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News October 30, 2006 Issue

Thrifts Get Their Advisers Act Exemption, Finally

After years of trying to convince the SEC to exempt thrifts from the Advisers Act, the thrift industry has finally gotten relief from Congress.

Section 401 of the Financial Services Regulatory Relief Act of 2006, signed into law by President Bush on October 13, puts saving associations on the same footing with banks under the Advisers Act: They are excluded from the definition of "investment adviser" and therefore exempt from Advisers Act registration, unless they manage a registered investment company. The Relief Act similarly amends the definition of "bank" in Exchange Act to include a savings association.

For the thrift industry, itís been a long, hard battle. In May 2004, following pressure from the Office of Thrift Supervision, the thrift industry, and Senator Evan Bayh (D-IN), the SEC proposed an Advisers Act rule that would have exempted thrifts from the Advisers Act, but only to the extent that their advisory services consisted of traditional thrift activities.

OTS was not satisfied. In September 2005, OTS chief counsel John Bowman told the House Financial Services Committee that the SEC proposal was a "extremely limited exemption" that would not provide meaningful regulatory relief for thrifts. Legislation, said Bowman, was necessary. "While OTS submitted a comment letter to the SEC discussing why the proposed IAA rule is flawed, we are not optimistic that it will change anything given the history of this issue," he said. "After much discussion for several years between OTS and the SEC staff and SEC Commissioners, including the three past Chairmen, we have not made any headway toward a mutually satisfactory solution."