Internal Control Questionnaires and Verification Procedures

Compliance Program

1. Do audit or compliance personnel:

   1. Determine the scope and frequency of their own nondeposit investment sales program reviews?

   2. Report their findings directly to the board of directors or an appropriate committee of the board?

   3. Have their performance evaluated by persons independent of the investment product sales function?

   4. Receive compensation that in no way is connected to the success of investment product sales?

   5. Receive training in products and customer protection issues?

   6. Keep abreast of emerging developments in banking and securities laws and regulations through ongoing training?

2. Does the bank’s written compliance program call for periodic reviews to determine compliance with policies, procedures, applicable laws and regulations, and the Interagency Statement? Do those reviews cover:

   1. Customer complaints and their resolution?

   2. Customer correspondence?

   3. Transactions with employees and directors or their business interests?

   4. All advertising and promotional materials?

   5. Scripts or written guidelines for oral presentations?

   6. Training materials?

   7. Regular and frequent reviews of active customer accounts?

   8. Customer responses to suitability inquiries and a periodic comparison of those responses to the type and volume of account activity, with the goal of determining whether the activity in an account is appropriate?

3. Does the compliance program call for compliance personnel to perform continuing reviews of:

   1. Changes in the system for reporting customer complaints and resolutions?

   2. Changes in previously approved standard correspondence with customers?

   3. New advertising and promotional materials prior to use?

   4. Changes in existing training programs or new training programs?

   5. Changes in incentive compensation systems?

   6. New products under development?

4. Does the timing, scope, and frequency of compliance reviews consider factors such as:

   1. Changes or differences in incentive compensation paid on different or new products?

   2. Sales or referral contests?

   3. Patterns of sales for specific, especially new, products?

   4. Patterns of sales to customers who have been identified as risk-averse investors?

   5. New salespeople?

   6. Customer complaints?

5. Does the bank have a system for ensuring that all complaints (written and oral) receive bank management’s attention?

6. Is that system periodically tested by internal audit to determine whether bank management receives notice of all complaints?

7. Does the bank use automated exception reporting systems to flag potential compliance problems?

8. Do reports list:

   1. Sales by product?

   2. Significant or unusual (for the customer) individual sales?

   3. Sales of products the bank considers more volatile to customers whose suitability inquiry responses indicate an aversion to risk?

   4. Customer complaints by product, salesperson, and reason, so that patterns can be discerned?

   5. Unusual performance by salespersons, e.g., high or low volume or single product sales?

   6. Significant volumes of annuity or mutual fund redemptions after short holding periods?

9. Do reports provide adequate information to conduct specific suitability reviews for customers such as:

   1. Risk-averse investors?

   2. First-time investors?

   3. Customers with other narrow investment objectives?

10. Does the bank employ “testers” who pose as prospective customers and test the sales presentations for adherence to customer protection standards?

11. Has the bank instituted a follow-up contact program to verify whether customers understand their investment transactions?

12. Do inquiries in the follow-up contact program include discussion of the customer’s:

    1. Understanding of what he or she has purchased?

    2. Understanding of the investment risks and the absence of deposit insurance coverage?

    3. Initial responses to the salesperson’s suitability inquiry?

    4. Understanding of fees?

    5. Problems or complaints?

    6. Understanding of the bank’s role in the transaction?

13. If the bank operates a follow-up contact program, are records of customers responses maintained?

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