Magazine article American Banker

SEC Commissioner: Banks Need Our Help

Magazine article American Banker

SEC Commissioner: Banks Need Our Help

Article excerpt

SAN DIEGO -- Bank-managed mutual funds are an accident waiting to happen because bank's investment advisory units aren't subject to inspections by the Securities and Exchange Commission a top securities regulator warned.

Sec Commissioner J. Carter Beese urged bankers to back legislation that would close gaps in regulatory oversight.

"Intead of continuing to resist and struggle, maybe now is the time for your industry to stop fighting the bit," he said in a keynote speech to the Bank Securities Association's annual convention here.

Mr. Beese referring to the banking industry's exemption from rules that reqire most mutual fund companies to register with the SEC as investment advisers.

Banks were granted the exemption from the Investment Advisers Act of 1940 more than 50 years ago, when their involvement with securities was waning.

But times have changed dramatically, with banks now in "aggressive pursuit of mutual fund customers," Mr. Beese said.

Safeguards Seen Inadequate

Though bank-managed funds are subject to scrutiny by banking regulators, Mr. Beese said this oversight is not enough. "No government safety net protects against mismanagement" of bank-run funds, he said.

At the same time, the SEC's hands are tied when it comes to looking for conflicts of interest and other operational problems at bank mutual funds, he said,

It will be only a matter of time before customers recognize these shortcomings and pull out of bank funds, Mr. Beese believes. "Just one or two scandals" could cause a stampede, he said.

Banks could scotch potential problems by backing a proposed bill that would place their mutual fund activities squarely under the SEC's jurisdiction, Mr. …

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