A plan by federal banking and securities regulators to cooperate on examinations of bank-managed mutual funds is winning approving nods from bankers - but no wild cheers yet.
Bankers are hopeful that the new approach will cut the costs and burdens of multiple exams. But they say much will depend on how the regulators - the Office of the Comptroller of the Currency and the Securities and Exchange Commission - translate their plan from paper to practice.
"The devil is in the details," said Vic Albrecht, director of compliance for First Union Corp.'s capital management group. "Whether it's a big step or a small step will be seen in the execution" of the joint exams, he said.
One concern is that the exams will simply thrust banks into the middle of a long-running turf war between the SEC and the Comptroller's office, which have wrangled for years over how securities activities of banks should be regulated.
Another worry is that the SEC would seize the chance to poke its nose into bank trust activities broadly - not just the mutual funds that trust departments frequently manage.
This agreement "should save us time, effort, and money. But if there is some other agenda, then this could all fall apart," said Robert Kniejski, president of Wachovia Investments, a unit of Wachovia Corp., Winston-Salem, N.C.
The SEC and Comptroller's office unveiled their plan last Monday, after about six months of discussions. Their aim: "to avoid major duplication or unnecessary regulatory burdens on fund complexes and advisers."
The exams will cover bank-managed mutual funds, as well as services provided by banks to mutual funds.
Some 115 banks now manage mutual funds, with aggregate assets of $328 billion, according to Lipper Analytical Services Inc., Summit, N.J.
These banks serve as investment advisers to their proprietary funds - choosing and actively managing the investments that make up the fund portfolio. Among the leaders: Mellon Bank Corp., PNC Bank Corp., and BankAmerica Corp.
In addition, roughly 20 banks provide a range of services - such as custody and administration - to fund companies. A half-dozen banks, led by State Street Boston Corp., dominate this field.
Officials from the SEC and the Comptroller's office told American Banker they will choose the first batch of banks for exams within the next 10 days. Exams are expected to commence within two months.
Banks that manage and service mutual funds see a need for greater cooperation among regulators. "I think that we can really save administrative time if we just get them asking the question once," said Gus V. Fish, a principal at State Street Global Advisors, Boston.
But some observers are skeptical. "In a worst-case scenario, the SEC will use this as an opportunity to further its goal of controlling all bank securities regulation by building a case that previous oversight of bank securities activities was inadequate," said Donald W. Smith, a securities lawyer at the Washington office of Kirkpatrick & Lockhart.
Gene Gohlke, an associate director in the SEC's office of compliance, inspections, and examinations, said the SEC wants to look at some trust records.
"The agreement contemplates that during a joint examination, the SEC would have access to" records pertaining to the managing of common collective trust funds, or of trust clients, Mr. Gohlke said. These records would be reviewed for activities that "could give rise to certain conflict situations," he said.
Both agencies claim oversight of some bank fund activities, but neither has a clear mandate to regulate all aspects of the business.
For instance, while bank-managed mutual funds must be registered with the SEC, banks are exempt from the Investment Advisers Act, which governs fund managers. Thus, while the SEC can examine the books of a given mutual fund, it lacks the authority to review the records of the bank that serves as investment adviser to the fund.
Banking and securities regulators have been sharply focused on bank mutual fund sales practices for several years. But their attention shifted to how banks manage funds only last year, when a clutch of banks bailed out money market funds after racking up investment losses.
The SEC normally conducts mutual fund examinations every two to three years, and the Comptroller's office drops in every two years. Most of the attention goes to large mutual fund companies.
The decision by the two agencies to team up "may indicate that they are considering more frequent examinations," said Melanie L. Fein, a partner with the law firm of Arnold & Porter, Washington.
"If nothing else, bank mutual fund activities will be given heightened attention," she added.