June 25, 1993
TO: BANK INVESTMENT MANAGEMENT MEMBERS NO. 13-93
BOARD OF GOVERNORS NO. 57-93
RE: FEDERAL RESERVE LETTER ON MUTUAL FUND SALES ACTIVITIES
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The Federal Reserve Board recently issued a letter to its banking
supervisors concerning the separation of mutual fund sales activities from
insured deposit-taking activities. A copy of the Board's letter is attached.
The letter provides guidance for examiners to follow until the Board has
conducted a general review and issued a more extensive policy statement. The
letter states that mutual funds should be sold in a location separate from the
area where banks conduct business involving insured bank deposits, that bank
tellers should not offer investment advice, and that bank employees should direct
customers seeking investment advice to others designated and trained as advisers.
Disclosure that bank-sold mutual funds are not federally insured and are
not bank obligations should be displayed prominently in all mutual fund
advertising, promotional and sales material, sales confirmations, and periodic
account statements issued by the bank. When an account for the purchase of
mutual fund shares is established, customers should receive similar disclosure
along with disclosure that the investment's value may fluctuate and, at the time
of sale, may be higher or lower than the amount that the customer had originally
paid. Banks are encouraged to obtain customer statements indicating that the
customer has been informed and understands these disclosures. When a bank sells
shares of a mutual fund advised by the bank or an affiliate, the bank also must
disclose this advisory role at the time the customer's account is opened.
In their regular bank examinations, examiners will evaluate whether the
bank's disclosures above are effective. They also will examine whether the bank
has prohibited retail deposit-taking employees from offering investment advice,
whether the
mutual funds sales area is separate and distinct from the retail
deposit area, and whether the bank has a policy to ensure that a third party
selling mutual funds on the bank's premises is issuing comparable disclosures and
following comparable procedures. The Board's letter enclosed a sample guidance
letter that bank supervisors could send to state member banks.
Thomas M. Selman
Assistant Counsel
Attachment