Iowa Administrative Code › Agency 187 - Banking Division › Chapter 2 - Application Procedures › Rule 187-2.15 - Securities Activities

Current through Register Vol. 47, No. 3, July 24, 2024
(1)
Scope.
Iowa law authorizes state-chartered banks to engage in
			 any aspect of the securities business. The evolution of this authority by state
			 banks has been confined primarily to recommending and selling interests in
			 mutual funds, annuities, and other nondeposit investment products on bank
			 premises. The sale of these nondeposit investment products on bank premises may
			 be conducted directly by a state bank, through a subsidiary or an affiliate of
			 a state bank, or through an arrangement with a third-party vendor. The sale of
			 these retail products on the premises of a state bank, where traditionally only
			 federally insured deposits are taken, has led to some confusion among retail
			 customers about what is being purchased and whether or not it is insured. The
			 purpose of this rule is to place greater emphasis on board of director
			 involvement in any proposed securities activities on the premises of the state
			 bank and, if retail product sales are part of that proposed activity, enhance
			 customer protections through proper disclosures.
(2)
Board responsibilities.
The board of directors of a state bank shall evaluate the risks associated with
			 the securities activities proposed and the method by which the securities
			 activities will be conducted on its premises. The board of directors shall be
			 responsible for ensuring that any securities activities conducted on its
			 premises will comply with all applicable state and federal laws and regulations
			 as well as any policy statements issued which relate to securities activities.
			 Specifically, if a state bank develops and implements a particular program
			 where nondeposit investment products are recommended and sold to retail
			 customers, that program shall ensure that customers are clearly and fully
			 informed of the nature of and risks associated with those types of products. If
			 an affiliate, a subsidiary, or a third-party vendor is used to recommend and
			 sell nondeposit investment products, all signs, advertisements and other
			 promotional material should clearly identify the affiliate, subsidiary, or
			 third-party vendor as the seller and should not suggest by use of a trade name
			 that the state bank is the seller. The board of directors shall be responsible
			 for complying with the joint federal Interagency Statement on Retail Sales of
			 Nondeposit Investment Products or any substitution therefor or revision
			 thereof.
(3)
Application.
An application by a state bank to engage in any
			 securities activities shall be in letter form and shall, at a minimum, contain
			 the following information.
a. A commitment
			 that the proposed securities activities will be conducted either directly by
			 the state bank, through a subsidiary or an affiliate of the state bank, or
			 through an arrangement with a third-party vendor. In specific cases, it may be
			 necessary for the applicant to provide a legal opinion stating that the
			 proposed activities are authorized.
b. A commitment that the state bank's board
			 of directors has evaluated the risks associated with the proposed securities
			 activities and has adopted a written statement that addresses these risks and
			 the procedures to be used to ensure compliance with all applicable laws,
			 regulations and policy statements. The scope and level of detail of the written
			 statement should reflect the state bank's level of involvement in the
			 securities activities. If securities activities are to be conducted on bank
			 premises by an affiliate, a subsidiary, or a third-party vendor, the written
			 statement should also address the scope of those activities, as well as the
			 procedures for monitoring compliance by the affiliate, subsidiary, or
			 third-party vendor with all applicable laws, regulations and policy
			 statements.
c. A commitment that,
			 if securities activities are to be conducted through an affiliate, a
			 subsidiary, or a third-party vendor, the board of directors has performed an
			 appropriate review of the affiliate, subsidiary, or third-party vendor. A copy
			 of the written agreement between the parties shall accompany the
			 application.
d. A commitment that
			 the location(s) on bank premises where the proposed securities activities will
			 be conducted will be physically distinct and separate from the area where
			 deposits are taken. Proper signs or other means must be used to distinguish the
			 area where the sale of retail nondeposit investments products will be conducted
			 from the area where insured deposits are normally taken. If securities
			 activities are to be conducted on bank premises by an affiliate, a subsidiary,
			 or a third-party vendor, all signs or other means used to identify this area
			 shall provide to the retail customer a clear and accurate representation of the
			 entity conducting the securities activities.
e. A commitment that clear and concise oral
			 and written disclosures will be provided to retail customers. A copy of the
			 proposed written disclosures shall accompany the application.
f. A commitment that the state bank, its
			 subsidiary or affiliate, or a third-party vendor will complete background
			 checks on all personnel authorized to recommend and sell nondeposit investment
			 products and that all such personnel will be properly trained and appropriately
			 licensed prior to commencing any securities activities and thereafter while
			 conducting securities activities on the premises of the state bank.
Notwithstanding the application requirements set forth herein,
				if the securities activity being conducted is limited to discount brokerage or
				referral services, then the state bank only needs to notify the superintendent
				that it intends to engage in the limited securities activity.