Both surveys indicated that many banks and thrifts still were not fully disclosing to their customers the risks associated with mutual fund investing. The survey’s findings on the physical location of the mutual fund sales area were nearly the same as ours, with about 37 percent of the institutions not clearly having separated the mutual fund sales area from the deposit-taking area. However, the interagency guidelines emphasize that bank customers should clearly and fully understand the risks of investing in mutual funds, and that these risks should be orally disclosed to the customer during any sales presentation. However, FDIC’s survey results indicated that many banks and thrifts still need to improve their compliance with the guidelines so that their customers are adequately informed of the risks associated with mutual fund investing. Other efforts are also being undertaken by all four bank and thrift regulators. These interagency efforts include efforts to adopt requirements that bank personnel engaged in the sale of nondeposit investment products take the securities industry’s standard qualifying examinations, better training for bank personnel selling uninsured investment products, reexamination of the interagency policy statement on mutual fund sales. Banking regulators and some banks and thrifts are taking steps to better ensure that the required disclosures are made.
Why GAO Did This Study

GAO discussed the Federal Deposit Insurance Corporation's (FDIC) survey concerning the risks associated with mutual fund investing.

What GAO Found

GAO noted that: (1) sales of mutual funds through banks and thrifts have increased dramatically; (2) the value of assets managed by these institutions doubled from $219 billion in December 1993, to $420 billion in March 1996; (3) 2,800 banks sold over $40 billion in both proprietary and nonproprietary mutual fund shares during 1995; (4) in February 1994, FDIC, the Office of the Comptroller of the Currency, the Federal Reserve, and the Office of Thrift Supervision jointly issued guidelines on the policies and procedures for selling nondeposit investment products; (5) these interagency guidelines require that bank and thrift customers be fully informed of the risks of investing in mutual funds; (6) the guidelines also require that banks' mutual fund sales activities be physically separated from bank deposit activities; (7) the results of the FDIC survey indicate that many banks and thrifts are not disclosing the risks associated with mutual fund investing; and (8) all four bank and thrift regulators are making an effort to ensure that bank personnel pass qualifying examinations and receive better training in selling uninsured investment products, and reexamine the current interagency policy on mutual fund sales.