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. On December 13,the Treasury Department and the Internal Revenue Service issued highly-anticipated proposed regulations regarding the base erosion and anti-abuse tax generally referred to as the “BEAT”.
Banks that are active in retail nnondeposit activities should expect that their next examination will involve detailed questions and requests for information regarding their RNDIP sales programs.
Board of Governors of the Federal Reserve System
The only previous guidance on these issues was contained in the preamble to Regulation R issued in 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, banks should require third parties to have sufficient business continuity planning in the event of interruption, as well as the operational capacity and customer service levels that can adequately service customer needs, particularly in times of market stress.
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. The Booklet refers to the Third-Party Relationship Bulletin numerous times and contains a detailed description of third-party risk-management expectations with respect to RNDIP sales, including expectations regarding risk assessment by a bank’s board and management, the due diligence process, and the written agreement with and reporting obligations of the third-party broker-dealer.
Blockchain Legal Resource Blog: Reputation risk arises from the way a bank or a third party interacts with customers. In addition, banks should adopt comprehensive compliance policies and procedures that address applicable regulations and guidance, including the Interagency Statement.
In turn, the Booklet may serve as a useful compliance guide for banks other than national banks. Real Estate and Construction. Both banks that directly engage in the sale of retail nondeposit investment products RNDIPs and bank-affiliated or unaffiliated broker-dealers, insurance agents, and registered investment advisers that provide services and products to certain customers on behalf of banks will need to become familiar with the supervisory expectations set out in the Booklet and incorporate, as needed, recommended business and information-sharing practices into their operations.
Virtual currencies and the underlying blockchain technology has a profound potential to be a driver of economic growth. 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. Energy and Natural Resources. 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.
Mine Financing In – Video. As part of its operational risk management, banks should have internal management information 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. 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.
The Fed – Supervisory Policy and Guidance Topics – Securities
As noted above, these requirements are to be addressed by new networking agreement terms. These requirements are extensive and unlikely to be satisfied with existing networking arrangements. More from this Firm.
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. Compensation arrangements and referral fees: The Booklet references more than a dozen OCC bulletins, interpretive letters, and other issuances Booklet, p.
Nondeposit Investment Discussions, Answers, and Free Resources for Banking Professionals
Banks should pay particular attention to the guidance and expectations regarding disclosures and advertising because those aspects of compliance are easily reviewed and tested by examiners. Do you have a Question or Comment?
Events from this Firm. 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 interafency these customers are not sold inappropriate investments.
Notable Aspects of the Booklet There are several aspects of the Booklet that are particularly noteworthy or warrant special mention. Although it was adopted almost 21 years ago, the Booklet demonstrates the Interagency Statement’s durability and continued relevance for bank RNDIP activities. The Booklet goes into great detail regarding applicable requirements concerning disclosures and advertising of RNDIPs.
The Booklet details the OCC’s new expectations of third parties that provide RNDIPs imvestment bank distribution channels and focuses on the terms to be contained in networking agreements with banks. Overall, the Booklet reflects the OCC’s increasing focus in recent years on the need for banks to implement strong risk-management processes and policies commensurate with their activities, as well as oversight of these activities by senior bank management and banks’ boards of directors.
The compliance policies should address the following:. Such inadvertent violations could occur if a retail customer produtcs 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.
Credit risk in an RNDIP may arise if the program provides retail clients with margin lending or securities lending services. Banks are also expected to identify cross-business-line interdependencies or issues that could rtail increased risk.
Media, Telecoms, IT, Entertainment. RNDIP is defined as “any product with an investment component that, in most instances, is not an FDIC-insured deposit” and includes mutual funds, exchange-traded funds, annuities, equities, and fixed-income securities Booklet, p. Third-party risk management Qualification and training requirements for bank personnel and supervisors, as well as third-party sales representatives who will recommend or sell RNDIPs Compensation arrangements that comply with applicable regulations GLBA, Regulation R, 12 C.
Food, Drugs, Healthcare, Life Sciences. The Booklet emphasizes the need for banks to retain qualified counsel to help assess and manage the risk by ensuring compliance with applicable regulations. The Booklet replaces the previous booklet of the same name that was issued in February More clarity regarding specific OCC expectations and methods for implementing the guidance in the Booklet will be revealed through upcoming examination cycles.
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.
interagsncy On November 30,the Southern District of New York issued an opinion reaffirming the long-standing rule that traders cannot be found liable for illegal market manipulation when their trading was motivated by Banks’ boards of directors must establish ihteragency 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.
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.
Interested in the next Webinar on this Topic? 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.
The Booklet contains extensive discussion about permissible compensation arrangements and referral fees. Click here to register your Interest.