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The Honorable Gerald B.H. Solomon
Chairman
Committee on Rules
H-312, The Capitol
Washington, D.C. 20515

Dear Mr. Chairman:

I am enclosing 55 copies of an investor protection amendment that I request be made in order to be offered to H.R. 10, the Financial Services Act of 1998. This amendment responds to the complaints made by federal and state securities regulators, state and local government finance officers, state insurance regulators, and consumer groups, including AARP, that the substitute provides inadequate investor protection. I would appreciate the opportunity to testify at the Committee's hearing on the rule for H.R. 10.

As requested in your letter of March 19, 1998, I will be providing a brief explanation of this amendment by the close of business today.

Thank you for your assistance and cooperation in this matter. I look forward to working with you on this important legislation.

Sincerely,

JOHN D. DINGELL
RANKING MEMBER

cc: The Honorable John Joseph Moakley, Ranking Member
Committee on Rules

March 26, 1998

The Honorable Gerald B.H. Solomon
Chairman
Committee on Rules
H-312, The Capitol
Washington, D.C. 20515

Dear Mr. Chairman:

As promised in my earlier letter of this date, I am providing a more detailed summary of the package of investor protection amendments I filed pursuant to notice. I believe the following changes would help to ensure true functional regulation with institutions providing the same services being subject to the same rules, eliminating unfair competitive advantages and providing adequate protection for investors.

The substitute provides that a bank can sell securities in the bank trust department, in a non-trustee fiduciary capacity, and in connection with certain stock purchase plans without registering as a broker-dealer under the federal securities laws provided certain conditions are met. A broker's stake in the transaction creates conflicts of interest that would require regulation under the federal securities laws in order to protect the purchaser. As one condition, therefore, the substitute explicitly prohibits banks from receiving brokerage commissions or other similar remuneration, except for the recovery of costs. But the substitute inexplicably applies this condition only to fiduciary activities. My amendment corrects this oversight and applies this investor-protection limitation to the trustee and stock purchase plan exceptions as well.

The Commodity Futures Trading Commission (CFTC) complains that the substitute designates many CFTC-regulated products as "traditional banking products," thereby creating a misconception that banks dealing in the defined derivatives need only comply with Federal banking laws and not the Commodity Exchange Act (CEA). They also say that this term undermines the careful delineation of the respective jurisdictions of the CFTC and the SEC codified in the so-called Shad-Johnson accord in the CEA. (A copy of the CFTC letter is attached.) My amendment solves this problem by substituting the term "exempted banking product" but leaving in place the dividing line drawn by the Speaker's compromise.

The substitute does not require that the banking standards or guidelines applicable to bank sales of loan participations to nonqualified investors address investor protection concerns. My amendment fixes this shortcoming.

The substitute violates the Speaker's compromise by including within the definition of "traditional banking product" instruments that the SEC has already determined to be securities and that have been the subject of SEC enforcement actions. This is an unwise and unwarranted roll-back of existing law. My amendment carves out these securities.

The substitute (Section 104. Certain State Laws Preempted) undermines the functional regulation of both securities and insurance by overriding both the antifraud authority of the state securities regulators and the application of state insurance laws, including solvency regulations. The substitute's broad-based preemption is boundless: its language preempts all state law with respect to any activity authorized by any federal law, past, present or future. My amendment would preserve state securities enforcement authority and state insurance regulation, while continuing to protect banks from discriminatory treatment.

Thank you for your assistance and cooperation in this matter. I look forward to working with you on this important legislation.

Sincerely,

JOHN D. DINGELL
RANKING MEMBER

cc: The Honorable John Joseph Moakley, Ranking Member
Committee on Rules

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