The financial services industry is applauding the Senate's unanimous passage Tuesday of a landmark bill that streamlines the registration of mutual funds.
The National Securities Markets Improvement Act of 1996, which the House passed late Saturday night, would replace a mishmash of state and federal requirements with uniform federal registration standards.
Mutual fund sponsors - including the roughly 100 banks that operate fund families - have long complained that the registration rules are labyrinthine and costly to observe.
"Mutual funds are a national product and will, appropriately, for the first time be regulated uniformly at the national level," said Matthew P. Fink, president of the Investment Company Institute, a Washington trade group.
Representatives of the banking and fund industries said the new rules would reduce inefficiencies, allowing players to focus on sales.
"I'm delighted," said Larry LaRocco, managing director of the American Bankers Association Securities Association. The legislation "represents a lot of hard work, reforms some very old statutes, and puts (banks) on an even footing in the marketplace."
Bankers said the measure would also make it easier for investors to understand the market.
Reducing costs and eliminating "duplicative functions ... and time delays works toward consistency, making sure that customers and prospects get the same information so they can make good comparisons," said Allen W. Croessmann, managing director of investment products at Bank of Boston Corp.
"I feel very strongly that duplicative regulation is a mistake and outmoded," he said, "and this is a step in the right direction."
Formerly, fund companies were subject to both state and Securities and Exchange Commission rules for capital, custody, margin requirements, and financial responsibility. States will now move into more of a disciplinary role, requiring notice filings and collecting fees.
"This is a critical piece of securities legislation," said Senate Banking Committee Chairman Alfonse D'Amato, R-N.Y., in a prepared statement. "It's a bill that will vastly improve our securities markets and provide important investor and consumer protections."
Another element of the measure would let nonbanks lend to brokerage firms. This would mean new competitors for banks, which had lent $79.7 billion to securities firms and individual investors as of June 26, according to the Federal Reserve.
Mr. LaRocco said banks were not concerned about this particular issue. "It doesn't look like a sticking problem," he said. "The banks that deal with mutual funds recognize the marketplace."
Another provision would establish a new category of private investment company unregulated by the restrictions on typical mutual funds.
It will be important to determine the extent to which banks and bank affiliates can participate in sponsoring these companies, said John P.C. Duncan, a partner at Jones, Day, Reavis and Pogue in Chicago. Banks that enter partnerships with these companies could offer additional trust services to their high-end clients, he said.
