"You can expect more rather than less coming from bank regulators," said Robert F. Miailovich, associate director in the Federal Deposit Insurance Corp.'s Office of Supervision. The FDIC is gearing up with increased training of its examiners in mutual fund compliance, he told a conference sponsored by the Bank Securities Association. He also said the agency's long-awaited report on its mystery shopping survey, involving more than 8,000 telephone and in-person observations, will be "ready in a matter of weeks." While declining to provide specifics, he said that "no one will be surprised if compliance is less than 100% perfection." Regulators haven't decided how strict to be with compliance problems, he said, adding, "No one I know is thinking of regulation or legislation." Besides more attention from bank regulators, broker-dealers operating on bank premises will likely have to follow new rules from the National Association of Securities Dealers by early next year. NASD's modified rules will be filed with the Securities and Exchange Commission "within the next week," said John Pinto, the association's vice president for regulation. He promised the new rules will be significantly shorter than the original ones, which met with a torrent of criticism from bankers when they were issued last December. The rules, as approved by the self-regulating securities trade group's board of governors in September, still prohibit direct payment of finders fees by an NASD-member firm to an "unregistered person, whether they're a bank employee or an insurance agent," Mr. Pinto said. That's in keeping with NASD's long-standing policy for all broker-dealers, he explained. But because NASD has no jurisdiction over banks beyond their broker- dealer affiliates, he said, the rules won't "apply to a bank and how it pays its employees." The revised rules also will include a definition of confidential financial information that a broker-dealer could obtain from a bank, Mr. Pinto said, provided a customer gives "prior written authorization." Under the original proposal, broker solicitation of bank customers with maturing certificates of deposits, for example, was prohibited. Most banks are now securing these approvals at the time new accounts are opened, noted Robert M. Kurucza, general counsel to the Bank Securities Association. However, he said, doing so for existing customers would be burdensome. Mr. Pinto replied that "it would probably be wise to carry out the same business practice with existing customers." Informing customers that the bank intends to share financial information with the brokerage unit unless the customer objects, strikes some executives as the most cost-effective way to satisfy protection of customer confidentiality. "To get a written confirmation for each customer, I think, would be time-consuming and arduous," said Ben Foreman, vice president of Centura Bank, Raleigh, N.C.
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