WASHINGTON -- Mellon Bank Corp.'s plan to buy one of the nation's leading mutual fund companies underscores the need for better coordination between banking and securities regulators, according to Securities and Exchange Commissioner Richard Y. Roberts.
In an interview late Monday, Mr. Roberts said the Pittsburgh-based banking company's acquisition of Dreyfus Corp. "indicates that the bank presence in the mutual fund business will continue to increase."
As a result, he said, "the jurisdictional differences that exist between the bank regulatory system and the securities regulatory system need to be worked out and minimized."
New Urgency
Calls for greater regulatory coordination have long resonated through Washington, highlighting a long-pending battle between the Securities and Exchange Commission and bank regulatory agencies over how best to regulate bank securities activities.
But with the banking industry's push into the mutual fund business, the issue has taken on a new urgency. While the SEC has primary responsibility for regulating the mutual fund industry, bank regulators have a strong hand in overseeing bank's mutual fund activities.
Over many years, banking regulators have steadily expanded banks' authority to manage and service mutual funds. More recently, they have taken a leading role in developing guidelines to govern bank mutual-fund sales activities.
Mr. Roberts said securities and banking regulators differ in a key respect: Banking regulators are primarily concerned with the safety and soundness of the banking system, while securities regulators are more concerned with investor protection.
"I have a great deal of confidence in the bank regulatory agencies, and yet I suppose I would rather that she SEC condut those activities," he said.
Bank regulators share his biggest concern: that banks' mutual fund customers will not understand -- or have prominently disclosed to them -- that their fund investments are not covered by deposit insurance.
"Our argument has always been that the requirements in these areas should be the same," Mr. Roberts said. "Banks are engaging in securities-related activities -- they should be subject to the full panoply of securities law requirements, not the least of which would be disclosure requirements."
"The bank presence in the mutual fund industry to date has been quite good, relatively free from abuse, and has created more competition," Mr. Roberts said.
But he is somewhat concerned about increased bank presence in the mutual fund industry. Mr. Roberts said he is most worried about the potential for conflicts of interest, self-dealing, and bank tying -- that is, linking the provision of credit to a customer's acceptance of other services.
"Banks are exempt in certain instances from various securities law requirements that securities-firm-operated mutual funds are not. And I personally favor the securities regulatory scheme," Mr. Roberts said.
But, most important, mutual fund regulations "should be applied across the board, regardless of the principal business that the parent may be engaged in," he said.
