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Retail Nondeposit Investment Sales Examination Procedures

All examiners should be familiar with all examination procedures, and should complete any steps they think are necessary. However, there are some reasonable standards for which procedures form the basis of review of certain types of operations:

For a community bank that uses an independent third party vendor to operate its retail sales program, examiners may find it adequate to complete only the Third Party Vendor section of the ICQs and the related examination procedures.

For a bank that operates its own sales program or operates through a joint venture or an affiliated broker/dealer, an examiner will usually find it necessary to complete all sections at the first examination. At subsequent examinations of sales programs with no apparent weaknesses, completion of only the core examination procedures (indicated in bold type) may be adequate. Any concern that surfaces when applying the core procedures may be addressed by expanding the examination.

1. Complete the Internal Control Questionnaire (ICQ). Note explanations for any negative answers and changes since the last examination.

Scope of the Examination

2. To determine the scope of the examination:

a. Meet with senior management of the bank or department to discuss the scope and direction of the retail nondeposit investment sales program.

b. Review the business plan and policy and procedure manual to gain perspective on the nature of the bank's program. Note any significant changes since the last examination.

c. Review compliance and/or audit coverage and reports since the last examination. Note:

- Previously identified strengths and weaknesses, and

Comptroller's Handbook for National Bank Examiners Temporary Insert - February 1994

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Retail Nondeposit Investment Sales Examination Procedures

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An advisory or other relationship between the bank and any affiliate involved in providing nondeposit investment products, and

- Any early withdrawal penalties, surrender charge penalties, and deferred sales charges.

c. Determine whether bank-related sales advertisements are: Accurate, and

Not likely to mislead customers about the nature of the product. d. Review product brochures and advertising to ensure that they do not imply that the bank stands behind an investment product. Also determine whether public statements concerning the selection of the products a bank offers are reasonable.

⚫. Determine whether personnel make any written or oral representations concerning insurance coverage by any entity other than the FDIC, e.g., Securities Investor Protection Corporation (SIPC); a state insurance fund; or an insurance com

Comptroller's Handbook for National Bank Examiners Temporary Insert - February 1994

Section 413.3


If representations about non-FDIC
insurance coverage are made,
determine whether:
-Each appropriate person who

has contact with customers is
trained concerning the differ-
ences among those coverages,

Written or oral explanations of the differences in coverage are provided to all customers.


12. Judge whether systems in place are adequate to ensure that sales personnel make suitable recommendations and whether management is discharging its responsibilities under these systems by reviewing:

• Responses to the Suitability section of the ICQ,

• Customer complaints and resolutions,

• Sales patterns,

• Compensation differentials that may influence recommendations, and

• Compliance and/or audit reports.

13. If your findings in 12, above, are negative or uncertain, review a sample of sales to determine if transactions appear unsuitable for a customer, based on responses to the suitability inquiries. The sample should include transactions involving:

Customer complaints.

Marketing programs that target a class of customers,

First-time and risk-averse investors. High or low volume salespersons. • More volatile and newer products. and

• Redemptions of annuities or mutual funds after relatively short holding periods.

14. If, after the review in 13, above, you are still not certain that recornmenda

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