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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Risk-Management Categories 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.
The Booklet also strongly encourages using mystery shopping and call-back programs to test sales programs and ensure that sales activities comply with applicable regulations, guidance, and a bank’s policies. Although no one measurement system will be appropriate for all RNDIP sales programs, reetail OCC expects that the measurement process will assess risks of individual transactions, aggregate client portfolios, and interdependencies, correlations, and risks across business lines.
Risk identification should be a continuous and ongoing process at the transactional, line of business, and aggregate business reail and should include risks that originate in broker-dealer subsidiaries or affiliates or through networking arrangements. Overall, the Booklet will be a useful reference tool for banks, broker-dealers, insurance agents, and registered investment advisers that engage in bank RNDIP sales programs as they modify and adjust their risk management of the RNDIP sales program.
This article is provided as a general informational service and it should not be construed as imparting legal advice on any specific matter. In addition to the compliance obligations associated with these lending activities, the bank needs to monitor and manage its credit exposures. A produtcs failure to provide adequate resources and risk management to properly manage and control the risks associated with any RNDIP sales program may present a strategic risk to the bank.
There are several aspects of the Booklet that are particularly noteworthy or warrant special mention. The Booklet reflects the OCC’s emphasis on the importance of strong and effective risk-management processes, which continues a regulatory theme articulated by the OCC in recent years.
Events from this Firm. 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 produts possible inadvertent aiding and abetting violations of the Commodity Exchange Act. Retail foreign exchange transactions also present counterparty credit risk where a bank acts as principal in a transaction.
Insurance Laws and Products. The Booklet goes into great detail regarding applicable requirements concerning disclosures and advertising of RNDIPs.
Nondeposit Investment Discussions, Answers, and Free Resources for Banking Professionals
Banks should pay particular attention to the guidance and expectations regarding nondeposig and advertising because those aspects of compliance are easily reviewed and tested by examiners. The Interagency Statement is still alive and well: 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.
Credit risk in an RNDIP may arise if the program provides retail clients with margin lending or securities lending services. More clarity regarding specific OCC expectations and methods for implementing the guidance in the Booklet will be revealed through upcoming examination cycles.
In accordance with the Interagency Statement, boards should adopt written statements that address the risks, policies, and procedures statementt risk-management associated with an RNDIP sales program.
Banks’ boards of directors must establish the banks’ strategic direction and risk tolerance with respect to any RNDIP sales program and communicate the same through policies and procedures that establish responsibility and authority. More from this Firm. The OCC expects the compliance program to include periodic testing of customer accounts and transactions to detect, prevent, and correct abusive practices.
As part of its operational risk management, banks should have internal management nondeposot systems 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.
Board of Governors of the Federal Reserve System
Energy and Natural Resources. In this respect, the Booklet shows that basic regulatory attitudes about bank retail securities activities have not materially changed since The OCC states that it expects every bank to “conduct a comprehensive analysis of its securities activities to ensure compliance with GLBA and Regulation R, and to maintain records to demonstrate compliance. 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.
The Booklet emphasizes the need for banks to retain qualified counsel to help assess and manage the risk by ensuring compliance with applicable regulations. Unsuitable sales practices, client misunderstandings of the risk associated with RNDIP offerings, or poor customer service could result in reputational damage.
To investjent end, the examination procedures set forth in the Booklet, as well as the sample request letters contained in Appendix I to the Booklet, will provide useful guidance to banks as to the likely scope of information requests that will precede their next exam. To the extent the bank has clients that may be vulnerable to a broker’s hard sell, the bank should have procedures in place to ensure that these customers are not sold inappropriate investments.
The compliance policies should address the following:. 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’ nondeopsit.
Blockchain Legal Resource Blog: 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.
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