The Securities and Exchange Commission is publishing for comment a proposed new rule that sets out the securities activities banks may engage in without registering as brokers.

The Gramm-Leach-Bliley Act of 1999 replaced banks’ complete exception from the definition of “broker” with 11 “functional exceptions.” The commission today voted to propose new rules to implement the GLBA definition by defining some of the statutory terms used in the 11 exceptions. It also proposed a number of new exemptions for some particular bank activities, under conditions that are consistent with investor protections.

The proposals would extend many of these provisions to savings associations and savings banks, and also exempt credit unions that engage in certain limited securities activities as long as they are conducted under the terms applicable to certain of the bank exceptions from the definitions of broker and dealer.

The statutory third-party brokerage (networking) exception allows banks to partner with broker-dealers in offering their customers a wide range of financial services, including securities brokerage. The trust and fiduciary activities exception permits a bank to receive “sales compensation” for effecting transactions for its customers in a trustee or fiduciary capacity without registering as a broker. There is also a safekeeping and custody exception.

The SEC has also proposed three new targeted exemptions in recognition of banks’ existing business practices. These exemptions would: permit a bank to effect transactions for qualified investors, trustee and fiduciary accounts, and certain agency accounts, including escrow agency accounts, in money market funds that pay 12b-1 fees (similar to trailer fees); permit bank trustees and non-fiduciary administrators to receive asset-based sales charges and service fees from mutual funds to offset plan administration fees; and, permit a bank to sell securities that are exempt from registration to non-U.S. residents.

Comments on these proposed rules are due by August 1.