BOARD OF GOVERNORS
FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 20551
DIVISION OF BANKING
SUPERVISION AND REGULATION
SR 94-34 (FIS)
May 26, 1994
TO THE OFFICER IN CHARGE OF SUPERVISION
AT EACH FEDERAL RESERVE BANK
SUBJECT: Examination Procedures for Retail Sales of Nondeposit Investment Products
Attached are examination procedures applicable to retail sales of nondeposit investment products conducted on bank premises. The procedures implement the Interagency Statement on Retail Sales of Nondeposit Investment Products issued on February 15, 1994, by the Federal Reserve and the other federal financial institution regulators.1 The Statement provides guidance to banks concerning the proper conduct of such activities on bank premises.
At the time the Interagency Statement was issued, a task force of Reserve Bank and Board staff was assembled to assist in preparing and field testing examination procedures applicable to sales of nondeposit investment products by banks. In the interim, Reserve Banks performing regularly scheduled examinations of banks or bank holding companies engaged in selling nondeposit investment products were asked to review such activities for compliance with the major elements of the Statement. The attached examination procedures address the guidelines contained in the Interagency Statement and incorporate numerous refinements suggested by the task force, as well as comments from a number of Reserve Banks that have performed related examinations.
The examination procedures should be used in reviewing the retail sales activities of state member banks and state licensed U.S. branches and agencies of foreign banks, and during inspections of bank holding companies and their nonbank subsidiaries that sell nondeposit investment products on bank premises (e.g., Section 20s, broker dealers). In reviewing such activities of affiliated Section 20 companies or brokerage firms, the examination procedures have been tailored to minimize duplication of examination efforts by the Federal Reserve and the securities self regulatory organizations, which is, in most cases, the National Association of Securities Dealers.
The Reserve Banks should distribute the attached examination procedures for information purposes to the chief executive officers of those banking organizations discussed above that conduct such activities. A suggested transmittal letter is attached for your use.
It is anticipated that the examination procedures will be updated as additional information about industry practices is obtained from examiners and as the federal banking agencies issue additional guidance on the subject. As Reserve Bank personnel gain experience with the attached procedures, efforts should be made to note questions or examination issues that should be addressed by the Federal Reserve or, in a more general context, by the federal financial institution regulators as a group.
To assist Reserve Banks in preparing supervision staff responsible for examining banking organizations that engage in the sale of retail nondeposit investment products, Board staff will coordinate a Systemwide conference call. At that time Reserve Bank personnel with responsibility for supervising examinations of institutions engaged in retail sales of investment products can discuss briefly the examination procedures. A separate notice will be faxed to you shortly concerning the date and time of the conference call. In addition, a 1½ day seminar on the subject will be scheduled to further assist System implementation of the examination procedures.
Should you or your staff have any questions regarding the attached examination procedures, the upcoming conference call or the proposed seminar, please call Howard Amer (ext. 2958) or Angela Desmond (ext. 3497) at the Board.
TRANSMITTAL LETTER TRANSMITTED ELECTRONICALLY BELOW
EXAMINATION PROCEDURES MAY BE OBTAINED FROM FEDERAL RESERVE BANK
Suggested Transmittal Letter to Those State Member Banks, State Licensed U.S. Branches and Agencies of Foreign Banks, and Bank Holding Companies That Sell Nondeposit Investment Products on Bank Premises
Subject: Examination Procedures for Retail Sales of Nondeposit Investment Products
In recent years, banking organizations have become increasingly active in selling uninsured nondeposit investment products, such as mutual funds, to retail customers on bank premises. In response to this development, the four federal financial institution regulators issued an Interagency Statement on Retail Sales of Nondeposit Investment Products (Interagency Statement) on February 15, 1994, which was distributed to your organization shortly thereafter.
Attached for your information are examination procedures developed by the Federal Reserve for use when examining retail sales of nondeposit investment products conducted on bank premises. The examination procedures are intended for use when examining state member banks and state licensed U.S. branches and agencies of foreign banks. They may also be used during inspections of bank holding companies and their nonbank subsidiaries that sell nondeposit investment products on the bank premises.
Should you or your staff have any questions regarding the attached examination procedures or the related Interagency Statement, please contact __________________at this Reserve Bank.
SR letters | 1994