WASHINGTON -- After blasting banks for indequate mutual fund sales disclosures, the Office of the Comptroller of the Currency is adopting a new role: that of friendly counselor.
In letters mailed last week to presidents and chief executives of national banks, the agency offered to help them figure out whether their mutual fund sales materials come up to snuff.
Examiners to Make Contacts
National banks will be contacted by examiners in the next few days to determine whether they want to participate in the review, according to the May 4 letter, which was signed by Stephen R. Steinbrink, senior deputy comptroller for bank supervision operations.
Although the counceling program is voluntary, industry observers believe most national banks, large or small, will take part.
"It would be foolish for them not to comply," said Robert Shurman, senior vice president for mutual funds at the Boston bank unit of Shawmut National Corp. Not participating might suggest that a bank had something to hide, he said.
The offer marks a decided change in tone for the OCC, which has been jawboning bankers fro a year on the proper management of mutual fund programs.
Tough Ludwig Speech
Comptroller of the Currency
Eugene A. Ludwig delivered an especially biting speech on the subject at last fall's American Bankers Association convention. And in a move that some regulators branded overly zealous, the OCC is preparing to dispatch mutual fund "testers" to make unannounced visits to bank branches.
In a telephone interview, the OCC's Mr. Steinbrink said the agency is doing the one-time review in response to requests by a number of banks, most of them small or midsized. He said banks wouldn't be penalized if they decline to participate.
The OCC wants to "identify any problems that may occur and advise the banks of those problems," he said. "We decided to give banks this voluntary option: Send the forms in, and we would point out any weaknesses or tell them we considered them all right."
In recent months, mutual fund sales by banks have come under intense scrutiny. Critics have pointed to studies and surveys suggesting that many investors don't understand the difference between insured deposits and uninsured investment products, though regulators have adopted detailed disclosure guidelines for banks.
In turn, the OCC, as chief regulator for some of the most prominent banks in the mutual fund arena, has come in for heavy criticism on Capitol Hill. Observers said its move seems to be directed at blunting criticism and demonstrating to Congress its aggressive stance in this sensitive area.
Still, some critics had their doubts about the program's usefulness.
Although the voluntary review would be a valuable service for smaller banks, most large banks that sell securities through broker-dealer subsidiaries are already obtaining such reviews from the National Association of Securities Dealers, an industry lawyer said.
The additional OCC review is "going to create a lot of confusion," said the lawyer, who did not want to be named.
If the OCC does not approve materials already blessed by the NASD and used by a bank to sell mutual funds, the bank could be exposed to lawsuits by disgruntled customers, the lawyer added.
In its reviews, the OCC will focus on making sure that banks discloe that mutual funds carry principal risk, lack deposit insurance, and are not guaranteed by the bank.