The Office of the Comptroller of the Currency is training examiners to scrutinize the retail brokerage activities of national banks, a senior regulator said.
Owen Carney, the Comptroller's senior investment adviser, said bankers should prepare for a close review of uninsured products they are selling to the public.
Among the areas to be scrutinized: the compensation, supervision, and training of employees as well as disclosure procedures.
"We'll be looking quite extensively at these products, and we'll expect to see compliance woven into training right from the beginning," Mr. Carney said at a mutual fund convention in San Francisco last week.
The warning comes as hundreds of banks across the country are aggressively promoting mutual funds, annuities, and other investments as attractive alternatives to low-yielding deposit products.
Mr. Carney said his agency is concerned that some bank salespeople lack "knowledge about the products themselves."
Examiners, he said, will look for evidence of policies and procedures governing the uninsured product among both bank managers and the sales staff.
"We expect an emphasis on the fact that it's not a bank deposit or obligation and it's not FDIC-insured," Mr. Carney said.
Elaborating in a telephone interview, he said that no serious problems have been brought to his attention. But he maintained that concern is warranted because banks are becoming a bigger channel for mutual fund sales.
"The big regulatory concern is that people might confuse [a fund] with an insured deposit product," he said.
The Comptroller has been training a cadre of retail brokerage specialists to spot problems in investment sales programs at community and regional banks. These specialists are responsible, in turn, for training their generalist colleagues. The agency is using an electronic mail system to disseminate information about securities sales.
Mr. Carney said some banks are experiencing the new scrutiny in exams now.
Examiners will give special attention to trust accounts, an area that Mr. Carney characterized as a real minefield" because of the bank's dual role as fiduciary and product provider. He also said that bankers must respond swiftly to customer complaints.
"Trust me," he told bankers attending the Bank Securities Association conference, "you do not want to get a telephone call from me about an irate customer."
Responsibility for Vendors
Banks, he said, will be held responsible for sales made by outside vendors or bank affiliates from bank lobbies.
"My attitude toward anyone on site in a bank is, |They're mine,'" Mr. Carney said.
Industry experts welcomed the new scrutiny.
"Right now, in my opinion, they do nothing," said Malcolm Northam, a former official in the Comptroller's office who is president of Securities Risk Management, a consulting firm in Alexandria, Va. "There is little, if any, guidance to the examiners."