March 10, 1994
TO: BOARD OF GOVERNORS NO. 25-94
FEDERAL LEGISLATION COMMITTEE NO. 6-94
FEDERAL LEGISLATION MEMBERS NO. 6-94
RE: HOUSE PANEL HOLDS HEARINGS ON BANK SALES OF MUTUAL FUNDS --
INSTITUTE TESTIFIES
__________________________________________________________
On Tuesday, March 8, Institute President Matthew P. Fink testified before
Congress on issues related to the sales of mutual funds by banks. Appearing
before the Subcommittee on Financial Institutions of the House Banking Committee,
Fink addressed the potential for customer confusion, growing regulatory
shortfalls, and other issues associated with banks' growing presence in the
mutual fund business.
In his testimony, Fink noted that bank participation in the fund industry
has been a positive development for both the industry and the investing public,
but noted that it also raised concerns over how best to regulate these
activities. He cited the need for all fund investors to have equivalent
protections under the law regardless of where the funds are purchased, and noted
that the SEC is the appropriate regulatory authority to oversee securities
activities.
The hearing consisted of four panels. The first panel was a solo
appearance by Representative Richard Neal (D-MA) sponsor of H.R. 3398,
legislation which would require written disclosures in conjunction with bank
sales and advertising of mutual funds. The second panel consisted of
representatives from all of the bank regulatory agencies, including Eugene
Ludwig, OCC; Andrew Hove, FDIC; John P. LaWare, Federal Reserve; and Jonathan L.
Fiechter, OTS. The regulators all spoke of the affirmative actions they are
undertaking to minimize investor confusion with respect to bank sales issues, and
cited the joint regulatory guidelines recently promulgated on the topic.
The third panel was comprised of banking and securities industry
representatives. In addition to Mr. Fink were representatives of the American
Bankers' Association; the Independent Bankers' Association; the Savings &
Community Bankers' Association; and the Consumer Bankers' Association.
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None of the witnesses on this panel, including the Institute, endorsed
legislation mandating new regulations on bank sales. The banking organizations
were united in their support for the guidelines which have been issued by the
bank regulators, and noted the release of their own industry guidelines as an
example of their efforts to be responsive to concerns over customer confusion.
The final panel was made up of representatives from consumer groups and
state securities regulators: the Consumer Federation of America and the
Association of Retired Persons testified on the need for statutory protections
designed to minimize the potential for customer confusion regarding the uninsured
nature of bank-sold mutual funds. Additionally, the North American Securities
Administrators Association did not favor creating a statutory role for bank
regulators with respect to bank mutual fund sales, but favored increased SEC and
state securities department oversight. NASAA stated that creating a separate
body of regulatory law could result in a situation where industries might engage
in "regulatory arbitrage," attempting to choose between regulatory agencies in
order to obtain favorable treatment.
A copy of Mr. Fink's testimony is enclosed.
It is expected that the Telecommunications and Finance Subcommittee
Chairman Ed Markey (D-MA) will hold related hearings in early April on H.R. 3447,
the "Securities Regulatory Equality Act of 1993", the so-called functional
regulation bill.
We will keep you informed as this matter developed. If you wish additional
information, please call the Legislative Affairs Department at 202/326-5890.
This memo can also be found in FUNDS, the Institute's Fund User Network and
Delivery System, under Legislative Affairs; Washington Update.
Julie Domenick
Senior Vice President
Legislative Affairs