Kan. Admin. Regs. § 81-3-5 - Sales of securities at financial institutions
(a) Definitions. For purposes of this
regulation, the following definitions shall apply:
(1) "Affiliate" means a company that
controls, is controlled by, or is under common control with a broker-dealer as
defined in FINRA rule 5121, which is adopted by reference in K.A.R.
81-2-1.
(2) "Broker-dealer
services" means the investment banking or securities business that is conducted
by a broker-dealer or a municipal or government securities broker or dealer
other than a financial institution or department or division of a financial
institution and consists of any of the following:
(A) Underwriting or distributing issues of
securities;
(B) purchasing
securities and offering the securities for sale as a dealer; or
(C) purchasing and selling securities upon
the order and for the account of others.
(3) "Financial institution" means any
federal-chartered or state-chartered bank, savings and loan association,
savings bank, credit union, and any service corporation of these institutions
located in Kansas.
(4) "Networking
arrangement" and "brokerage affiliate arrangement" mean a contractual or other
arrangement between a broker-dealer and a financial institution pursuant to
which the broker-dealer conducts broker-dealer services on the premises of the
financial institution where retail deposits are taken.
(b) Applicability. This regulation shall
apply exclusively to broker-dealer services conducted by any broker-dealer on
the premises of a financial institution where retail deposits are taken. This
regulation shall not alter or abrogate a broker-dealer's obligations to comply
with other applicable laws or regulations that may govern the operations of
broker-dealers and their agents, including supervisory obligations. This
regulation shall not apply to broker-dealer services provided to nonretail
customers.
(c) Standards for
broker-dealer conduct. No broker-dealer shall conduct broker-dealer services on
the premises of a financial institution where retail deposits are taken unless
the broker-dealer complies initially and continuously with the following
requirements:
(1) Setting. Broker-dealer
services shall be conducted in a physical location distinct from the area in
which the financial institution's retail deposits are taken. In all situations,
the broker-dealer shall identify its services in a manner that clearly
distinguishes those services from the financial institution's retail
deposit-taking activities. The broker-dealer's name shall be clearly displayed
in the area in which the broker-dealer conducts its broker-dealer
services.
(2) Networking and
brokerage affiliate arrangements and program management. Networking and
brokerage affiliate arrangements shall be governed by a written agreement that
sets forth the responsibilities of the parties and the compensation
arrangements. Networking and brokerage affiliate arrangements shall stipulate
that supervisory personnel of the broker-dealer and representatives of state
securities authorities, where authorized by state law, will be permitted access
to the financial institution's premises where the broker-dealer conducts
broker-dealer services in order to inspect the books and records and other
relevant information maintained by the broker-dealer with respect to its
broker-dealer services. The broker-dealer shall be responsible for ensuring
that the networking and brokerage affiliate arrangement clearly outlines the
duties and responsibilities of all parties.
(3) Customer disclosure and written
acknowledgment.
(A) When or before a
customer's securities brokerage account is opened by a broker-dealer on the
premises of a financial institution where retail deposits are taken, the
broker-dealer shall perform the following:
(i)
Disclose, orally and in writing, that the securities products purchased or sold
in a transaction with the broker-dealer are not insured by the federal deposit
insurance corporation ("FDIC") or the national credit union share insurance
fund ("NCUSIF"), as applicable, are not deposits or other obligations of the
financial institution and are not guaranteed by the financial institution, and
are subject to investment risks, including possible loss of the principal
invested; and
(ii) make reasonable
efforts to obtain from each customer during the account opening process a
written acknowledgment of the disclosures required by paragraph
(c)(3)(A)(i).
(B) If
broker-dealer services include any written or oral representations concerning
insurance coverage other than FDIC or NCUSIF insurance coverage, then clear and
accurate written or oral explanations of the coverage shall also be provided to
the customers when these representations are first made.
(4) Communications with the public.
(A) All of the broker-dealer's written
confirmations and account statements shall indicate clearly that the
broker-dealer services are provided by the broker-dealer.
(B) Recommendations by a broker-dealer
concerning nondeposit investment products with a name similar to that of the
financial institution shall occur only pursuant to a sales program designed to
minimize the risk of customer confusion.
(C) Advertisements and sales literature.
(i) Advertisements and sales literature that
announce the location of a financial institution where broker-dealer services
are provided by the broker-dealer, or that are distributed by the broker-dealer
on the premises of a financial institution, shall disclose that the securities
products are not insured by the FDIC or the NCUSIF, as applicable, are not
deposits or other obligations of the financial institution and are not
guaranteed by the financial institution, and are subject to investment risks,
including possible loss of the principal invested.
(ii) To comply with the requirements of
paragraph (c) (4)(C)(i), the following logo format disclosures may be used by a
broker-dealer in advertisements and sales literature, including material
published or designed for use in radio or television broadcasts, internet
sites, automated teller machine screens, billboards, signs, posters, and
brochures, if these disclosures, as applicable, are displayed in a conspicuous
manner: "not FDIC insured," "no bank guarantee," "not NCUSIF insured," "no
credit union guarantee," and "may lose value."
(iii) If the omission of the disclosures
required by paragraph (c)(4)(C)(i) would not cause the advertisement or sales
literature to be misleading in light of the context in which the material is
presented, the disclosures shall not be required with respect to messages
contained in radio broadcasts of 30 seconds or less; signs, including banners
and posters, when used only as location indicators; and electronic signs,
including billboard-type signs that are electronic, time and temperature signs,
and ticker tape signs. However, the requirements of paragraph (c)(4)(C)(i)
shall apply to messages contained in other media, including television, online
computer services, and automated teller machines.
(5) Notification of termination.
The broker-dealer shall promptly notify the financial institution if any agent
of the broker-dealer who is employed by the financial institution is terminated
for cause by the broker-dealer.
(d) "Dishonest or unethical practices," as
used in K.S.A. 17-12a412(d)(13) and amendments thereto, shall include any
conduct that violates subsection (c).
Notes
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