescribed by the Commission, any self-
regulatory organization, the Municipal Se-
curities Rulemaking Board, or the Sec-
retary of the Treasury pursuant to any
such law, to any person.
‘‘(B) DEFINITIONS.—For purposes of this
paragraph:
‘‘(i) FEDERAL SECURITIES LAW.—The
term ‘Federal securities law’ has the mean-
ing given to the term ‘securities laws’ in
section 3(a)(47) of the Securities Ex-
change Act of 1934.
‘‘(ii) SELF-REGULATORY
ORGANIZA-
TION.—The term ‘self-regulatory organiza-
tion’ has the meaning given to such term
in section 3(a)(26) of the Securities Ex-
change Act of 1934.
‘‘(c) PROHIBITION ON MISLEADING AND DECEPTIVE
PRACTICES.—
‘‘(1) IN GENERAL.—An insured depository in-
stitution may not permit any person to engage in
any practice, or employ any advertising, at any of-
fice of, or on behalf of, the institution which could
mislead any person or otherwise cause a reasonable
person to reach an erroneous belief with respect to—
‘‘(A) 
the 
uninsured 
nature 
of 
any
nondeposit investment product sold, or offered
for sale, by—
‘‘(i) the institution (in any capacity)
or any affiliate of the institution; or
‘‘(ii) any other person in any office of,
or on behalf of, the institution; or
‘‘(B) the investment risk associated with
any such product.
‘‘(2) CONTENTS OF REGULATIONS.—The Fed-
eral banking agencies shall jointly prescribe rules of
fair practice governing retail sales, including phone
sales and direct mail solicitations, of nondeposit in-
vestment products by, on behalf of, or in any office
of, any insured depository institution (in any capac-
ity) and any affiliate of such institution.
‘‘(3) RULES OF FAIR PRACTICE.—In prescribing
regulations pursuant to paragraph (2), the Federal
banking agencies shall take into account the Rules
of Fair Practice of the National Association of Secu-
rity Dealers and any other applicable rules or regu-
lations the agencies determine to be appropriate.
‘‘(d) DISCLOSURE REQUIREMENTS.—
‘‘(1) WRITTEN DISCLOSURES.—An insured de-
pository institution shall require any person who
sells or offers for sale any nondeposit investment
product in any office of, or on behalf of, the institu-
tion to disclose, in writing, to any person who seeks
to purchase, or seeks an opinion or investment ad-
vice about, any such product the following informa-
tion:
‘‘(A) The nondeposit investment product is
not insured by the Federal Deposit Insurance
Corporation, the United States Government, or
the institution.
‘‘(B) The product poses some investment
risk and the risk may involve the loss of prin-
cipal such that when the product is sold by the
investor, it may be worth less than when pur-
chased by the investor.
‘‘(C) A clear description of the relationship
between the insured depository institution and
any other person which originated the product
or is otherwise directly or indirectly involved
with underwriting, selling, or distributing the
product.
‘‘(D) If the nondeposit investment product
consists of shares issued by a registered invest-
ment company, the relationship between the in-
sured depository institution, or any affiliate of
the institution, and the investment company.
‘‘(2) CUSTOMER’S SIGNED STATEMENT RELAT-
ING TO INITIAL PURCHASE OF NONDEPOSIT INVEST-
MENT PRODUCTS.—
‘‘(A) IN GENERAL.—An insured depository
institution shall require any person selling a
nondeposit investment product at any office of,
or on behalf of, the institution to obtain, at the
time of the initial purchase by any person of
such product, a separate statement, signed and
dated by such person, which contains the dec-
laration that the purchaser has received, read,
and understood the disclosures required under
paragraph (1) with respect to such investment
product.
‘‘(B) FORMAT
OF
DECLARATION.—The
declaration required under subparagraph (A)
shall be in a conspicuous and prominent loca-
tion on a sheet of paper which is separate from
a written application or any other document or
paper which such person signs or obtains in
connection with the initial purchase of a
nondeposit investment product.
‘‘(C) SCOPE OF APPLICATION; TIMING.—
The declaration required to be obtained under
subparagraph (A) from any person shall be ob-
tained for the initial purchase of each type of
nondeposit investment product purchased by
the person before each such transaction is final.
‘‘(3) DISCLOSURES
IN
THE
CASE
OF
SUBSE-
QUENT
PURCHASES
THROUGH
ELECTRONIC
OR
TELEPHONE TRANSFERS.—In the case of a purchase
(other than an initial purchase) by any person of a
nondeposit investment product through, or in con-
junction with, an electronic funds transfer (as de-
fined in section 903(6) of the Electronic Fund
Transfer Act), a visual or oral notice may be pro-
vided (through the device used by the purchaser to
carry out such transfer), in lieu of the written disclo-
sure required under paragraph (1), reminding the
purchaser that the nondeposit investment product is
not a deposit which is insured by the Federal De-
posit Insurance Corporation, the United States Gov-
ernment, or the institution and poses some invest-
ment risk.
‘‘(4) MODEL
FORMS.—The Federal banking
agencies shall jointly prescribe regulations establish-
ing model forms which meet or exceed the minimum
requirements of this subsection.
‘‘(5) ADVERTISING AND PROMOTIONAL MATE-
RIAL.—Any advertisement, solicitation, or pro-
motional or sales material which relates to any
nondeposit investment product which is sold, or of-
fered for sale, at any office of, or on behalf of, an
insured depository institution (including any solicita-
tion contained in any periodic statement issued by
the institution), and any sale confirmation notice or
periodic statement issued in connection with any
such product, shall contain the disclosures required
under paragraph (1).
‘‘(e) LOCATION REQUIREMENTS.—
‘‘(1) SALE OF PRODUCTS PROHIBITED IN AREA
WHERE DEPOSITS ARE ACCEPTED.—
‘‘(A) IN GENERAL.—No insured depository
institution may permit any part of any banking
office of the institution to be used for selling or
offering for sale, or for providing any opinion or
investment 
advice 
with 
respect 
to, 
any
nondeposit investment product.
‘‘(B) PHYSICALLY
SEGREGATED
AREA.—
The area in which any nondeposit investment
product is sold or offered for sale, or any opin-
ion or investment advice with respect to such
product is provided, shall not be treated, for
purposes of paragraph (1), as being part of a
banking office of an insured depository institu-
tion if such area is physically segregated from
the part of the office where deposits are accept-
ed or withdrawn.
‘‘(2) POSTING OF NOTICE IN AREA OF SALES.—
An insured depository institution shall post, in a
conspicuous place in that part of any office of the
institution in which any nondeposit investment prod-
uct is sold or offered for sale, a notice that—
‘‘(A) such part of the office is devoted to
the sale of nondeposit investment products
which are not insured by the Federal Deposit
Insurance Corporation, the United States Gov-
ernment, or the institution; and
‘‘(B) deposits are not accepted at that lo-
cation.
‘‘(f) EMPLOYEE SALES, TRAINING, AND COMPENSA-
TION.—
‘‘(1) CERTAIN
PERSONS
PROHIBITED
FROM
SELLING NONDEPOSIT INVESTMENT PRODUCTS.—An
insured depository institution may not permit any
person who accepts deposits from the public at any
office of, or on behalf of, an insured depository insti-
tution to sell or offer to sell, or offer an opinion or
investment advice on, any nondeposit investment
product.
‘‘(2) REFERRAL.—Notwithstanding paragraph
(1), a person who accepts deposits from the public
at any office of, or on behalf of, an insured deposi-
tory institution may refer a customer who seeks to
purchase, or seeks an opinion or investment advice
on, any nondeposit investment product to a person,
or the phone number of a person, who sells or pro-
vides opinions or investment advice on such product
only if—
‘‘(A) the customer explicitly requests such
referral; and
‘‘(B) the person who accepts deposits—
‘‘(i) does not solicit such request;
‘‘(ii) discloses to the customer that
such product is not insured by the institu-
tion, the Federal Deposit Insurance Cor-
poration, or the United States Govern-
ment, or the institution; and
‘‘(iii) does not receive any compensa-
tion for the referral.
‘‘(3) QUALIFICATION REQUIREMENTS.—
‘‘(A) IN GENERAL.—No insured depository
institution may permit any person to sell or
offer for sale, or provide an opinion or invest-
ment advice about, any nondeposit investment
product in any part of any office of the institu-
tion, or on behalf of the institution, unless such
person—
‘‘(i) is registered with the Securities
and Exchange Commission as a broker or
dealer, as a representative of a broker or
dealer, or as an investment adviser; or
‘‘(ii) meets qualification and training
requirements which the Federal banking
agencies jointly determine are equivalent to
the training and qualification requirements
applicable to a person who is registered
with the Commission as a broker or dealer,
as a representative of a broker or dealer,
or as an investment adviser, as the case
may be.
‘‘(B) SUITABILITY OF INVESTMENT.—The
training required under subparagraph (A)(ii)
shall include training in making an accurate
judgment about the suitability of a particular
nondeposit investment product for a prospective
customer.
‘‘(4) COMPENSATION
STANDARDS.—The Fed-
eral banking agencies shall prescribe regulations es-
tablishing minimum requirements for insured deposi-
tory institution compensation programs that are de-
signed to ensure that the programs do not operate
as, and do not have the effect of providing, an incen-
tive for the sale of nondeposit investment products
to any customer in lieu of a more suitable invest-
ment option for such customer.
‘‘(g) USE
OF NAMES
OF DEPOSITORY INSTITU-
TIONS.—