Turf War Grows Over Monitoring of Bank Mutual Fund Sales : Regulation: Both the SEC and comptroller of the currency tell Congress they can do a better job of protecting investors.
Banking regulators battled with the nation’s top securities regulator Thursday over who can do the best job of protecting unwary investors who buy mutual funds through banks.
“It’s a new ballgame with millions of new investors, many of them unsophisticated,” Securities and Exchange Commission Chairman Arthur Levitt Jr. told the finance subcommittee of the House Energy and Commerce Committee, whose leaders are backing a bill to give the SEC oversight over bank mutual funds.
But Comptroller of the Currency Eugene Ludwig, who regulates banks and does not want to cede any of his authority, insisted that “investor protection is central to our mission.”
Ludwig said he is willing to get help from the National Assn. of Securities Dealers to train bank employees who sell mutual funds, but he told the subcommittee his agency should retain the final regulatory powers to search for any abuses in sales and marketing of funds.
Federal Reserve Board Gov. John LaWare joined Ludwig in a solid front of opposition to new SEC activity at banks, saying the Fed “is committed to closely monitoring banks’ securities sales practices.”
The issue has erupted in the past two years as falling interest rates on bank certificates of deposits sent many investors, particularly retired Americans, in search of higher yields. Many of them began buying mutual funds through the banks where they had savings accounts. More than 1,000 mutual funds are available through more than 100 banks, and the funds’ assets total $219 billion, Levitt told the subcommittee hearing.
Surveys show that many investors fail to understand that mutual funds lack the federal protection given to the first $100,000 in bank deposits.
Ludwig contends he can deal with that problem through an aggressive program of education and enforcement, forcing banks to disclose to customers in easy-to-understand terms that mutual funds are not insured and that the investment itself is at risk as markets fluctuate.
The comptroller would also send secret shoppers into banks, posing as investors, to see what bank marketers tell them about the safety and suitability of various investments.
The securities industry supports the SEC position that the same agency regulating stocks and mutual funds should continue to exercise control when the funds are sold through banks. The “growing duplication and overlap of activities of the securities regulators and the banking regulators must be eliminated,” Joseph Hardiman, president and chief executive of the National Assn. of Securities Dealers, told the hearing.
A similar endorsement came from Matthew P. Fink, president of the Investment Company Institute, which represents the mutual fund industry.
Just as the brokers and mutual funds lined up in support of their regulators at the SEC, the banking industry backed the positions of its own regulators. The current system “is operating successfully,” said Richard H. Jones of Fleet Investment Services, testifying on behalf of the American Bankers Assn.
There was a dissenter from the ranks, however. Mellon Bank, which is acquiring the Dreyfus family of funds, said it supports SEC regulation of bank mutual funds.
Banking regulators are likely to prevail, in the short run at least, because of congressional turf issues. The House and Senate Banking committees won’t accept legislation taking power away from banking authorities and giving it to the SEC.
The advocates for change are the leaders of the Energy and Commerce Committee, which handles the SEC. When powerful committees clash, the result is usually stalemate.
