Financial Services Modernization Act of 1999

Financial Services Modernization Act of 1999
USA
Also known as the Financial Services Modernization Act of 1999.
The GLBA repealed provisions of the Banking Act of 1933 (Glass-Steagall Act) which prohibited one institution from acting as an investment bank, commercial bank and insurance company. The GLBA created a new type of bank holding company, the financial holding company (FHCs), which was allowed to engage in any activity that qualifies as any of the following:
• Financial in nature.
• Incidental to any financial activity.
• Complimentary to financial activity.
Financial activities include securities dealing and underwriting, investment advisory services, insurance underwriting, merchant banking, asset-backed securities activities, and generally engaging in any non-banking activity authorized by the Bank Holding Company Act. FHCs are regulated by the Federal Reserve Board (FRB).
Many financial industry experts and politicians have blamed the deregulation of the financial services industry for the financial crisis and proposals have been made to limit the activities in which FHCs engage (see Legal Update, Obama Calls for New Restrictions on Size and Scope of Financial Institutions (www.practicallaw.com/5-501-2830) and Practice Note, Financial Regulation Reform Initiatives (www.practicallaw.com/9-386-5636)).
The GLBA also created provisions protecting the financial information of consumers held by financial institutions. The law's privacy protection provisions have three principal parts:
Financial Privacy Rule. Governs the collection and disclosure of customers' personal financial information by financial institutions. Applies to companies, including financial institutions, that receive this information. Under this rule, recipients of consumer information must furnish to their customers a privacy notice explaining how customer information is shared, used and protected. On November 17, 2009, eight federal agencies, including the FDIC, the SEC and the FTC, released a model privacy notice that will make it easier for consumers to understand how their information is collected (see Federal Regulators Issue Final Model Privacy Notice Form (http://www.ftc.gov/opa/2009/11/glb.shtm)).
Safeguards Rule. Requires the design, implementation and maintenance of systems to safeguard customers' financial information. Applies to financial institutions and companies, such as credit rating agencies (credit rating agency), that receive customer information.
Pretexting provisions. Protects consumers from companies and individuals that obtain their financial information under false pretenses.

Practical Law Dictionary. Glossary of UK, US and international legal terms. . 2010.

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