Banks that sell investments to retail customers are bracing for renewed pressure from regulatorv watchdogs in the wake of highly publicized lawsuits and ittcreased scrutiny on Capitol Hill.
All of which is keeping F. Ronald O'Keefe plenty busy these days.
The Cleveland attorney, a partner in Hahn Loeser & Parks, specializes in helping banks and thrifts satisfy new regulations and legislation concerning retail investment sales.
In a recent interview with American Banker, the native New York shared some tips about how banks can innoculate themselves against the regulatory furor.
Q.: What can we expect to hear from banking and securities regulators in the near future?
O'KEEFE: I don't think that the SEC has been defiuitively heard from vet: neither have the state securities administrators or the NASD. They are going to have their own views on these activities that may or may not be consistera with what the bank regulators think.
Q.: What do banks need to do to protect themselves in the current regulatory climate?
O'KEFFE: You could start with the currenl interagency guidelines, but that would be a minimum. The banks would be smut to get everything in writing from the customers.
The current guidelines say a customer should be fully informed that mutual funds and securities are not FDIC-insured and are subject to some risks. Well, why not get that in writing, in plain English and in a format that everyone can understand?
Q.: Where should banks look for guidance ?
O'KEFFE: I would look at pending legislation for some guidance.
The Schumer/Gonzalez bill would strictly regulate how bank tellers refer customers to mutual funds sales representatives.
And in our experience, contact with a bank teller is really the key point for whether a customer takes that next step toward mutual funds or keeps their money in a CD.
The legislation would basically require that the customer ask first before being referred to someone who could sell them a mutual fund.
That teller would have to disclose that these products were uninsured and wouldd not receive any referral-based compensation.
Q: What arguments are we likely to hear from Washington?
O'KEEFE: You know, those opposed to brokerage services being conducted in banks are going to hearken back to the S&L crisis, and they're going to look at the Lincoln Savings matter where customers were coming in and being told, "Hey, you can buy these securities. They're all safe; the bank is behind it."
Q.: Aren't the current regulations enough to safeguard consumers?
O'KEEFE: The current guidelines are vague and, depending on the integrity of the individuals at the bank, they can be stretched to quite a limit while still being in technical compliance.
There is going to be a cry to have a more definite, specific, and restrictive set of procedures for the sale of brokerage products in this.
Q.: Some industry watchers say the public just isn't getting the message.
O'KEFFE: I believe those perceptions are correct. The average man on street doesn't have the background to fully understand and appreciate the differences between these products. He just figures when he goes into the bank he's going to be safe. These regulations are going to have to be geared down to the lowest common denominaton There needs [to be] more protection for the average Joe.
Q.: Do you expect any fallout from the market slump this year?
O'KEEFE: It may fuel a trend toward getting out of these mutual funds and may even fuel some type of legal action by the investors. I don't know whether it will come to that, but an enterprising plaintiff lawyer can make a class-action suit out of anything.