Gramm-Leach-Bliley Act Defined

The Gramm-Leach-Bliley Act of 1999, also known as The Financial Modernization Act of 1999 is a federal law designed to control how financial institutions handle individual's private information.

Because of Gramm Bliley, financial institutions have to provide their customers with written privacy notices explaining their information sharing practices.

The Gramm-Leach-Bliley Act is composed of three main sections:

• The Financial Privacy Rule, which regulates the collecting and disclosing of a customer's financial information, and includes companies who receive such information, even if they aren't financial institutions themselves;
• The Safeguards Rule, stating that financial institutions have to implement security programs protecting this private information, and
• The Pretexting Provisions, which prohibit accessing private information under false pretenses, or pretexting.

However, one of the more important features of Gramm Leach is that it repealed the Depression-era Glass-Steagall Act, which erected a legal separation between commercial and investment banking. Under Glass-Steagall, large private banks, whose primary focus was the investment community, were also prohibited from accepting deposits from the public.

Gramm Leach further blurred the distinctions between, and opened up consolidation between banks, insurance companies and securities companies. Glass-Steagall had prohibited a bank from offering insurance services, commercial banking and investments.