Wyo. Code R. 021-0002-14
Banking Division
Chapter 14: Bank Sales of Securities (replaced by ch. 26)
Effective Date: 08/01/1994 to 04/18/2014
Rule Type: Superceded Rules & Regulations
Reference Number: 021.0002.14.08011994
Section 1. Authority. The state banking commissioner is authorized by W.S. 13-3-704 to adopt rules to implement and administer the laws governing financial institutions, and to authorize state banks to engage in banking activities in which national banks are authorized to engage.
(a) The Office of the Comptroller of the Currency has determined that national banks may provide securities brokerage services to their customers pursuant to the authority of 12 USC24 (Seventh). The state banking commissioner has determined that state banks should be authorized to provide securities brokerage services to their customers to ensure that state banks may maintain an equal competitive position with national banks.
(b) The means of providing brokerage services will vary among state banks. These rules provide minimum requirements for state banks offering securities brokerage services on bank premises. Brokerage activities must be conducted in such a manner as to avoid misleading or confusing the bank's customers and must be consistent with safe and sound banking practices. The commissioner may require that practices the commissioner deems to be misleading or confusing to customers, or that violate the principles of safety and soundness for prudent and safe banking, be changed or terminated.
(a) As used in this chapter:
(i) 'Bank', unless specifically stated otherwise, means a corporation chartered as a bank under the laws of Wyoming;
(ii) 'Bank-related sale' means and includes the sale of any security directly by a bank employee, or by a dual employee, occurring on bank premises, or any sale solicited by mail from bank premises, or any sale resulting from referral of a bank customer for which the bank or a bank employee receives a benefit or compensation;
(iii) 'Broker' means a person or entity registered, licensed and qualified under the laws of the United States and of the state of Wyoming, and the regulations of the appropriate federal and state regulatory agencies, to act as a broker or a broker-dealer in the purchase and sale of securities;
(iv) 'Brokerage service' means providing investment advice and executing customer purchase and sale orders for securities, without recourse, solely upon the order of the customer and for the customer's account;
“Commissioner” means the Wyoming state banking commissioner;
“Dual employee” means a person who engages in activities or performs services for customers for both a bank and a broker;
“FDIC” means the federal deposit insurance corporation;
“FRB” means the board of governors of the federal reserve banking system;
“OCC” means the federal office of the comptroller of the currency;
“Rules of Fair Practice” means the Rules of Fair Practice of the National Association of Securities Dealers.
(xi) 'Securities” means and includes any mutual fund or other debt or equity instrument qualified for issuance and sale under the securities laws of the United States and the state of Wyoming, and authorized for purchase and sale for customer accounts by the OCC for national banks, or by the FRB for member state banks, or by the FDIC for non member state banks.
(a) A bank is authorized to provide brokerage services to its customers, on bank premises, subject to full compliance with all state and federal laws, rules, regulations and regulatory conditions applicable to a bank-related sale of such investments.
(b) Brokerage services may be provided directly by the bank through the employees of the bank, or under a contract for services with a securities broker properly registered, licensed and qualified to conduct a securities brokerage business in this state.
(a) If the bank provides brokerage services directly, the directors shall adopt written policies and procedures for evaluating comparative risks posed by offered securities and for ensuring that the investment offered and the attendant risks are suitable for the customer.
(b) The bank procedures shall require that any bank employee who performs brokerage service activities or executes brokerage transactions shall obtain sufficient information to make a reasoned judgment about the suitability of investment products for each customer. At a minimum, before making recommendations, and consistent with the Rules of Fair Practice, inquiries shall be made and responses documented concerning the customer’s financial status, investment objectives and specific investment instructions.
(c) The bank procedures shall include a system for monitoring compliance with investment risk evaluations and suitability for customer investment goals and instructions. The bank may sell a security to a customer at the customer’s request, notwithstanding the investment is inconsistent with the bank’s recommendation, but the bank shall document its recommendation.
(a) The bank may lease a portion of the bank premises to a qualified securities broker to provide brokerage services to bank customers. The brokerage services may be provided exclusively by employees of the broker, or by dual employees of the bank and the broker.
(b) If brokerage services are provided on bank premises by contract with a qualified securities broker, the contract shall be in writing and, at a minimum, shall provide:
(i) A description of the duties and responsibilities of the parties;
(ii) A description of permissible activities by the broker on the institution’s premises, and the terms and conditions of use of the institution’s space, personnel and equipment;
(iii) That all representatives of the broker engaged in providing brokerage services on the bank premises, including dual employees, if any, shall be properly licensed and qualified as required by all applicable laws and regulations;
(iv) That the broker shall exercise exclusive supervisory and management control over dual employees engaged in providing brokerage services, and shall determine precisely the standardized investment advice to be provided;
(v) That the broker shall provide written policies and procedures stating prohibited and permissible activities for nonparticipating bank employees, and that the bank shall ensure such policies are provided to each employee;
(vi) That dual employees shall have written contracts, approved by the bank;
(vii) That salaries of all dual employees shall be paid by the bank;
(viii) That the bank may monitor and periodically review the activities and transactions of the broker and its sales representatives to ensure compliance with the agreement;
(ix) That the institution and the appropriate banking regulatory authority shall have access to such records of the broker as are necessary or appropriate to evaluate compliance with the agreement; and
(x) That the broker shall indemnify the bank and save it harmless from any liability, cost or damages resulting from actions of the broker in conducting brokerage services.
If the bank leases a portion of the bank premises to a broker, the bank may negotiate whatever terms are usual and customary in the leasing of commercial office space. The bank may be compensated by a percentage share of commissions or revenue earned from the brokerage transactions conducted at the leased premises, provided the compensation is for services performed or for rent of space and equipment provided. The method of compensation must not result in a partnership rela- tionship between the bank and the broker, or make the bank a guarantor of, or liable for, operating costs, losses or debts of the broker. If the compensation agreement provides for a percentage of revenues after deduction of losses resulting from failure of customers to perform their obligations, the loss deductions may not exceed the amount of revenues accruing to the bank's credit after the losses are incurred.
Section 8. Segregation of Brokerage Services.
The place where brokerage services are provided, whether by the bank or by a broker, shall be located in an area of the bank clearly distinguishable from the areas in which the banking business is conducted, and shall be clearly identified. The disclosure notice required by Section 9 (a) of this Chapter shall be posted in conspicuous places where it may be readily seen by the customers of both the bank and the broker, if any.
Section 9. Disclosure Required For Brokerage Services.
(a) Either the bank or the broker on bank premises must provide a complete and accurate disclosure when selling, advertising or marketing any security, to ensure that customers of either the bank or the broker are advised that the security:
(b) A written statement of the disclosure required by subsection (a) of this section shall be given to each customer at the time a securities account is opened by the bank or the broker and before any security purchase or sale is executed. A written acknowledgment of receipt of the disclosure statement shall be signed by the customer and retained by the bank or the broker in the customer account file.
(c) The disclosure statement shall be printed or featured conspicuously in all written or oral sales presentations, advertising and promotional materials prepared and used by the bank or the broker in conducting their brokerage business. A prospectus prepared in compliance with requirements of the Securities and Exchange Commission is not advertising, sales or promotional material within the meaning of this subsection.
(d) If applicable, either the bank or the broker conducting the brokerage business should disclose:
(i) The existence of any advisory or other relationship between the bank or broker and any affiliate involved in providing or marketing the security; and
(ii) The existence of any early withdrawal or cancellation penalties, surrender charges or penalties, deferred sales charges, or any cost or expense to which the customer may be subjected as a result of purchasing the security.
(a) A bank which provides brokerage services directly shall provide for a continuing education program to ensure that all bank personnel who perform brokerage related services or who execute brokerage transactions are properly qualified to represent the interests of the customers. The program shall include training in the nature of mutual funds, debt and equity securities and any security marketed by the bank, their differences, their comparative risks, and how they may be used to serve the different needs of the customer, as well as training and education in proper sales practices.
(b) Any bank employee who performs brokerage services shall be licensed and qualified as required by law or regulation.
(a) A bank shall comply with all applicable state and federal restrictions to prevent a conflict of interest in transactions involving the purchase of securities with funds held by the bank in a trust, fiduciary or discretionary account by the use of brokerage services provided by the bank or by a broker which compensates the bank.
(b) The bank shall not execute securities transactions involving funds or securities held by the bank as fiduciary, with its own brokerage service or with a broker which compensates the bank, unless such transactions are authorized by the instrument creating the trust or fiduciary relationship, by state statute or by court order.
(c) The bank shall not execute securities transactions involving funds held by the bank in a discretionary account, with its own brokerage service or with a broker which compensates the bank, unless the transaction is authorized by the beneficial owner of the account.
(d) The compensation of bank employees or dual employees based on commissions for brokerage transactions executed could provide an incentive for the employee to sell securities unsuitable to the customer, or to sell securities rather than bank deposit investments. Such a method of compensating employees, while not a conflict of interest per se, may be subject to criticism and correction upon examination.
The brokerage activities and transactions of a bank, or the bank's relationship with a contract broker on bank premises, is subject to examination by the commissioner and designated state bank examiners. Violation of any state or federal law, or violation of a regulation of the state banking commissioner or any state or federal agency with jurisdiction over the sale of securities, or a regulation of the FRB or the FDIC governing the sale of securities by member or nonmember state banks, or any act or omission in the performance of brokerage services which places the bank at risk of liability for losses, penalties or damages, may constitute an unsound and unauthorized practice within the meaning of W.S. 13-3104, and the commissioner may invoke such remedies as provided by law.