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Banks privilages { August 29 2002 } Original Source Link: (May no longer be active)
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US banks probed on services given to rich customers
By Gary Silverman in New York
Published: August 29 2002 19:37 | Last Updated: August 29 2002 19:37
US regulators signalled on Thursday they will be increasing their scrutiny of banks that provide investment advice and related services to wealthy customers.
The question of how banks serve the wealthy has become increasingly controversial, raising fears that banks may be taking excessive reputational risks in catering to the rich.
A Congressional committee is investigating whether Citigroup's Salomon Smith Barney unit allocated sought-after shares in initial public offerings to wealthy executives of telecommunications groups, such as WorldCom and Global Crossing, in hopes of winning investment banking work.
The Office of the Comptroller of the Currency, a branch of the Treasury Department that oversees banks, said it was providing its examiners "with expanded examination procedures" for "personal fiduciary services".
In its handbook for examiners, the OCC says: "Personal fiduciary services are part of a growing and competitive market frequently referred to as 'private wealth management', 'private client services' or 'private banking'.
"However these services are described, they usually entail providing a broad range of financial services to affluent persons, their families and their businesses. At the core of these services are fiduciary relationships and investment management."
The handbook says examiners should be mindful that banks need solid reputations to engage in such work and that "negative publicity, whether deserved or not, can damage a bank's ability to compete".
The publication makes it clear that regulators believe boards of directors and senior managers should play an active role in making sure reputational risks are avoided.
"Personal fiduciary services must be managed by or under the direction of the bank's board of directors," it says, adding: "The board and senior management are responsible for ensuring that the fiduciary risk management system includes sound internal controls and an adequate and effective audit program."
The handbook says banks should set up a "due diligence process for reviewing each prospective account." Before accepting an account, banks should ensure they are avoiding conflicts of interest that would impair their ability to "act exclusively in the best interest of the client".
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