The U.S. Securities and Exchange Commission (SEC [1]) agreed to partially waive the additional sanctions that could have been imposed on Bank of America following a record settlement in August over the sale of residential mortgage-backed securities, according to sources familiar with the case in a report from Bloomberg News [2].
Bank of America [3] reached a settlement [4] in August with the U.S. Department of Justice for the amount of $16.65 billion. The bank had requested a waiver for the additional sanctions, arguing that the penalties would adversely affect the bank's asset management business and ability to raise capital. The five SEC commissioners had reached a standstill [5] over whether or not to impose the additional sanctions on Bank of America, with the two Republican commissions in favor of granting relief and the two Democratic commissioners against it, while the committee chair sat out of the discussions due to a conflict.
The disagreement among the SEC commissioners had stalled the settlement from moving forward while a deadline approached for a judge to sign off on the settlement. Both parties had asked for the deadline to be extended, according to the sources.
Banks that enter into settlements with the government normally seek waivers from three main sanctions. The two major ones involve a ban on managing mutual funds and a ban on banks raising money for private companies. The third and less consequential penalty prevents banks from issuing its own shares or bonds unless the SEC gives prior approval.
The sources familiar with the case said the SEC granted Bank of America a full waiver on what would have been the harshest penalty, which would have banned the bank from continuing to manage mutual funds. On the other two issues, the commission voted not to waive the penalty banning the bank from raising capital for private companies without the approval of financial regulators, and the commission granted a partial waiver regarding the selling of private shares to help bank clients such as hedge funds and start-ups raise capital, according to the sources.
Bank of America will be allowed to continue selling private shares for clients for 30 months, during which time they will be required to hire an independent consultant to monitor their compliance in this area, according to the sources. The bank will need to reapply with the SEC in order to receive a full waiver on this sanction.