"(iv) such additional information as the Commission deems to be necessary to carry out the purposes of this subsection. "(C) TIME AND MANNER OF DISCLOSURE.— The regulations prescribed by the Commission under this subsection shall specify a time and manner by which the notice required by this subsection shall be provided to customers that the Commission determines will effectively inform customers concerning the inapplicability of Federal deposit insur ance. "(D) USE OF ADDITIONAL LANGUAGES.-The regulations prescribed by the Commission under this paragraph shall specify when, under which circumstances, and by what means and procedures the notice required under this paragraph shall be made available in languages other than English. "(2) DISCLOSURES OF CONFIDENTIAL CUSTOMER INFORMATION PROHIBITED.— "(A) IN GENERAL.-No securities affiliate may disclose, directly or indirectly, any confidential customer information to any person (as defined in section 1 of title 1, United States Code), without the prior written consent of the customer. "(B) RECORDS OF CUSTOMER CONSENT.Whenever any securities affiliate obtains the prior written consent of a customer for purposes of subparagraph (A), such affiliate shall "(i) obtain an acknowledgment of such consent by the customer, including the date the consent was acknowledged and the customer's name, address, and any applicable account number; "(ii) obtain such consent separately from any other authorization or consent of the customer; "(iii) inform the customer that the consent is not required as a condition for the performance of services for the customer; and "(iv) maintain records of compliance with clauses (i), (ii), and (iii). "(C) CUSTOMER DEFINED.-For purposes of this paragraph, the term 'customer' means any person who, after the date of enactment of the Financial Institutions Safety and Consumer Choice Act of 1991, establishes a securities account, investment advisory relationship, or other relationship in connection with securities transactions with, or purchases any service or financial product from, such securities affiliate. "(D) CONFIDENTIAL CUSTOMER INFORMATION DEFINED. For purposes of subparagraph (C), the term 'confidential customer information' means financial information regarding any specific individual which has been derived from any record of any securities affiliate and pertains to the individual's relationship with the securities affiliate. "(E) CERTAIN INFORMATION NOT INCLUDED IN DEFINITION.—Notwithstanding subparagraphs (C) and (D), the term 'confidential customer information' shall not include "(i) any information obtainable from an unaffiliated credit bureau or similar entity or information obtainable in the ordinary course of business from any other unaffiliated entity; "(ii) any information provided to any credit bureau or similar entity in the ordinary course of business; "(iii) any information obtainable in connection with insurance "(I) which is limited to assuring the repayment of the outstanding balance due on an extension of credit in the event of the death, disability, or involuntary unemployment of the debtor; "(II) on real or personal property obtained by or on behalf of a securities affiliate in the event a debtor has failed to provide reasonable evidence of required insurance in accordance with an extension of credit; or "(III) to assure the repayment of outstanding balances due in connection with an ex tension of credit in the event of the loss or damage to property used as collateral on such extension of credit; and "(iv) any information provided "(I) to the Securities and Exchange Commission, an appropriate regulatory agency, or a self-regulatory organization; or "(II) in accordance with the Right to Financial Privacy Act of 1978 to any Government authority (as defined in section 1101(3) of such Act). "(F) DISCLOSURE OF CUSTOMER INFORMATION. In addition to any requirement or limitation contained in this section, the Commission may prescribe regulations limiting disclosures of nonpublic customer information from any securities affiliate to any affiliate of such securities affiliate, including an evaluation of the creditworthiness of an issuer or other customer of that securities affiliate or any subsidiary or affiliate of such securities affiliate. "(3) LIMITATIONS ON ADVERTISEMENT.-The Commission shall prescribe regulations to prohibit any securities affiliate from employing any advertisement that would mislead or otherwise cause a reasonable person to believe mistakenly that an affiliate insured depository institution or the Federal Government is responsible for the activities of the securities affiliate, stands behind the affiliate's credit, guarantees any returns on securities sold by the affiliate, or is a source of payment of any obligation of or sold by the affiliate. "(c) REQUIREMENTS APPLICABLE IN THE CASE OF FINANCIAL SERVICES HOLDING COMPANIES WITH SECURITIES AFFILIATES. “(1) CERTAIN FINANCIAL TRANSACTIONS OF INSURED DEPOSITORY INSTITUTIONS PROHIBITED. Notwithstanding any provision of paragraph (5), a securities affiliate may not directly or indirectly engage in any of the following: "(A) Except as provided in paragraph (3), knowingly obtain, receive, or enjoy the beneficial use of credit from an affiliated insured depository institution. "(B) Knowingly obtain, receive, or enjoy the beneficial use of a guaranty, acceptance, or letter of credit, endorsement, asset purchase agreement, indemnity, insurance, or other credit instrument or facility, including a standby letter of credit, from an affiliated insured depository institution. "(C) Sell to an affiliated insured depository institution, for its own account, or for the account of any subsidiary of the institution, any financial asset of the securities affiliate that is not a security of the United States or any agency of the United States or a security on which the principal and interest are fully guaranteed by the United States or any such agency. "(D) Sell to an affiliated insured depository institution, for its own account, or for the account of any subsidiary of the institution, any security (other than securities issued by an open-end investment company or a unit investment trust) of which the securities affiliate is an underwriter or a member of the selling group, or which the securities affiliate otherwise places, until "(i) in the case of an underwriting, 60 days after the end of the underwriting period; or "(ii) in the case of a placement, 60 days after completion of the placement. "(E) Knowingly sell to a customer account for which an affiliated insured depository institution or its subsidiary, acting as fiduciary, is authorized to determine the securities to be purchased or sold, any security (other than securities issued by an open-end investment company or a unit investment trust) of which the securities affiliate is an underwriter or a member of the selling group or which the securities affiliate otherwise places until "(i) in the case of an underwriting, 90 days after the end of the underwriting period; or "(ii) in the case of a placement, 90 days after completion of the placement. The requirements of this subparagraph (E) apply whether or not such purchase is authorized by any trust agreement or any other instrument authorizing the insured depository institution or subsidiary to act in such capacity, unless such purchase is permitted by State law, is explicitly authorized in the trust agreement or other instrument establishing the fiduciary relationship, and is effectuated by endorsement by the creator of the trust of a separate document that discloses (in accordance with regulations prescribed by the Board) any conflict of interest. that an insured depository institution may have in making such purchase. Notwithstanding any provision of Federal or State law, if the creator of any trust agreement or other instrument referred to in the preceding sentence is incapable of providing the authorization or effectuating an endorsement referred to in such sentence every beneficiary of such trust or instrument shall provide such authorization or effectuate such endorsement. "(F) Arrange for the extension of credit from an affiliated insured depository institution to any investment company which is sponsored, organized, controlled, promoted, or advised by the securities affiliate, except as permitted by regulations prescribed by the Commission pursuant to section 18(f)(3) of the Investment Company Act of 1940. "(G) Arrange for the extension of credit, or arrange for the issuance or entry into of a guaranty, acceptance, letter of credit, endorsement, asset purchase agreement, indemnity, insurance, or other credit instrument or facility, including a standby letter of credit, from an affiliated insured depository institution to an issuer of securities for which the securities affiliate is underwriting or placing any security for the purpose of paying, in whole or in part, the principal of, or any interest or dividends on, those securities. "(H) Arrange for the extension of credit to a customer of the securities affiliate for the purpose of repaying, in whole or in part, credit extended to such customer by such securities affiliate. "(I) Except as permitted under section 4(n)(4)(G) of the Bank Holding Company Act of 1956, arrange for the extension of credit from, or arrange for the issuance or entry into of a guaranty, acceptance, letter of credit, endorsement, asset purchase agreement, indemnity, insurance, or other credit instrument or facility, including a standby letter of credit, from an affiliated insured depository institution to or for the benefit of the issuer of any security of which the securities affiliate is an underwriter or a member of the selling group, or which the securities affiliate otherwise places, until "(i) in the case of an underwriting, 90 days after the end of the underwriting period; or "(ii) in the case of a placement, 90 days after completion of the placement. "(J) Except as provided in paragraph (5), purchase any financial asset of an affiliated depository institution or a subsidiary thereof that is not a security of the United States or any agency of the United States or a security on which the principal and interest are fully guaranteed by the United States or any such agency. "(2) CERTAIN FINANCIAL TRANSACTIONS OF HOLDING COMPANIES AND SUBSIDIARIES DURING DISTRIBUTIONS PROHIBITED.-No securities affiliate may, directly or indirectly, arrange for the extension of credit from any affiliated financial services holding company or subsidiary of a financial services holding company to any person, if such credit is se cured by, or is used to purchase, any security that is the subject of a distribution or placement in which a securities affiliate of such holding company participates as an underwriter or member of the selling group or which the securities affiliate otherwise places (other than securities issued by an open-end investment company or a unit investment trust or securities of the United States or any agency of the United States or securities on which the principal and interest are fully guaranteed by the United States or any such agency) until 30 days after the end of the period in which such security is the subject of such distribution or placement. "(3) EXCEPTION FOR INTRADAY EXTENSIONS OF CREDIT IN CONNECTION WITH CLEARING GOVERNMENT SECURITIES.-Paragraph (1)(A) shall not apply with respect to any extension of credit which is made for the purchase or sale of any securities of the United States or any agency of the United States or any securities on which the principal and interest are fully guaranteed by the United States or any such agency, if— "(A) the extension of credit is to be repaid on the same calendar day; "(B) the extension of credit is incidental to the clearing of transactions in those securities through such institution or any subsidiary; and "(C) both the principal of, and the interest on, the extension of credit are fully secured, on a market value basis, by securities of the United States or any agency of the United States or securities on which the principal and interest are fully guaranteed by the United States or any such agency. "(4) PROHIBITIONS ON DISCRIMINATORY CREDIT TREATMENT.-No securities affiliate knowingly shall obtain or arrange for an extension of credit or services that would violate section 4(n)(4)(D) of the Bank Holding Company Act of 1956. "(5) ASSET PURCHASES FROM AFFILIATED INSURED INSTITUTION OR SUBSIDIARY THEREOF."(A) IN GENERAL.-A securities affiliate may, notwithstanding paragraph (1)(J) of this paragraph but subject to section 23B of the Federal Reserve Act, purchase any asset of an affiliated insured depository institution for the purpose of including such asset in a pool of assets for the purpose of issuing asset-backed securities if "(i) those securities are rated as investment grade by at least 1 unaffiliated, nationally recognized statistical rating organization; "(ii) those securities are issued or guaranteed by a government sponsored enterprise determined by the Board for purposes of section 4(n)(4)(F)(i)(II) of the Bank Holding Company Act of 1956; "(iii) those securities represent interests in securities described in clause (ii) of this subparagraph; "(iv) the price at which an equity security or the yield at which a debt security to be distributed to the public is established at a price no higher, or yield no lower, than that recommended by a qualified independent underwriter which has also participated in the preparation of the registration statement and the prospectus, offering circular, or similar document; or "(v) those securities would not be the subject of a public offering and would be sold only to accredited investors, as defined in the Securities Act of 1933. "(B) REGULATIONS.-The Commission, after consultation with the Board of Governors of the Federal Reserve System, shall prescribe such regulations as may be necessary to ensure that transactions described in subparagraph (A) comply with the requirements of this subsection. "(C) ASSET DEFINED.-For purposes of this paragraph, the term 'asset' means any note, draft, acceptance, loan, lease, receivable, other obligation, or pools of any such obligations. "(D) QUALIFIED INDEPENDENT UNDERWRITER. For purposes of this paragraph, the term 'qualified independent underwriter' shall be defined by regulation prescribed by the Securities and Exchange Commission. "(6) DEFINITIONS.-For purposes of this subsection, the term 'insured depository institution' includes any subsidiary of the institution, other than an entity required to register with the Securities and Exchange Commission. "(d) TRANSACTIONS ON BANK PREMISES."(1) PROHIBITION.-No insured depository institution may permit any evidence of indebtedness of, or ownership interest in, such insured depository institution or any affiliate of such insured depository institution to be sold or offered for sale to the general public in any part of any office (other than an office that is not located within any State) of such insured depository institution that is commonly accessible to the general public for the purpose of accepting deposits. "(2) EXCEPTIONS.— "(A) REGISTERED BROKERS AND DEALERS.— This subsection shall not apply to transactions in shares of investment companies registered under the Investment Company Act of 1940 (15 U.S.C. 80a-1 et seq.) that are affiliated with the bank, if such transactions are effected by or through a broker or dealer registered under this Act and are conducted in accordance with such rules, regulations, or orders as the Commission may prescribe consistent with the public interest, the protection of investors, and the purposes of this subsection. "(B) DEPOSITS, CERTAIN MEANS OF PAYMENT TO THIRD PARTIES AND CERTAIN OTHER INSTRUMENTS. This subsection shall not apply to any evidence of indebtedness or ownership interest that "(i) is a deposit in an insured depository institution; or "(ii) constitutes a means of payment to a third party, such as a traveler's check, cashier's check, teller's check or money order. "(e) PROHIBITION ON RECIPROCAL ARRANGEMENTS WITHIN THE HOLDING COMPANY.-No securities affiliate of a financial services holding company shall engage in any transactions or reciprocal arrangements for the purpose of evading any restriction or limitation imposed under this section. "(f) INTERLOCKING DIRECTORS, MANAGEMENT OFFICIALS, AND EMPLOYEES PROHIBITED.— "(1) IN GENERAL.-Except as provided in paragraphs (2) and (3), no securities affiliate controlled by a financial services holding company may allow any director, management official, or employee of such affiliate to serve at the same time as a director, management official, or employee of any insured depository institution subsidiary of such holding company or any subsidiary of any such institution. "(2) SEC AUTHORITY TO EXEMPT FROM PARAGRAPH (1). "(A) IN GENERAL.-The Commission may, by order or regulation issued after consultation with the Board of Governors of the Fed eral Reserve System, grant exemptions from paragraph (1) of this subsection. "(B) FACTORS TO BE CONSIDERED.-In determining whether to grant an exemption under subparagraph (A), the Commission shall consider "(i) the size of the financial services holding companies involved and the size of the depository institution subsidiaries and securities affiliate involved; "(ii) any burdens imposed by the application of paragraph (1); "(iii) the safety and soundness of the depository institution subsidiaries and the se curities affiliates of such financial services holding companies; and "(iv) other appropriate factors, including unfair competition in securities activities and the improper exchange of confidential customer information. "(C) EXCEPTION FOR CERTAIN SMALL FINANCIAL SERVICES HOLDING COMPANIES. "(i) IN GENERAL.-The Commission shall grant, by regulation, an exemption under clause (i) to allow a director, management official, or employee of any securities affiliate subsidiary of any financial services holding company the total banking assets of which do not exceed $500,000,000 to serve at the same time as a director, management official, or employee of any insured depository institution subsidiary of the company, or any subsidiary of such institution. "(ii) ANNUAL ADJUSTMENT FOR INFLATION.The dollar amount of assets referred to in subparagraph (B)(i) shall be adjusted for inflation by the Commission at the end of each calendar year beginning after December 31, 1991. "(3) EXCEPTION FOR CERTAIN BACK OFFICE OPERATIONS.-Paragraph (1) shall not apply to any employee, other than an officer or director, employed by the financial services. holding company or any subsidiary of such company to perform clerical, accounting, bookkeeping, statistical, or similar functions, including the receipt or transmittal of electronic transfers, if such functions are performed "(A) in an office or other facility which is not open to the general public; and "(B) in a manner which is consistent with the requirements of this section as determined by the Commission after consultation with the Board of Governors of the Federal Reserve System. "(4) MANAGEMENT OFFICIAL DEFINED.—The term 'management official' includes any officer and any employee with management functions (including a branch manager), any trustee of a business organization under the control of trustees (such as a mutual savings bank), and any person who has a representative or nominee serving in any such capacity. "(g) AUTHORITY TO MODIFY AND IMPOSE ADDITIONAL SAFEGUARDS. "(1) IN GENERAL.-In order to maintain investor protection and to ensure that the activities of any securities affiliate are conducted without the support of insured depository institution affiliates, the Commission "(A) may, by regulation or order, adopt additional limitations or restrictions on arranging or accepting any extension of credit or financial assistance or any transaction which has the effect of providing financial assistance by any insured depository institution subsidiary of any financial services holding company to, or for the benefit of, a securities affiliate or any customer of such affiliate; and "(B) after consulting with and considering the views of the Board of Governors of the Federal Reserve Board, may modify by regulation any limitation on the activities of a securities affiliate of a financial services holding companies contained in this section. "(2) STANDARDS.-Any authority under paragraph (1)(A) shall be exercised only after taking into account potential adverse effects of any extension of credit or other transaction referred to in such subparagraph, including unfair competition, conflicts of interest, and unsafe banking practices. Any exercise of authority under paragraph (1)(B) to modify any limitation on activities contained in this section shall be exercised only if the Commission, after consulting with and considering the views of the Board of Governors of the Federal Reserve System, concludes that modifying such limitation is nec essary to achieve a purpose of this Act, is consistent with the purposes of this section, the public interest, and the protection of investors, and would not be likely to result in any adverse effects, including unfair competition, conflicts of interest, unsafe banking practices, preservation of the safety and soundness of insured depository instutitions, or undue risks to the Federal deposit insurance funds. "(h) DIVESTITURE FOR CONTINUING COURSE OF MISCONDUCT.— "(1) NOTICE OF PRELIMINARY DETERMINATION. "(A) PRELIMINARY FINDING.-In addition to any other regulatory and supervisory authority of the Commission, if the Commission has reason to believe that a financial services holding company which controls a securities affiliate or such securities affiliate has engaged in a continuing course of conduct involving a violation of this section or regulations prescribed or orders issued by the Commission pursuant to this section, the Commission may make an initial determination that the financial services holding company shall be required to terminate such company's control of either (i) the securities affiliate or (ii) the insured depository institution affiliate, at the option of such company. "(B) NOTICE.-The Commission shall notify any financial services holding company with respect to which a preliminary determination is made under subparagraph (A) of such determination before the end of the 3-day period beginning on the date on which the determination is made. "(C) CONTENTS OF NOTICE.-Any notice under subparagraph (B) shall contain a statement of the basis for the Commission's determination. "(2) HEARING AND FINAL ORDER.— "(A) REQUEST FOR HEARING.—Any financial services holding company which receives a notice under paragraph (1)(B) of this subsection may request, at any time before the end of the 30-day period beginning on the date of the receipt of such notice, a hearing before the Commission. "(B) ADJUDICATORY PROCEDURE AND FINAL ORDERS. Any proceeding under this paragraph shall be conducted in accordance with. section 554 of title 5, United States Code, and all other provisions of subchapter II of chapter 5 of such title which are applicable with respect to any adjudication required to be determined on a record after opportunity for agency hearing. “(3) FAILURE TO REQUEST REVIEW.-If any financial services holding company which receives a notice under paragraph (1)(B) of this subsection fails to request an agency hearing under paragraph (2)(A) of this subsection, such financial services holding company shall be deemed to have consented to the issuance of a final order affirming the initial finding without the necessity of the hearing provided for in this subsection. "(4) DIVESTMENT WITHIN TIME SPECIFIED IN ORDER. If any order issued by the Commission under this subsection becomes final and the order affirms the initial finding, the financial services holding company shall make the election and terminate control as required by such order by the end of the period specified in the order.". SEC. 456. BROKER/DEALER DISCLOSURE WITH RESPECT ΤΟ FIDUCIARY PUR CHASES IN UNDERWRITTEN SECURI TIES. Section 15 of the Securities Exchange Act of 1934 (15 U.S.C. 780) is amended by adding at the end the following new subsection. "(h) DISCLOSURE WITH RESPECT TO FIDUCIARY PURCHASES IN UNDERWRITTEN SECURITIES. "(1) RESTRICTION.-No broker or dealer may purchase, for a customer account in which the broker or dealer, acting as fiduciary, is authorized to determine the securities to be purchased or sold, any security (other than securities issued by an open-end investment company or a unit investment trust) of which such broker or dealer or affiliate thereof is an underwriter or a member of the selling group or which the broker, dealer, or affiliate otherwise places until "(A) in the case of an underwriting, 90 days after the end of the underwriting period; or "(B) in the case of a placement, 90 days after the completion of the placement. "(2) APPLICATION OF RESTRICTION.-The provisions of paragraph (1) apply whether or not such purchase is authorized by any trust agreement or any other insturment authorizing the broker or dealer to act in a fiduciary capacity, unless such purchase "(A) is permitted by State law; "(B) is explicitly authorized in the trust agreement or other instrument establishing the fiduciary relationship; and "(C) is effectuated by endorsement, by the creator of the fiduciary relationship, of a separate document that discloses (in accordance with regulations prescribed by the Commission) any conflict of interest that the broker or dealer may have in making such purchase. "(3) SPECIAL RULE IN CASE OF INCAPACITATED CREATOR OF TRUST.-Notwithstanding any provision of Federal or State law, if the creator of any trust agreement or other instrument referred to in paragraph (2) is incapable of providing the authorization referred to in paragraph (2)(B) or effectuating an endorsement referred to in paragraph (2)(C), every beneficiary of such trust or instrument shall provide such authorization or effectuate such endorsement.". PART II-BANK-INVESTMENT COMPANY ACTIVITIES SEC. 461. CUSTODY OF INVESTMENT COMPANY ASSETS BY AFFILIATED BANKS. (a) MANAGEMENT COMPANIES.-Section 17(f) of the Investment Company Act of 1940 (15 U.S.C. 80a-17(f)) is amended (1) by redesignating clauses (1), (2), and (3) of the first sentence as clauses (A), (B), and (C), respectively; (2) by designating the five sentences of such section as paragraphs (1) through (5), respectively; (3) by adding at the end thereof the following new paragraph: "(6) Notwithstanding paragraph (1)(A) of this subsection, if a bank described in such paragraph, or an affiliated person thereof, is an affiliated person of the registered management company, such bank may not serve as custodian under this subsection unless permitted by such rules, regulations, or orders as the Commission prescribes consistent with the protection of investors." (b) UNIT INVESTMENT TRUSTS.-Section 26(a)(1) of the Investment Company Act of 1940 (15 U.S.C. 80a-26(a)(1)) is amended by inserting after "bank" the following: "that is not an affiliated person of such principal underwriter or depositor and is not an affiliated person of an affiliated person of such principal underwriter or depositor, unless permitted by such rules, regulations, or orders as the Commission prescribes consistent with the protection of investors". (c) AMENDMENT TO SECTION 36(a) OF THE INVESTMENT COMPANY ACT OF 1940.-Section 36(a) of the Investment Company Act of 1940 (15 U.S.C. 80a-35(a)) is amended (1) by striking "or" at the end of paragraph (1); (2) by striking the period at the end of paragraph (2) and inserting "; or"; and (3) by inserting after paragraph (2) the following new paragraph: "(3) as a custodian.”. SEC. 462. AFFILIATED PERSONS AND TRANSACTIONS. (a) AFFILIATED PERSONS.-Section 2(a)(3) of the Investment Company Act of 1940 (15 U.S.C. 80a-2(a)(3)) is amended (1) in subparagraph (E), by striking "thereof; and" and inserting in lieu thereof "thereof;"; and (2) by striking the period at the end of clause (F) and inserting the following: "; and (G) if such other person is an investment company, any person or class of persons which the Commission by rule, regulation, or order determines to be an affiliated person by reason of having had, at any time since the beginning of the last two completed fiscal years of such investment company, a material business or professional relationship with such investment company or with any person that is a principal underwriter for, or promoter or sponsor of, such investment company or any affiliated person (as described in clauses (A) through (F) of this paragraph) of such company. For purposes of clause (G), a material business or professional relationship means a relationship arising from material extensions of credit or other material borrowing and such other relationships as the Commission, by rule, regulation, or order, determines to be within the intent of this definition, consistent with the public interest and the protection of investors.". (b) PURCHASES OR ACQUISITIONS DURING UNDERWRITING.-Section 10(f) of the Investment Company Act of 1940 (15 U.S.C. 80a-10(f)) is amended by (1) inserting "(1)" immediately before "a principal underwriter" the first place it appears; and (2) inserting after "for the issuer" the following: "; or (2) the proceeds of which will be used to retire any part of an indebtedness owed to a bank or an insured depository institution (as such term is defined in section 3(c)(2) of the Federal Deposit Insurance Act) where the bank, an insured depository institution, or an affiliated person thereof is an affiliated person of such registered company". SEC. 463. PROHIBITION OF CONTROLLING INTEREST IN INVESTMENT COMPANY. Section 15 of the Investment Company Act of 1940 (15 U.S.C. 80a-15) is amended by adding at the end the following new subsection: "(g) PROHIBITION OF CONTROLLING INTEREST IN INVESTMENT COMPANY.-If any investment adviser to a registered investment company, or an affiliated person of such investment adviser, also holds shares of the investment company in a fiduciary capacity, that investment adviser or affiliated person may own, directly or indirectly, a controlling interest in such registered investment company only "(1) if it passes through to the beneficial owners of the shares, including any person acting in a fiduciary capacity who is not an affiliated person of that investment adviser or any affiliated person thereof, the power to vote the shares of the investment company; "(2) if it votes the shares of the investment company held by it in the same proportion as shares held by all other shareholders of the investment company; or "(3) as otherwise permitted under such rules, regulations, or orders as the Commission may prescribe for the protection of investors.". SEC. 464. BORROWING FROM AN AFFILIATED BANK. Section 18(f) of the Investment Company Act of 1940 (15 U.S.C. 80a-18(f)) is amended by adding at the end thereof the following new paragraph: "(3) Notwithstanding the provisions of paragraph (1) of this subsection, it shall be unlawful for any registered investment com pany to borrow from any bank or insured depository institution (as such term is defined in section 3(c)(2) of the Federal Deposit Insurance Act) if such bank, insured depository institution, or any affiliated person thereof is an affiliated person of such company, except that the Commission may, by rule, regulation, or order, permit such borrowing which the Commission finds to be in the public interest and consistent with the protection of investors.". SEC. 465. INDEPENDENT DIRECTORS. (a) DEFINITION OF INTERESTED PERSON.— Section 2(a)(19)(A) of the Investment Company Act of 1940 (15 U.S.C. 80a-2(a)(19)(A)) is amended (1) in clause (v), by striking out "1934 or any affiliated person of such a broker or dealer, and" and inserting in lieu thereof: "1934 or any person that, at any time during the last 6 months, has executed any portfolio transactions for, engaged in any principal transactions with, or loaned money to, the investment company or any other investment company having the same investment adviser, principal underwriter, sponsor, or promoter, or any affiliated person of such a broker, dealer, or person,"; (2) by redesignating clause (vi) as clause (vii); and (3) by inserting after clause (v) the following new clause: "(vi) any employee of any bank or insured depository institution (as that term is defined in section 3(c)(2) of the Federal Deposit Insurance Act) that acts as custodian or transfer agent for such company, and". (b) BANK HOLDING COMPANIES.-Section 10(c) of the Investment Company Act of 1940 (15 U.S.C. 80a-10(c)) is amended by striking "bank, except" and inserting in lieu thereof: "bank (together with its subsidiaries) or any one bank holding company (together with its affiliates and subsidiaries), as those terms are defined in the Bank Holding Company Act of 1956, except". SEC. 466. PROHIBITION AGAINST USE OF A BANK'S NAME BY AN AFFILIATED MUTUAL FUND. Section 35(d) of the Investment Company Act of 1940 (15 U.S.C. 80a-35(d)) is amended by inserting after the first sentence thereof the following: "It shall be deceptive and misleading for any registered investment company which has as an investment adviser or distributor, a bank, or an insured depository institution (as such term is defined in section 3(c)(2) of the Federal Deposit Insurance Act) or affiliated person thereof, to adopt, as part of the name, title, or logo of such company, or of any security of which it is the issuer, any word or design which is the same as or similar to, or a variation of, the name, title, or logo of such bank or insured depository institution.". SEC. 467. DEFINITION OF BROKER. Section 2(a)(6) of the Investment Company Act of 1940 (15 U.S.C. 80a-2(a)(6)) is amended to read as follows: "(6) 'Broker' has the same meaning as in the Securities Exchange Act of 1934, but does not include any person solely by reason of the fact that such person is an underwriter for one or more investment companies.". SEC. 468. DEFINITION OF DEALER. Section 2(a)(11) of the Investment Company Act of 1940 (15 U.S.C. 80a-2(a)(11)) is amended to read as follows: "(11) 'Dealer' has the same meaning as in the Securities Exchange Act of 1934, but does not include an insurance company or investment company.". SEC. 469. TREATMENT OF BANK COMMON TRUST FUNDS. (a) SECURITIES ACT OF 1933.-Section 3(a)(2) of the Securities Act of 1933 (15 U.S.C. 77c(a)(2)) is amended by striking "or any interest or participation in any common trust fund or similar fund maintained by a bank exclusively for the collective investment and reinvestment of assets contributed thereto by such bank in its capacity as trustee, executor, administrator, or guardian" and inserting "or any interest or participation in any common trust fund or similar fund that is excluded from the definition of the term 'investment company' under section 3(c)(3) of the Investment Company Act of 1940". (b) SECURITIES EXCHANGE ACT OF 1934.Section 3(a)(12)(A)(iii) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(12)(A)(iii)) is amended to read as fol lows: "(iii) any interest or participation in any common trust fund or similar fund that is excluded from the definition of the term 'investment company' under section 3(c)(3) of the Investment Company Act of 1940;". (c) INVESTMENT COMPANY ACT OF 1940.-Section 3(c)(3) of the Investment Company Act of 1940 (15 U.S.C. 80a-3(c)(3)) is amended by striking the period at the end and inserting the following: ", if "(A) such fund is employed by the bank solely as an aid to the administration of trusts, estates, or other accounts created and maintained for a fiduciary purpose; "(B) except in connection with the ordinary advertising of the bank's fiduciary services, interests in such fund are not"(i) advertised; or "(ii) offered for sale to the general public; and "(C) such fund is not charged any fees or expenses that, when added to any other compensation charged by the bank to a participant account, would exceed the total amount of compensation that would have been charged to such participant account if no assets of the account had been invested in interests in the fund.". SEC. 470. PURCHASE OF INVESTMENT COMPANY SECURITIES AS FIDUCIARY. Section 17 of the Investment Company Act of 1940 (15 U.S.C. 80a-17) is amended by inserting at the end thereof the following new subsection: "(k) PURCHASE OF INVESTMENT COMPANY SECURITIES AS FIDUCIARY. "(1) IN GENERAL.-If any financial services holding company, bank, insured depository institution (as that term is defined in section 3(c)(2) of the Federal Deposit Insurance Act), or affiliated person thereof organizes, sponsors, controls, promotes, or provides investment advice to a registered investment company, or underwrites the securities issued by a registered investment company, it shall be unlawful for such financial services holding company, such bank, such insured depository institution, or such affiliated person thereof, or any person delegated investment authority by a bank or an insured depository institution to exercise discretion over fiduciary accounts to purchase as fiduciary any securities issued by such investment company, unless any investment advisory or similar fee attributable to the fiduciary assets invested in securities of such investment company is waived. "(2) EXCEPTIONS.-The prohibition provided in paragraph (1) shall not apply if— "(A) such purchase is required by court order; "(B) in the case of a discretionary account immediately revocable upon notice to the fiduciary, the beneficiary of such account has first received full disclosure of such information as required pursuant to paragraph (3) of this subsection; or "(C) in all other cases, the beneficiary or beneficiaries of the fiduciary account has first received full disclosure of such information as required pursuant to paragraph (3) of this subsection and has granted prior, written consent. "(3) DISCLOSURE RULES.-The Commission shall, after consultation with the appropriate Federal banking agency, prescribe by rule, regulation, or order, the manner, form, and content of the information required to be disclosed under paragraph (2), as the Commission determines to be necessary or appropriate in the public interest and for the protection of investors.". SEC. 471. COMMON TRUST FUND CONVERSIONS. Section 17 of the Investment Company Act of 1940 (15 U.S.C. 80a-19) is amended by inserting at the end thereof the following new subsection: "(1) COMMON TRUST FUND CONVERSIONS.— "(1) IN GENERAL.-It shall be unlawful for any financial services holding company, bank, insured depository institution (as that term is defined in section 3(c)(2) of the Federal Deposit Insurance Act), or affiliated person thereof to convert any common trust fund or similar fund maintained by it into a registered investment company organized, sponsored, promoted, controlled, or advised, or the securities of which are underwritten, by such a financial services holding company, such bank, such depository institution, or such affiliated person thereof, unless any investment advisory or similar fee owed to any of the foregoing as a result of the discretionary investment of fiduciary assets in securities of such investment company is waived. "(2) EXCEPTION.-The prohibition provided in paragraph (1) shall not apply where "(A) such conversion is required by court order; "(B) in the case of a discretionary account immediately revocable upon notice to the fiduciary, the beneficiary of such account has first received full disclosure of such information as required pursuant to paragraph (3) of this subsection; or "(C) in all other cases, the beneficiary or beneficiaries of the fiduciary account has first received full disclosure of such information as required pursuant to paragraph (3) of this subsection and has granted prior, written consent. "(3) DISCLOSURE RULES.-The Commission shall, after consultation with the appropriate Federal banking agency, prescribe by rule, regulation, or order, the manner, form, and content of the information required to be disclosed under paragraph (2), as the Commission determines to be necessary or appropriate in the public interest and for the protection of investors.". SEC. 472. EXTENSION OF CREDIT FOR PURCHASE OF INVESTMENT COMPANY SECURITIES. Section 17 of the Investment Company Act of 1940 (15 U.S.C. 80a-17) is amended by adding at the end thereof the following new subsection: "(m) EXTENSIONS OF CREDIT FOR PURCHASES OF SECURITIES.-It shall be unlawful for any financial services holding company, bank, or insured depository institution (as that term is defined in section 3(c)(2) of the Federal Deposit Insurance Act) that is, or is an affiliated person of, a person that organizes, sponsors, promotes, controls, or provides investment advice to, a registered open-end investment company or unit investment trust, or underwrites the securities issued by such company or trust, directly or indirectly, to extend credit or to arrange for the extension of credit to any person "(1) for the purchase of securities issued by such company or trust; or "(2) on any security issued by such company or trust, unless (A) the security was purchased by such person pursuant to a plan for the automatic reinvestment of the dividends of such company or trust, or (B) such person has owned the security for more than 30 days or for such other period as the Com mission may prescribe by rule or regulation in the public interest and consistent with the protection of investors.". SEC. 473. ACCESS TO NONPUBLIC INFORMATION. Section 17 of the Investment Company Act of 1940 (15 U.S.C. 80a-17) is amended by inserting at the end thereof the following new subsection: "(n) ACCESS TO NONPUBLIC INFORMATION.— "(1) ACCESS RESTRICTION.-It shall be unlawful for any financial services holding company, bank, insured depository institution (as that term is defined in section 3(c)(2) of the Federal Deposit Insurance Act), or affiliated person thereof, that acts as investment adviser to a registered investment company to provide any employee or agent providing investment advisory services to such investment company with access to any nonpublic information concerning "(A) the identity of any customer of such financial services holding company, bank, or insured depository institution; or "(B) any relationship arising from material extensions of credit or other material borrowings between any customer and such financial services holding company, bank, or insured depository institution. "(2) RULEMAKING REQUIRED.-The Commission, as it deems necessary or appropriate in the public interest or for the protection of investors, shall adopt rules or regulations to require specific policies or procedures reasonably designed to ensure compliance with this subsection.". SEC. 474. REMOVAL OF THE EXCLUSION FROM THE DEFINITION OF INVESTMENT ADVISER FOR BANKS THAT ADVISE INVESTMENT COMPANIES. Section 202(a)(11) of the Investment Advisers Act of 1940 (15 U.S.C. 80b-2(a)(11)) is amended (1) by striking subparagraph (A) and inserting the following: "(A) a bank, except that the term 'investment adviser' includes any bank to the extent that such bank acts as an investment adviser to a registered investment company unless, as permitted by Commission rule, regulation, or order, the bank performs such services through a separately identifiable department or division of the bank, in which case the department or division and not the bank shall be deemed the investment adviser;"; and (2) by adding at the end thereof the following: "For purposes of clause (A) of this paragraph, the term 'separately identifiable department or division of a bank' means a unit that "(i) is under the direct supervision of an officer or officers designated by the directors of the bank as responsible for the day-to-day conduct of the bank's investment adviser activities for one or more investment companies, including the supervision of all bank employees engaged in the performance of such activities; and "(ii) separately maintains in, or can readily extract from, such unit's own facilities or the facilities of the bank, all of the records relating to such investment adviser activities, and such records are so maintained or otherwise accessible as to permit independent examination thereof.". SEC. 475. BANK AND INSURANCE POOLED INVESTMENT VEHICLES. (a) The Securities and Exchange Commission shall examine (1) in consultation with the Secretary of Labor, the appropriate treatment of bank collective investment funds and separate accounts under the securities laws and the Employee Retirement Income Security Act (29 U.S.C. 1001 et seq.); and (2) the appropriate treatment of common trust funds under the securities laws. (b) Not later than one year after the date of enactment of this Act, the Securities and Exchange Commission shall transmit to the Congress a final report which shall contain a detailed statement of findings and conclusions, including recommendations for such administrative and legislative action as the Commission deems advisable. SEC. 476. DEFINITION OF BROKER. Section 202(a)(3) of the Investment Advisers Act of 1940 (15 U.S.C. 80b-2(a)(3)) is amended to read as follows: "(3) 'Broker' has the same meaning as in the Securities Exchange Act of 1934.". SEC. 477. DEFINITION OF DEALER. Section 202(a)(7) of the Investment Advisers Act of 1940 (15 U.S.C. 80b-2(a)(7)) is amended to read as follows: "(7) 'Dealer' has the same meaning as in the Securities Exchange Act of 1934, but does not include an insurance company or investment company.". PART III-EFFECTIVE DATE SEC. 480. EFFECTIVE DATE. The amendments made by this chapter shall take effect on January 1, 1993. CHAPTER 2-ADMINISTRATION OF SECURITIES LAWS WITH RESPECT TO SECURITIES OF DEPOSITORY INSTITUTIONS PART I—AMENDMENTS TO THE SECURITIES ACT OF 1933 SEC. 481. EXEMPTION TO PERMIT TRANSITION TO HOLDING COMPANY STRUCTURES. Section 3(a)(9) of the Securities Act of 1933 (15 U.S.C. 77c(a)(9)) is amended to read as follows: "(9) Except with respect to a security exchanged in a case under title 11 of the United States Code "(A) any security exchanged by the issuer with its existing security holders exclusively where no commission or other remuneration is paid or given directly or indirectly for soliciting such exchange; or "(B) any security issued or exchanged in connection with a transaction solely involving exchanges or substitutions of securities as part of a reorganization of a corporation into a holding company, if— "(i) as part of the reorganization, the security holders exchange their securities of the corporation for securities of a newly formed holding company with no significant assets other than securities of the corporation and its existing subsidiaries, and receive securities of the same class evidencing the same proportional share or debt interests in the holding company as they held in the corporation prior to the transaction, except for changes resulting from lawful elimination of fractional interests and the exercise of dissenting shareholder rights under applicable law; "(ii) the rights and interests of security holders in the holding company are substantially the same as those in the corporation prior to the transaction other than as may be required by law; and "(iii) the holding company has substantially the same assets and liabilities as the corporation had prior to the transaction.". PART II-REPORT AND AUDIT SEC. 487. REPORTS AND AUDIT REQUIREMENTS. "FRAUD DETECTION AND DISCLOSURE "SEC. 13A. (a) AUDIT REQUIREMENTS.-Each audit required pursuant to this title of an issuer's financial statements by an independent public accountant shall include, in accordance with methods prescribed by the Commission, the following "(1) procedures designed to provide reasonable assurance of detecting illegal acts that would have a direct and material effect on the determination of financial statement amounts; "(2) procedures designed to identify related party transactions which are material to the financial statements or otherwise require disclosure therein; and "(3) an evaluation of whether there is substantial doubt about the issuer's ability to continue as a going concern over the ensuing fiscal year. "(b) REQUIRED RESPONSE TO AUDIT DISCOVERIES. (1) If, in the course of conducting any audit pursuant to this title to which subsection (a) applies, the independent public accountant detects or otherwise becomes aware of information indicating that an illegal act (whether or not perceived to have a material effect on the issuer's financial statements) has or may have occurred, the accountant shall, in accordance with methods prescribed by the Commission “(A)(i) determine whether it is likely that an illegal act has occurred, and (ii) if so, determine and consider the possible effect of the illegal act on the financial statements of the issuer, including any contingent monetary effects, such as fines, penalties, and damages; and "(B) as soon as practicable inform the appropriate level of the issuer's management and assure that the issuer's audit committee, or the issuer's board of directors in the absence of such a committee, is adequately informed with respect to illegal acts that have been detected or otherwise come to the attention of such accountant in the course of the audit, unless the illegal act is clearly inconsequential. "(2)(A) If, having first assured itself that the audit committee of the board of directors of the issuer or the board (in the absence of an audit committee) is adequately informed with respect to illegal acts that have been detected or otherwise come to the accountant's attention in the course of such accountant's audit, the independent public accountant concludes that "(i) any such illegal act has a material effect on the financial statements of the issuer, "(ii) senior management has not taken, and the board of directors has not caused senior management to take, timely and appropriate remedial actions with respect to such illegal act, and "(iii) the failure to take remedial action is reasonably expected to warrant departure from a standard auditor's report, when made, or warrant resignation from the audit engagement, the independent public accountant shall as soon as practicable and directly report its conclusions to the board of directors. "(B) An issuer whose board of directors has received a report pursuant to this paragraph shall inform the Commission by notice within one business day of receipt of such report and shall furnish the independent public accountant making such report with a copy of the notice furnished the Commission. If the independent public accountant making such report shall fail to receive a copy of such notice within the required one-business-day period, the independent public accountant shall "(i) resign from the engagement; or "(ii) furnish to the Commission a copy of its report (or the documentation of any oral report given) within the next business day following such failure to receive notice. "(C) An independent public accountant electing resignation shall, within the one business day following a failure by an issuer to notify the Commission under subparagraph (B), furnish to the Commission a copy of the accountant's report (or the documentation of any oral report given). |