Armed with a study that uncovered lingering problems with mutual fund and annuities sales disclosures, Comptroller of the Currency Eugene A. Ludwig is pressing banks to rethink their approach.
The comptroller's study, based on a review of marketing materials submitted voluntarily by 700 banks, found that a sizable minority failed to provide consumers with written explanations of investment risks. The findings run counter to some studies done for the banking industry. (See related story, page 24.)
For instance, one out six documents reviewed by the OCC failed to state that mutual funds lack federal deposit insurance. And nearly one in four lacked the mandatory disclaimer that investment products are not deposits or obligations of the banks that sell them.
In a letter released Monday, Mr. Ludwig outlined steps banks must take to improve the quality of their disclosures. Among them: providing key information in large, bold type on the front of sales documents,
He also called on banks to take greater care with their descriptions of annuities, which are often likened to deposits in marketing materials.
Mr. Ludwig also announced that he will convene a meeting with leading banking trade groups early next month to encourage them to lead the way in communicating the requirements to their members.
"It's clear from what the comptroller found that there is work that needs to be done," said Donald G. Ogilvie, executive vice president of the American Bankers Association.
Over the past year, the OCC has been working closely with the ABA and other banking trade groups to develop mutual fund sales standards.
In his letter, which was addressed to Mr. Ogilvie and other trade association executives, Mr. Ludwig said he was encouraged by the industry's "determination to develop and adhere to high standards in this area."
The Comptroller's office initiated its review of bank mutual fund and annuities marketing materials in May. A dozen field examiners were assigned to scrutinize brochures, statement stuffers, advertisements, stickers, disclosure forms, and other materials.
The 700 national banks that participated in the review will receive follow-up letters and visits from examiners to personally go over their findings, a spokesman for the Comptroller said.
The remaining 2,600 national banks the agency oversees will receive a letter explaining the findings.
The idea of the study was to give the OCC a sense of how banks were complying with a series of guidelines that it has issued over the past 18 months. Even though the study turned up shortcomings at some banks, the OCC said it won't take disciplinary actions on the basis of these findings.
The agency intends to conduct formal examinations of all national banks that sell mutual funds and annuities "during the present supervisory cycle," the OCC said in its letter. A spokesman said that means that all banks with significant mutual fund activities will be inspected by yearend.
