Reg R: RNDIP Flashcards
What are the three minimum disclosure requirements that are required for retail nondeposit investment customers so that they are away of the nature and risks associated with the investment?
Investments
- are not insured by the FDIC
- are not deposits or obligations of the institution and are not guaranteed by the bank
- are subject to investment risk, including loss of the principal
How and when are the disclosures provided for the following:
- During the sales presentation
- When providing investment advice concerning nondeposit investment advice
- Before the opening of an investment account
- Advertisements
- orally during the sales presentation
- orally when providing investment advice concerning nondeposit products
- orally and in writing before the opening of an investment account
- in all advertisements
Customers must do what when they receive the disclosures?
Customers must acknowledge the disclosures in writing with a statement that the customer understands the disclosures
What is the abbreviated disclosure that may be used on advertisements?
Not FDIC Insured, No Bank Guarantee, May Lose Value.
In regards to product naming conventions, are there any specific requirements as far as how a NDIP is named?
Yes, it must not have a name that is identical or similar to names of a depository institution or retail deposit product.
Definition: A natural person who individually or jointly with a spouse has a net worth of at least $5 million, excluding a primary residence and associated liabilities.
High-net-worth customer
Definition: A corporation, partnership, LLC, trust or other non-natural person that has, or is controlled by a non-natural person that has, at least
$10 million in investments, or
$20 million in revenue, or
$15 million in revenue if the bank employee refers the customer to the broker for investment banking services.
Institutional customer
Definition: A test that may be satisfied if the amount of “relationship compensation” it earns constitutes specified percentages of the total compensation received on its trust and fiduciary accounts.
Chiefly compensated test
T/F: Trust and fiduciary activities are exempt from registration if the trust department is chiefly compensated for the transaction according to the rule.
T
Which of the following is NOT a requirement of the Interagency Statement on Retail Sales of Nondeposit Investments?
a. That employees selling nondeposit investments receive special training on the products they sell
b. That all bank employees receive special training on the nondeposit investment products sold by the bank
c. That employees selling nondeposit investments ensure that the product is suitable to the customer purchasing it
d. That the history of employees selling nondeposit investments be checked before their employment
b. That all bank employees receive special training on the nondeposit investment products sold by the bank
This is the only answer not required by the policy statement.
Which of the following bank products is NOT subject to the disclosure provisions of the Interagency Statement on Retail Sales of Nondeposit Investment Products?
a. Fixed-rate annuities
b. Variable-rate annuities
c. Variable-rate savings accounts
d. Mutual funds
c. Variable-rate savings accounts
The savings account is a deposit; the guidance only applies to nondeposits.
State National Bank has a Web site on which it advertises all of its products. One page of the Web site is devoted to the products of its affiliate, State National Investment Products, Inc. The affiliate sells uninsured mutual funds and various other investments not insured by the FDIC. What are State National’s responsibilities for this advertising?
a. None. The affiliate is responsible.
b. None. Because it is a Web site, the advertising rules do not apply.
c. The bank must make sure the FDIC logo is properly placed.
d. The bank must make sure that the noninsured disclosures are on this page and that the FDIC logo does not appear.
d. The bank must make sure that the noninsured disclosures are on this page and that the FDIC logo does not appear.
A bank is considering canceling its agreement with a broker to which it currently leases space in its lobby. The new plan would include an agreement with a different broker, but bank employees would complete product sales. What should the compliance manager do FIRST?
a. Establish a licensing program for bank employees
b. Establish a training plan for employees who will be selling the nondeposit investment products
c. Obtain copies of SEC and NASD rules regarding nondeposit investment products
d. Determine the additional compliance risk for the bank as a result of this change
d. Determine the additional compliance risk for the bank as a result of this change
When considering a change of practice of this magnitude, it is best to assess the compliance risk before going forward
What is the broker-dealer network exception?
Allows the bank to enter into a contractual or other written arrangement with a registered broker-dealer, where the registered broker-dealer will offer brokerage services to the bank’s customers.
Under the broker-dealer network exception, can the broker-dealer compensation the referring employee directly?
No. The broker-dealer may pay the bank, who may then compensate the referrer, but the broker-dealer is prohibited from compensating unregistered employees.