BOSTON -- Banks can expect more scrutiny from the Securities and Exchange Commissions as they become involved in the mutual fund business, according to the former director of the agency's investment management division.
"If you're a bank that is advising and sponsoring a mutual fund, you can expect a visit from the SEC," said Marianne K. Smythe who left the SEC in May to become partner with the Washington law firm of Wilmer Cutler & Pickering.
Ms. Smythe speaking last week in Boston at a conference sponsored by Fidelity Investment and Business Week, emphasized that the SEC isn't singling banks out for special attention.
On the Radar Screen
But she said banks are clearly on the SEC's radar screen now that they are becoming managers of mutual funds.
At the same time, Ms. Smythe said, banking and securities regulators are engaged in a kind of bidding was over regulation of mutual fund sales in banks.
"There is competition between them as to who is the tougher regulator who can protect consumers," Ms. Smythe said.
The regulator to watch, she added is Comptroller of the Currency Eugene Ludwig.
"This comptroller seems determined to say |Anything the SEC can do on these issues, we can do better,'" Ms. Smythe said.
"That's not necessarily a good thing for a bank."
Another Washington lawyer on the same panel as Ms. Smythe had a warning for banks that have converted trust assets into mutual funds. Brian Smith, a partner with Mayer, Platt & Brown, said the Comptroller's office will be looking closely to make sure that these decisions were prudent.
He added that bankers should pay close heed to the mutual-fund sales guidelines that have been issued recently by the Comptroller's office and the Federal Reserve Board.
"Even though these banking circulars are written in admonitory language they will be interpreted in exams as mandatory," Mr. Smith said.
Nevertheless, he said, there may be some flexibility in the Comptroller's guidelines regarding mutual fund sales.
The guidelines "strongly discourage," banks from allowing employees to sell mutual funds if they also handle deposits.
Despite the strong language, "platform" employees -- officers and customer-service representatives who handle walk-in bank business -- may be able to sell mutual funds as long as they follow certain guidelines, Mr. Smith said.
"A platform officer would be well advised to get up from his desk and go to another desk," Mr. Smith said.
"Several of the largest banks have walled off sections of lobbies to sell securities," he noted. "That's not a bad idea. Do it if you can do it, but it is not necessary."
