Investment Company Institute -44 subject banks to the usual regulatory and disclosure obliga tions under the Advisers Act, including a prohibition on unfair performance fees. Thus, consideration of Glass-Steagall Act amendments must be coupled with an examination of whether a comprehensive restructuring and reallocation of the regulatory burdens and benefits of the banking business and the securities industry is necessary in order to acheive regulatory equality as part of a truly "level playing field." Attached as Appendix B is a legislative proposal which would foster equality of regulation and enhance investor protections with respect to banks' mutual fund activities. - Need for Reciprocal Expansion of the Powers Expansion of banks' activities into the mutual fund busi- - regis nvestment Company Institute -45 An enhancement of the powers of mutual fund investment advisers to grant them the powers of national banking associations is an essential complement to new powers proposed to be granted to banking institutions. Moreover, the McFadden Act and the Douglas Amendment, which prevent banking institu- Thus, if advisers were granted national banking associa- See Mehle, supra, at 10. Investment Company Institute -46 Attached as Appendix C is draft legislation which would provide for such a reciprocal enhancement of the powers of mutual fund advisers. Impact on the Public - Lack of Adequate Investor Protections The division of statutory and regulatory authority which would result from S. 1720 presents numerous problems. For example, the Investment Company Act and the Advisers Act are complementary statutes, designed to protect investment company investors by requiring disclosure of meaningful information and by providing protection against conflicts of interest. The public requires the protection of all these measures when they invest in a bank-sponsored fund, just as much as they do when investing in a non-bank mutual fund. Moreover, the public would also be benefitted if the system of regulation were administered by the only agency ́whose specific mandate is the protection of investors, and the only agency with more than 40 years of experience dealing with the problems of investment companies and investment advisers, the Securities and Exchange Commission. The public would also benefit if bank brokers and dealers were subject to the same high standards of training, experience, and conduct as are all other brokers and dealers in the securities industry. Again, the regulatory body best suited to insure Investment Company Institute -47 that these standards are met would appear to be the SEC or the NASD, both of which have decades of experience in the field.* While there are enough problems in excluding the SEC from its full role in connection with bank mutual funds, the situation is made still worse by virtue of the fact that regulatory responsibility is further fractionalized due to the split jurisdiction of the banking regulators. The likely result of this division of responsibility will be inconsistent regulations with respect to functionally identical activities, not merely between the SEC and banking regulators, but among the different banking regulatory bodies themselves.**. As a consequence, investors in funds subject to different agency oversight may be forced to rely not only on regulations that provide different degrees of investor protection, but also on varying degrees of agency enforcement zeal. The SEC has acted to safeguard the interests of investors since its creation in 1934. Similarly, the NASD, which supervises the activities of member brokers and dealers, has had rules of practice which safeguard investors since 1938. ** See Hackley, Our Baffling Banking System, 52 Virginia L. Rev. 565, 567 (1966). The liberal rulings of Comptroller of the Currency James T. Saxon exacerbated the disparities during the early 1960's, so much so that the Wall Street Journal stated that "there is something wrong with a regulatory system that not only keeps the regulators fighting among themselves but sets to shopping around for softer-hearted supervision", Wall Street Journal, Aug. 5, 1964 at 10, Col. 2. Investment Company Institute -48 Conceivably, some investors could be provided with remedies to correct the effects of violations of the law in connection with their investments, while other investors may have no such remedies.* Since the market for financial services is a national market, the public would benefit if uniform standards, administered by an experienced regulatory body, were applicable to functionally identical activities. Any expansion of banks' permitted activities in the securities field should be accompanied by measures which fully protect investors and customers of bank investment products and services. The banking laws are neither oriented toward, nor adequate for, this task. This fact was no better summarized than by Professor William Cary, then Chairman of the Securities and Exchange Commission, in Congressional testimony in 1963: The great objectives of banking regulation are controls over the flow of credit in the monetary system, the maintenance of an effective banking structure, and the protection of depositors. These objectives neither utilize the same tools nor achieve the same ends as investor protection. The purpose of disclosure is to place the investor in a position to make an informed judgment on the merits of a security, and to provide a basis for comparing that security with others issued by companies in the same or different industries. Essentially this purpose is achieved This would depend, of course, on the final resolution of the status of private rights of action under the securities laws. |