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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Proper supervision and training of bank employees engaged in direct bank RNDIP activities is needed to help manage reputation risk. 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.
In this respect, the Booklet shows that basic regulatory attitudes about bank retail securities activities have not materially changed since Government Issues Proposed Regulations. Events from this Firm. 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. Such inadvertent violations could occur if a retail customer entering 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.
There are several aspects of the Booklet that are particularly noteworthy or warrant special mention.
In turn, the Booklet may serve as a useful compliance guide for banks other than national banks. Application of the Third-Party Relationship Bulletin: The Booklet states that “[b]y referring its customers to a broker-dealer, the bank is tacitly endorsing the RNDIP sales made by those brokers to those customers.
Intsragency OCC emphasizes the importance of due diligence of third-party providers of RNDIP sales services and that any third parties should provide, on a quarterly basis at a minimum, information regarding the third party’s sales practices; surveillance results; exception tracking; product and service offerings; customer complaints, litigation, and settlements; hiring practices; sales force stability; regulatory findings; and compliance issues. In addition, banks should require third parties to have sufficient interzgency continuity planning in the event of interruption, as retaik as the operational capacity and customer service levels that can adequately service customer needs, particularly in times of market stress.
Although no one measurement system will be appropriate for all RNDIP sales programs, the OCC expects that the measurement process will assess risks of individual transactions, aggregate client portfolios, and interdependencies, correlations, and risks across business lines. In news that no Blockchain Monitor reader wants to hear, technical analysts are sounding the alarm bell on interabency.
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In addition, banks should prlducts comprehensive compliance policies and procedures that address applicable regulations and guidance, including the Interagency Statement. In addition to the compliance obligations associated with these lending activities, the bank needs to monitor and manage its credit exposures.
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.
The Fed – Supervisory Policy and Guidance Topics – Securities
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. 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 The Booklet references more than a dozen OCC bulletins, interpretive letters, and other issuances Booklet, p.
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. 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.
Reputation risk arises from the way a bank or a third party interacts with customers. Real Estate and Construction. News About this Firm. 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.
Board of Governors of the Federal Reserve System
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.
Banks are also expected to identify cross-business-line interdependencies or issues that could present increased risk.
The OCC states that the Booklet itself is intended to explain “the risks inherent in banks’ retail nondeposit investment product RNDIP sales programs and provide a framework for banks to manage those risks. Retail foreign exchange transactions also present counterparty credit risk where a bank acts as principal in a transaction.
RNDIP is defined prodhcts “any product with an investment component that, in interagendy instances, is not an FDIC-insured deposit” and includes mutual funds, exchange-traded funds, annuities, equities, and fixed-income securities Booklet, p. 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 Booklet contains extensive discussion about permissible compensation arrangements and referral fees. Do you have a Question or Comment? Credit risk in an RNDIP may arise if the program provides retail clients with margin lending or securities lending services.
Nondeposit Investment Discussions, Answers, and Free Resources for Banking Professionals
Interested in the next Webinar on this Topic? Media, Telecoms, IT, Entertainment. The Booklet acknowledges that FINRA Rule regarding suitability of recommended products does not expressly apply to sales sqles recommendations made directly by a bank. As noted above, these requirements are to be addressed by new networking agreement terms.
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.
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.
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.
These requirements are extensive and unlikely to be satisfied with existing networking arrangements. A bank’s 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.
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.
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.