WASHINGTON -- If bankers needed further evidence that their foray into mutual funds is being closely watched, the Securities and Exchange Commission delivered it two weeks ago.
Acting for the first time against a broker who sold mutual funds at a bank, the agency suspended Terrence Patrick Mulrooney of Port St. Lucie, Fla., for misleading customers about risks and yields of mutual funds during a five-month stint at First Union Corp. last year.
Industry experts say the SEC's move signals a more activist posture and will heat up the competition over who gets to monitor securities sales at banks -- banking regulators or securities regulators, such as the SEC and the National Association of Securities Dealers.
Experts add that bank regulators, such as the Office of the Comptroller of Currency, will be forced to take a more aggressive stance as a result.
"I think [bank regulators] will be forced, not just by the public or by Congress, to become more active and aggressive," said Rolland Johannsen, president and chief operating officer, Furash & Co. "They will be asked by the banking industry to do so."
Mr. Johannsen said he believes bankers may lobby for a more activist Comptroller's office, for example, so that banks "will be protected from additional oversight from an agency outside the banking industry."
Robert Shurman, senior vice president of Shawmut Bank, also expects the Comptroller's office to "strengthen its review" of mutual funds sales because of the SEC's latest action.
"They all seem to be trying to exert themselves in their area of jurisdiction with the intent of becoming the sole, regulator," Mr. Shurman said.
Both the SEC and Comptroller's office are investigating other cases at bank brokerages, as well as working together on a consumer survey that could be the prelude to more action.
Colleen P. Mahoney, deputy director of the division of enforcement at the SEC, said her agency is relying on its examinations, complaints, and other public sources for tips on other cases of improper sales practices.
"People should assume that we will use all avenues of information," Ms. Mahoney said.
"Any time that an agency sets as its concern certain subject areas, like industry sales practices, it follows that the enforcement division will target resources on these areas," she added.
David P. Apgar, senior policy adviser to the comptroller of the currency, said his agency is "cooperating with the SEC on a variety of cases."
He said the two agencies will take joint action in future cases at broker-dealers that are bank subsidiaries.
But he disputed the notion that the Comptroller's office will become a more aggressive regulator to hold its own with the SEC.
"Our seriousness to compliance remains steadfast independent" of the SEC, he said.
A Comptroller's office official said the banking agency coordinated with the SEC on the Mulrooney case. But the Comptroller's office decided not to bring action because the problems predated sales guidelines issued this year by the banking regulators, and "involved an isolated misconduct by a former employee and ... no known customer losses."
Bankers say the stepped-up scrutiny won't make much of a difference in the already densely regulated area.
"We are so overregulated right now and forced to play in an uneven field ... it is not going to make our life anymore difficult," said Mr. Shurman of Shawmut.
"It would be nice to pull all this together: one regulator addressing all aspects of selling of funds, sales practices, registration of prospectuses. Or maybe a pair of them," he added.
A leading consumer advocate said he welcomes the extra scrutiny from the SEC, and criticized bank regulators for not being more aggressive.
"I generally think it's a good step in the right direction," said Kent Brunette, legislative representative for the American Association of Retired Persons.
"It'll help to telegraph a message to other ne'er-do-wells that this activity will not be tolerated," he said.
"Why did the SEC find this problem, and not bank regulators?" Mr. Brunette asked.
