February 22, 1995
TO: BANK INVESTMENT MANAGEMENT MEMBERS No. 9-95
BOARD OF GOVERNORS No. 32-95
SEC RULES COMMITTEE No. 26-95
SUBCOMMITTEE ON ADVERTISING No. 2-95
RE: INSTITUTE LETTER TO OCC ON INCONSISTENT OR DUPLICATIVEE
REGULATION
______________________________________________________________________________
The attached letter and memorandum, recently sent by the Institute to the Office of the
Comptroller of the Currency, reviews various bank regulatory agency requirements that
conflict with or duplicate the regulation of bank mutual fund activities under the federal
securities laws. The memorandum reflects the concerns expressed by the Institute’s bank
members, members who sell through the bank channel, and others. It covers three areas -- sales
activities, mutual fund operations, and bank regulatory agency guidance.
1. Sales Activities
Institute members have expressed concern about various requirements imposed on
bank sales activities. For example, even when mutual fund sales material has been approved
by the NASD and conforms with the bank regulatory agencies’ Interagency Statement, bank
examiners appear to have imposed technical, highly-detailed requirements, without offering
much flexibility in the manner in which compliance is achieved.
Institute members also have expressed concern that a provision of the Interagency
Statement obligating a bank that has entered into a networking or affiliate relationship to
monitor the broker-dealer could undermine the effectiveness of the broker-dealer’s supervisory
procedures. Institute members have recommended that the bank regulatory agencies only
require that banks obtain a commitment from broker-dealers that they will maintain the
supervisory procedures required by the securities laws.
2. Mutual Fund Operations
The Institutes memorandum states that bank examiners also have become more
inquisitive about the operation of bank-sold and bank-advised mutual funds, particularly about
the ability of funds to meet redemptions and about the composition of fund portfolios. The
Institutes letter notes that the federal securities laws already address these concerns, and the
fact that a fund is advised by or sold through a bank does not warrant additional scrutiny or
the adoption of specialized or more restrictive rules. In addition, concern has been expressed
about the request by bank regulatory agencies that banks and their affiliates adopt detailed
compliance procedures, often in reaction to specific concerns that could be better addressed in
other ways.
3. Bank Regulatory Agency Guidance
Institute mebers also have expressed concerns about the process by which the bank
regulatory agencies issue regulatory pronouncements and examine banks and their affiliates.
For example, members indicate bank regulatory agencies sometimes impose requirements that
are so vague that they cause unnecessary confusion and inefficiency. Bank members also
receive multiple and duplicative examinations of their securities business, often within a short
period of time, by different bank and securities regulators. Finally, bank regulatory agencies
may significantly alter their requirements without any advance warning, causing considerable
confusion and imposing unnecessary costs on bank sales activities.
* * *
The Institute intends to supplement its memorandum on a periodic basis as appropriate.
If you have further examples of the types of concerns addressed in our submission, please
provide them to me or to Tom Selman (202/326-5819).
Paul Schott Stevens
General Counsel
Attachments