BOSTON - Two national bank regulators predicted that compliance officers would spend more time on two fronts: interstate branching and nondeposit product sales.

Julie Williams, chief counsel at the Office of the Comptroller of the Currency, said the freedom to cross state lines would bring with it the responsibility to comply with state consumer protection laws.

"As we see banks consolidating, the operations of the single charter will be subject to state laws," Ms. Williams said this week at the American Bankers Association's regulatory compliance conference here.

The 1994 interstate branching law requires interstate offices of national banks to comply with state laws covering such things as community reinvestment, fair-lending, and other consumer protections, unless those laws are preempted by federal legislation.

"You'll be facing an increasing amount of state laws," Ms. Williams predicted.

In a separate session, Rachel Romyn, a securities specialist in the OCC's capital markets division, outlined the agency's concerns on investment product sales.

The Comptroller's office is paying especially close attention to third- party servicers hired by banks, such as brokers and vendors, Ms. Romyn said.

Examiners will ask: "How is that third party ensuring the customer is not confused?" Ms. Romyn said.

Banks also should make sure they understand and agree with the third party's product selection, and document that approval, she said.

There is a difference between mere oversight and day-to-day supervision, she said. "The bank has to have a pulse on the operation."

Ms. Romyn also advised bankers to decide up-front how to handle a change of vendor or a discontinuation of products. While this is more of a potential business problem than a regulatory one, Ms. Romyn said, she has seen banks lose clients to a third party that left, or get stuck in a hiatus during which they had to turn customers away because a vendor contract had ended.

"Think through the whole cycle," Ms. Romyn suggested.

On the mutual fund front, Ms. Williams said she is concerned that banks could be confused by conflicting regulators.

To avert inconsistency, the Comptroller's office will conduct joint exams with the National Association of Securities Dealers and the Securities and Exchange Commission.

"This is an area that is going to be critical for us and the banking industry as banks move into nontraditional fee income," Ms. Williams predicted.

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