FDIC Government Securities Sales Practices
Legal Authority
- 15 U.S.C. § 78o-5 — Government Securities Act Amendments of 1993: authorizes federal banking regulators to impose sales practice standards on banks acting as government securities brokers or dealers; the FDIC's authority under this statute is the basis for 12 CFR Part 368
- 12 CFR Part 368 — FDIC regulations establishing conduct-of-business standards for state nonmember banks that act as government securities brokers or dealers; parallels Treasury Department rules at 17 CFR Parts 400–450
Key Mechanics
When a state nonmember bank acts as a broker or dealer in U.S. government securities — selling Treasuries, agency bonds, or TIPS to customers rather than trading for its own account — it must register with the Treasury Department under the Government Securities Act and comply with conduct standards from two regulators: Treasury's rules at 17 CFR Parts 400–450 and the FDIC's conduct standards at 12 CFR Part 368. Part 368 imposes a suitability standard for recommendations to retail customers (non-institutional customers with less than $10 million in assets), requiring the bank to gather information about the customer's financial situation and investment objectives before recommending a transaction. Institutional customers — banks, broker-dealers, pension funds, and entities with over $10 million in assets — receive a lighter-touch fair dealing standard focused on conflict disclosure and market transparency rather than individual suitability assessment.
Current Rule (2026)
| Parameter | Value |
|---|---|
| Citation | 12 CFR Part 368 |
| Issuing agency | FDIC |
| Statutory authority | 15 U.S.C. § 78o-5 (Government Securities Act Amendments of 1993) |
| Last major amendment | 1994 (59 FR 10541 — original implementation) |
What This Rule Does
Some FDIC-supervised state nonmember banks act as brokers or dealers in U.S. government securities (Treasury bills, notes, bonds, TIPS, agency securities). When they do, they are required to register as government securities brokers or dealers under the Government Securities Act and comply with Treasury Department rules — but the FDIC, as their prudential regulator, also enforces conduct-of-business standards for these activities.
12 CFR Part 368 establishes the FDIC's sales practices rules for state nonmember banks acting as government securities brokers or dealers. It requires high commercial standards, suitable recommendations, customer information gathering, and special protections for non-institutional (retail) customers. The rule parallels the Treasury Department's own Government Securities Act regulations at 17 CFR Parts 400–450.
Key Provisions
- § 368.1 — Scope: applies to state nonmember banks and insured state branches of foreign banks that have filed notice as (or are required to file notice as) government securities brokers or dealers under 15 U.S.C. § 78o-5; does not apply to banks that trade government securities solely for their own account (proprietary trading) without acting as broker or dealer
- § 368.2 — Definitions: "Government securities" means U.S. Treasury obligations and any securities issued or guaranteed by a U.S. government agency or instrumentality; "institutional customer" means a bank, broker-dealer, insurance company, investment company, pension fund, or entity with total assets over $10 million; "non-institutional customer" means any other customer (generally retail investors)
- § 368.3 — Business conduct standards: a bank acting as a government securities broker or dealer must observe high standards of commercial honor and just and equitable principles of trade in all transactions; this general conduct standard mirrors the FINRA Rule 2010 commercial honor standard applied to broker-dealers in the equity market
- § 368.4 — Recommendations to customers: when recommending the purchase, sale, or exchange of a government security, the bank must have reasonable grounds for believing the recommendation is suitable for the customer based on information the customer has disclosed about their financial situation and investment objectives — a suitability standard for government securities transactions
- § 368.5 — Customer information: before executing a recommended transaction with a non-institutional customer, the bank must make reasonable efforts to obtain information about the customer's financial status, tax status, and investment objectives — the "know your customer" requirement for government securities sales
- § 368.100 — Institutional customer obligations: government securities brokers/dealers dealing with institutional customers (entities with $10M+ assets) must follow a specific fair dealing framework — disclosing conflicts of interest, providing pricing information, and making relevant market information available on request; the institutional standard is less prescriptive than the retail standard but still requires good faith and fair dealing
How It Affects You
If you are a retail investor buying Treasury securities through a bank: Your bank must assess whether government securities transactions it recommends are suitable for you. Before completing a recommended transaction, the bank should gather information about your financial situation and investment goals. If a bank pushes you into long-duration Treasury bonds without assessing your liquidity needs, that could violate Part 368's suitability requirement.
If you are a bank acting as a government securities dealer: You must register your government securities activities with the Treasury and comply with both the Treasury's conduct rules (17 CFR Parts 400–450) and the FDIC's conduct-of-business standards in Part 368. The interplay between Treasury registration requirements and FDIC examination means government securities dealer activities are subject to dual oversight.
If you are a pension fund or large institutional investor: When transacting with a bank government securities dealer, you receive the institutional customer protections — the bank must disclose conflicts and provide fair dealing, but the more detailed suitability requirements designed for retail investors do not apply to you.
Statutory Authority
This rule implements:
- 15 U.S.C. § 78o-5 — Government Securities Act Amendments of 1993, which expanded the Government Securities Act framework and authorized the federal banking regulators to impose sales practice standards on bank government securities brokers and dealers
Recent Rulemakings
Part 368 was adopted in 1994 to implement the Government Securities Act Amendments of 1993. No major amendments have been made since the original adoption. Treasury Department regulations under the Government Securities Act (17 CFR Parts 400–450) are the primary rulebook for government securities dealers broadly; Part 368 layers FDIC-specific conduct standards on top for state nonmember bank dealers.