TO THE OFFICER IN CHARGE OF SUPERVISION AT EACH FEDERAL RESERVE BANK
Attached are examination procedures applicable to retail sales of nondeposit investment products conducted on bank premises. The procedures implement the Interagency Statement on Retail Sales of Nondeposit Investment Products issued on February 15, 1994, by the Federal Reserve and the other federal financial institution regulators.1 The Statement provides guidance to banks concerning the proper conduct of such activities on bank premises. At the time the Interagency Statement was issued, a task force of Reserve Bank and Board staff was assembled to assist in preparing and field testing examination procedures applicable to sales of nondeposit investment products by banks. In the interim, Reserve Banks performing regularly scheduled examinations of banks or bank holding companies engaged in selling nondeposit investment products were asked to review such activities for compliance with the major elements of the Statement. The attached examination procedures address the guidelines contained in the Interagency Statement and incorporate numerous refinements suggested by the task force, as well as comments from a number of Reserve Banks that have performed related examinations. The examination procedures should be used in reviewing the retail sales activities of state member banks and state licensed U.S. branches and agencies of foreign banks, and during inspections of bank holding companies and their nonbank subsidiaries that sell nondeposit investment products on bank premises (e.g., Section 20s, broker dealers). In reviewing such activities of affiliated Section 20 companies or brokerage firms, the examination procedures have been tailored to minimize duplication of examination efforts by the Federal Reserve and the securities self regulatory organizations, which is, in most cases, the National Association of Securities Dealers. The Reserve Banks should distribute the attached examination procedures for information purposes to the chief executive officers of those banking organizations discussed above that conduct such activities. A suggested transmittal letter is attached for your use.
It is anticipated that the examination procedures will be updated as
additional information about industry practices is obtained from examiners and as
the federal banking agencies issue additional guidance on the subject. As Reserve
Bank personnel gain experience with the attached procedures, efforts should be
made to note questions or examination issues that should be addressed by the
Federal Reserve or, in a more general context, by the federal financial institution
regulators as a group.
To assist Reserve Banks in preparing supervision staff responsible for
examining banking organizations that engage in the sale of retail nondeposit
investment products, Board staff will coordinate a Systemwide conference call. At
that time Reserve Bank personnel with responsibility for supervising examinations
of institutions engaged in retail sales of investment products can discuss briefly the
examination procedures. A separate notice will be faxed to you shortly concerning
the date and time of the conference call. In addition, a 1½ day seminar on the
subject will be scheduled to further assist System implementation of the
examination procedures.
Should you or your staff have any questions regarding the attached
examination procedures, the upcoming conference call or the proposed seminar,
please call Howard Amer (ext. 2958) or Angela Desmond (ext. 3497) at the Board.
Director
ATTACHMENTS:
Suggested Transmittal Letter to Those State Member Banks, State Licensed U.S.
Branches and Agencies of Foreign Banks, and Bank Holding Companies That Sell
Nondeposit Investment Products on Bank Premises Subject: Examination Procedures for Retail Sales of Nondeposit Investment Products
Dear _________________:
In recent years, banking organizations have become increasingly active
in selling uninsured nondeposit investment products, such as mutual funds, to retail
customers on bank premises. In response to this development, the four federal
financial institution regulators issued an Interagency Statement on Retail Sales of
Nondeposit Investment Products (Interagency Statement) on February 15, 1994,
which was distributed to your organization shortly thereafter.
Attached for your information are examination procedures developed
by the Federal Reserve for use when examining retail sales of nondeposit
investment products conducted on bank premises. The examination procedures are
intended for use when examining state member banks and state licensed U.S.
branches and agencies of foreign banks. They may also be used during inspections
of bank holding companies and their nonbank subsidiaries that sell nondeposit
investment products on the bank premises.
Should you or your staff have any questions regarding the attached
examination procedures or the related Interagency Statement, please contact
__________________at this Reserve Bank.
Footnotes 1. The Interagency Statement was distributed as part of SR 94-11 (FIS), dated February 17, 1994. Return to text |
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