Comptroller Is Planning to Simplify Disclosure Requirements for Fund

NEW ORLEANS - After just over a year of experience with guidelines governing mutual fund sales, the Comptroller of the Currency plans to streamline - and even drop - some of its disclosure requirements.

Changes are being made because banks are doing unnecessary work that does not help customers, David Apgar, a senior policy adviser at the OCC, told the Bank Administration Institute's audit, security, and compliance conference here last week.

Right now, banks are required to tell potential customers that nondeposit investment products are not insured by the Federal Deposit Insurance Corp., that they are not obligations of the bank or guaranteed by the bank, and that the customer's principal is at risk.

The OCC said it plans to replace this cumbersome list with a logo that could read "Not FDIC insured. No bank guarantee. May lose value." This information would be given to potential customers. The more formal disclosure would still be required once a customer decided to buy a mutual fund from the bank.

The Comptroller also plans to drop a requirement that banks make product disclosures in radio broadcasts under 30 seconds or on billboards, Mr. Apgar said.

In an interview, Mr. Apgar said oral disclosures are the most important. "Customers remember what sales reps tell them," he said.

To ensure customers are getting the right information, banks should run mystery shopping or call-back programs, Mr. Apgar said. "Examiners can look at either strategy," Mr. Apgar said. "We'll ask you to show us the system."

Both Mr. Apgar and bankers at the conference said they were concerned about recent mutual fund rules proposed by the National Association of Securities Dealers. While the proposal's goal of uniform examinations is a good one, said Mr. Apgar, he said he is concerned about a ban against banks and brokers from using each other's confidential information for marketing.

Vic Albrecht, vice president of the Capital Management Group at First Union said the NASD rules are a major contradiction in the way banks are now supervised. "We're being whipsawed between two regulatory bodies," Mr. Albrecht said.

Mr. Apgar also said an "interpretive letter" will be released in the next few weeks, focusing on how and when examiners should apply mutual fund guidelines. The letter groups answers to industry concerns into a single response.

The main question, he said, has been what constitutes a "retail" sale of mutual funds, which triggers compliance with the guidelines.

"What happens in the lobby of the bank is retail," Mr. Apgar explained.

For reprint and licensing requests for this article, click here.
MORE FROM AMERICAN BANKER