On January 14, 2015, the Office of the Comptroller of the Currency (OCC) updated the booklet in its Comptroller’s Handbook related to Retail Non-Deposit Investment Products (RNDIPs). The updated booklet replaced material originally issued in 1994 and provides helpful guidance to banks offering RNDIPs to retail customers. Structured products, because they are not entirely FDIC-insured, are considered RNDIPs.
The purpose of the updated booklet is to provide clarifications in light of current business practices and to incorporate significant regulatory changes adopted under laws such as the Dodd-Frank Act of 2010.
The updated guidance cautions issuers to pay special attention to the accuracy, transparency, and meaningfulness of the disclosures regarding products that are more complex. The booklet cautions that, because sales practices involving complex securities inherently involve higher risk, heightened supervision is essential for customer protection. The issuance of structured products is repeatedly mentioned as an instance in which additional disclosures are required.
In the section entitled “Risk Management of RNDIP Sales Programs,” the booklet discusses disclosure requirements for structured CDs. The section explains that structured CDs are covered by FDIC insurance up to the current depositor coverage limits, but the coverage does not extend to potential returns. Furthermore, FDIC insurance does not cover possible loss of principal when a client redeems or liquidates the structured CD before maturity. The OCC recommends that issuers use disclosure that accurately reflects these nuances. Readers of this publication are probably aware that most current disclosure documents for structured certificates of deposit describe these issues in fair detail, typically including appropriate risk factors.
The booklet also provides updated guidance for bank examiners, including sample information requests and internal control questionnaires. In regard to structured products, the internal control questionnaire asks if a bank’s compliance reports list sales of products the bank considers more volatile, as well as the frequency of early redemption. Another question asks if the bank requires the broker-dealer to provide sufficient information to facilitate the bank’s oversight of sales practices.
The updated booklet is useful for institutions that recommend and sell RNDIPs to retail customers. Banks can benefit from the detailed explanations of the types of information requests they may receive from OCC examiners. The new guidance provides banks with a framework for risk management that can be integral when preparing for an examination.