INTERAGENCY STATEMENT ON RETAIL SALES OF NONDEPOSIT INVESTMENT PRODUCTS PDF
The “Interagency Statement on Retail Sales of Nondeposit Investment Products” ( dated February 15, ), formerly contained in section the OCC specifically incorporates the “Interagency Statement on Retail Sales of Nondeposit Investment Products” issued by the Federal. Sale of Uninsured Debt Obligations and Securities Issued by Bank Holding Interagency Statement on Retail Sales of Nondeposit Investment Products.
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There are several aspects of the Booklet that are particularly noteworthy or warrant special mention.
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Real Estate and Construction. The Booklet contains extensive discussion about permissible compensation arrangements and referral fees. Government Issues Proposed Regulations. The OCC Booklet explicitly notes that banks that offer services to lower-income clients, clients with little to no investment experience, or seniors may present heightened reputation risk.
The OCC emphasizes compliance with the Interagency Statement, Regulation R, and the antifraud provisions of federal securities laws section 10 of the Securities Exchange Act and Rule 10b-5 and a bank’s obligation to take reasonable steps to ensure that any third-party broker-dealer complies with applicable securities laws and Financial Industry Regulatory Authority FINRA rules.
Banks that are active in retail securities activities should expect that their next examination will involve detailed questions and requests for information regarding their RNDIP sales programs.
To that end, the examination procedures set forth in the Booklet, as well as the sample request letters contained in Appendix I to retaik Booklet, will provide useful guidance to banks as to the likely scope of information requests that will precede their next exam. In other words, banks cannot abdicate their oversight and compliance responsibilities to the affiliated or third-party broker-dealers and must conduct their own independent analysis of RNDIPs, particularly the suitability of the products for the banks’ customers.
Banks should pay particular attention to the guidance and expectations regarding disclosures and advertising saales those prodcts of compliance are easily reviewed and tested by examiners. As mentioned above, the Booklet reflects the OCC’s heightened expectations regarding the adequacy of banks’ compliance and risk-management programs and the need for banks to develop detailed written compliance plans tailored to the complexity of their RNDIP sales activities.
Although it was adopted almost 21 years ago, the Booklet demonstrates the Interagency Statement’s durability and continued relevance for bank RNDIP activities. What has changed, as the Booklet demonstrates, are the regulatory expectations with respect to the nature and strength of the compliance architecture required to manage a RNDIP sales program.
The Booklet details the OCC’s new expectations of third parties that provide RNDIPs through bank distribution channels and focuses on the terms to be contained in networking agreements with banks.
Such inadvertent violations could occur if a retail customer nondeposih into an off-exchange swap is not an “eligible contract participant,” as well as raise questions about compliance with OCC regulations regarding retail foreign-exchange transactions.
Nonveposit Legal Resource Blog: Risk-Management Program The OCC expects each bank to “identify, measure, monitor, and control risk by implementing an effective risk management system appropriate for its size and the complexity of its operations. It is intended to provide guidance for bank examiners on activities of national banks and federal savings associations collectively, banks involved in recommending and selling nondeposit investment products to retail customers.
Notable Aspects of the Booklet There are several aspects of the Booklet that are particularly noteworthy or warrant special mention.
Reputation risk may be increased if the RNDIP program actively associates a bank’s name with the offered products and services, including the offering of bank-branded products. The Booklet also strongly encourages using mystery shopping and call-back programs to test sales programs and ensure that sales activities comply with nobdeposit regulations, guidance, and a bank’s policies.
Reputation risk arises from the way a bank or a third party interacts with customers. The Booklet references more than a dozen OCC bulletins, interpretive letters, and other issuances Booklet, p.
Part of the risk-monitoring program should include a requirement that affiliated and unaffiliated third parties provide risk-monitoring reports that allow a bank to properly oversee the RNDIP sales program, including the quality and suitability of the RNDIPs sold by an affiliated or third-party broker-dealer.
In addition, banks should require third parties to og sufficient business continuity planning in the event of interruption, as well as the operational nonseposit and customer service levels that can adequately service customer needs, particularly in times of market stress.
More from this Author. The Booklet acknowledges that FINRA Rule regarding suitability of recommended products does not expressly apply to sales or recommendations made directly by a bank. The Booklet’s major implication is that a bank that engages in an RNDIP sales program should expect increased scrutiny of the program and should be prepared to document and demonstrate through written policies and procedures, board and nobdeposit oversight records, and other means that the bank is adequately assessing and managing any risks presented by the RNDIP.
The Booklet goes into great detail regarding applicable requirements concerning disclosures and advertising of RNDIPs. Insurance Laws and Products. In addition to the compliance obligations associated with these lending activities, the bank needs to monitor and manage its credit exposures. Credit risk in an RNDIP may arise if the program provides investtment clients with margin lending or securities lending services.
Click here to register your Interest. This article is provided as a general informational service and it should not be construed as imparting legal advice on any specific matter. Interested in the next Tetail on this Topic? As part of its operational risk management, banks should have internal management information retial that ensure timely transaction confirmations and customer statements and billing and should ensure that any modeling used in an RNDIP sales program is properly designed and managed.
At approximately pages, the Booklet is almost three times the length investmnt the version. Proper supervision and training of bank employees engaged in direct bank RNDIP activities is needed to help manage reputation risk. The OCC identifies operational risk as arising from inadequate oversight of bank employees or third parties, sales practice misconduct, poor customer service, or adverse events that could affect business volume and efficient trade execution.
The Booklet emphasizes that, because of the changes enacted by the Dodd-Frank Act, offering off-exchange swaps and foreign-exchange transactions to retail customers presents heightened risk to a bank, particularly with respect to possible inadvertent aiding and abetting violations of the Commodity Exchange Act. The OCC expects each bank to “identify, measure, monitor, and control risk by implementing an effective risk prodcuts system appropriate for its size and the complexity of its operations.
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The Booklet emphasizes that banks must have ongoing and substantive involvement in the administration and oversight of any RNDIP sales program and cannot rely solely on representations made by broker-dealers regarding quality and suitability of RNDIPs and sales practices. However, the Booklet identifies the rule as “an appropriate reference for a bank compliance program designed to ensure that the bank’s sales of RNDIPs are operated in a safe and sound manner.
Energy and Natural Resources. RNDIP is defined as “any product with an investment component that, in most instances, is not an FDIC-insured deposit” and includes mutual funds, interagench funds, annuities, equities, and fixed-income securities Booklet, p. News About this Firm. As with other recent OCC guidance, active and meaningful oversight and participation of a bank’s board and senior management is expected and required.
The Booklet states that “[b]y referring retsil customers to a broker-dealer, the bank is tacitly endorsing the RNDIP sales made by those brokers to those customers. Third-party risk management Qualification and training requirements for bank personnel and supervisors, as well salws third-party sales representatives who will recommend or sell RNDIPs Compensation arrangements that comply with applicable regulations GLBA, Regulation R, 12 C.
To measure risk, banks are expected to use measurement systems and models appropriate for the nature and complexity of the RNDIP sales program and should periodically test the measurement systems. Worldwide Europe European Union U. As noted above, these requirements are to be addressed by new networking agreement terms. In turn, the Booklet may serve as a useful compliance guide for banks other than national banks.
The compliance policies should address the following:.