Confusion Surrounding Regulation R

Regulation R mandates that non-SEC-regulated institutions refer most securities sales to broker-dealers. Not all trust companies are sure they can demonstrate that they’re obeying Regulation R because the Office of the Comptroller of the Currency has not yet issued guidance on how to comply.

If a trust company does too much commission-based business, it can fail the compensation test and lose its exemption from SEC oversight.

Most banks and trust companies are simply referring the business to a certain broker for a fee. The question is how the bank examiners will look at these referral fees when they begin compliance testing on January 1.

For more information, including tips to avoid “red-flag referrals,” see Scott Martin, Feds to Target Trust Firms for Reg R Violations, Trust Advisor Blog, June 12, 2010.