32.2 Security Reporting and Retail Nondeposit Investments

Annual Board Security Reporting

The security officer reports to the board at least annually on program effectiveness. A written record covering incidents, devices and improvements is useful evidence, but Section 326.4 does not prescribe that exact report format.

In 1994, federal banking regulators (OCC, FRB, FDIC, OTS) jointly issued the Interagency Statement on Retail Sales of Nondeposit Investment Products (RNDIP). The guidance addresses consumer protection concerns arising when retail banking customers purchase non-deposit investment products on bank premises, ensuring that customers do not mistakenly believe that investment securities carry FDIC insurance or are obligations of the depository institution.

Scope of Covered Products and Entities

RNDIP guidance applies to any retail recommendation, sale, or referral of non-deposit investment products:

• Covered Products: Mutual funds, fixed and variable annuities, individual equity securities (stocks), corporate and municipal bonds, unit investment trusts (UITs), and commercial paper;
• Excluded Products: Insured certificates of deposit (CDs), standard retail deposit accounts, and traditional trust department accounts administered under formal fiduciary standards;
• Covered Sales Channels: Sales conducted directly by bank employees, sales conducted by bank affiliates, and sales conducted by unaffiliated third-party registered broker-dealers operating on bank premises or through bank digital channels (networking arrangements).

Physical Setting and Spatial Separation

To prevent customer confusion, depository institutions should manage the physical setting to avoid confusion between retail banking and investment sales:

• Distinct Physical Location: RNDIP sales, consultations, and promotional displays should be conducted in a physical setting separate from deposit-taking where practicable from the area where retail deposits are taken.
• Teller Counter Prohibition: Tellers and customer service staff are strictly prohibited from offering, selling, or advising on RNDIP at teller windows or transaction counters. A bank cannot allow an employee to accept a retail deposit and process a mutual fund order at the same workstation desk.
• Clear Visual Signage: The investment sales area must display prominent signage identifying the registered broker-dealer and clarifying that investment products offered in that area are not insured bank deposits.

The Mandatory "Not-Not-May" Disclosures

Before or at the time a customer opens an investment account or executes an RNDIP transaction, the customer must receive clear, standardized disclosures delivered both orally and in writing:

• Signed Written Acknowledgment: At account opening, the financial institution or broker-dealer must obtain a written acknowledgment signed by the customer confirming receipt of the disclosures.
• Abbreviated Disclosures in Advertising: All marketing materials, advertisements, and promotional brochures should carry appropriate conspicuous disclosures. The short form "Not FDIC Insured | No Bank Guarantee | May Lose Value" is permitted in appropriate advertising; the guidance does not require that exact logo in every medium.

Employee Qualifications and Referral Compensation Rules

Compliance officers must enforce strict regulatory boundaries separating licensed investment professionals from unlicensed retail bank staff:

• Dual-Hatting and Licensing: Determine whether securities activity requires broker-dealer registration and appropriately registered representatives, or fits a lawful bank exception such as Regulation R. The ordinary retail referral arrangement should not give unregistered tellers investment-advice or transaction authority.
• Teller and Platform Referral Restrictions: Unlicensed bank employees (such as tellers, loan processors, or customer service representatives) may only introduce or refer customers to licensed investment representatives. They cannot discuss investment performance, asset allocation, or specific securities products.
• Permissible Referral Compensation: An unlicensed bank employee may receive only a one-time nominal referral fee of a fixed dollar amount for referring a customer.
• Strict Non-Contingent Rule: The referral fee cannot be contingent on whether the customer actually opens an investment account, completes a transaction, or purchases an investment product! Paying variable commissions or transaction-contingent referral bonuses to unlicensed platform staff violates federal interagency guidance.

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Comparison: Bank Bribery Safe Harbors vs. RNDIP Standards vs. Insured Deposits

Minimum security devices and reporting

The Bank Protection Act rules specify a means of protecting cash and valuables, lighting for a vault area when opened after dark, tamper-resistant locks and an alarm system or other appropriate device. The security officer selects additional devices considering crime, valuables, distance to law enforcement and other factors. Cameras can be appropriate but are not a universal prescribed minimum device. The security officer reports at least annually on effectiveness; a written report with incidents and corrective action is a useful governance practice, rather than a universally specified report format in the rule. Gift limits in a bank’s ethics policy are controls, not statutory safe harbors for corrupt intent. A corrupt benefit above one thousand dollars can carry up to thirty years’ imprisonment, making the offense Class B under federal classification. A normal expense or modest gift is not immune if used corruptly to influence bank business.