[Federal Register Volume 63, Number 26 (Monday, February 9, 1998)]
[Rules and Regulations]
[Pages 6472-6473]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-3191]
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DEPARTMENT OF THE TREASURY
Office of the Comptroller of the Currency
12 CFR Part 9
[Docket No. 98-02]
RIN 1557-AB63
Fiduciary Activities of National Banks
AGENCY: Office of the Comptroller of the Currency, Treasury.
ACTION: Final rule.
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SUMMARY: The Office of the Comptroller of the Currency (OCC) is
amending its rules governing national banks' fiduciary activities by
issuing an interpretive ruling to clarify the types of investment
advisory activities that come within the scope of these rules. This
action will assist banks in determining the extent to which their
investment advisory activities are subject to the OCC's fiduciary
rules.
EFFECTIVE DATE: March 11, 1998.
FOR FURTHER INFORMATION CONTACT: Andrew Gutierrez, Senior Attorney,
Legislative and Regulatory Activities Division, (202) 874-5090; Lisa
Lintecum, Director, Asset Management, (202) 874-5419; Dean Miller,
Special Advisor, Fiduciary Activities, (202) 874-4852; Laurie Edlund,
National Bank Examiner, Fiduciary Activities, (202) 874-3828; Donald
Lamson, Assistant Director, Securities and Corporate Practices
Division, (202) 874-5210, Office of the Comptroller of the Currency,
250 E Street, SW, Washington, DC 20219.
SUPPLEMENTARY INFORMATION:
Background
1996 Revision of 12 CFR Part 9
On December 30, 1996, the OCC issued a final rule revising 12 CFR
part 9, effective January 29, 1997 (61 FR 68543). Among other changes,
the final rule revised the terms that specify the types of activities
governed by part 9. In particular, the final rule replaced the former
regulation's terms ``fiduciary'' and ``managing agent'' with the term
``fiduciary capacity,'' found at Sec. 9.2(e). Under the revised part 9,
if a national bank acts in a fiduciary capacity while engaging in an
activity, then part 9 governs that activity.
One of the fiduciary capacities set forth in Sec. 9.2(e) is
``investment adviser, if the bank receives a fee for its investment
advice.'' The concept of investment adviser for a fee is new to part 9,
and the OCC's addition of this term to the list of fiduciary capacities
raised questions from the banking industry about what activities entail
providing investment advice for a fee.
Interpretive Letter #769
In response to these inquiries, the OCC issued Interpretive Letter
#769 (January 28, 1997). In that interpretive letter, the OCC clarified
that ``investment adviser'' generally means a national bank that is
providing advice or recommendations concerning the purchase or sale of
specific securities, such as a national bank engaged in portfolio
advisory and management activities (including acting as investment
adviser to a mutual fund). Moreover, the OCC explained that the
qualifying phrase ``if the bank receives a fee for its investment
advice'' excludes from part 9's coverage those activities in which
investment advice is merely incidental to other services. Generally, if
a national bank receives a fee for providing services, and a
significant portion of that fee is attributable to the provision of
investment advice (i.e., advice or recommendations concerning the
purchase or sale of specific securities), then part 9 governs that
activity. In effect, the OCC explained, the new term ``fiduciary
capacity'' generally includes those activities that the former
regulation covered and does not capture additional lines of business.
In the interpretive letter, the OCC indicated that it generally
will consider full-service brokerage services to involve investment
advice for a fee only if a non-bank broker engaged in that activity is
considered an investment adviser under the Investment Advisers Act of
1940 (Advisers Act) (15 U.S.C. 80b-1 et seq.).1 The Advisers
Act, at section 202(a)(11)(C) (15 U.S.C. 80b-2(a)(11)(C)), excludes
from its definition of investment adviser any broker or dealer whose
performance of investment advisory services is solely incidental to the
conduct of its business as a broker or dealer and who receives no
special compensation for providing investment advice.
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\1\ Banks are excluded from the Advisers Act's definition of
investment adviser. 15 U.S.C. 80b-2(a)(11)(A).
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The OCC also addressed in the interpretive letter whether certain
other activities came within the scope of part 9.
Proposed Rule
On July 9, 1997, the OCC proposed to add a new interpretation to
part 9, at Sec. 9.101, codifying the clarification contained in
Interpretive Letter #769 (62 FR 36746). The OCC invited comments on any
aspect of that proposal, including suggestions on whether any specific
activities should be added to or removed from the list of activities
that do not generally entail providing investment advice for a fee,
found at proposed Sec. 9.101(b)(2) (the ``list of excluded
activities'').
Summary of Comments and Final Rule
The OCC received seven comment letters in response to the July 9,
1997, proposal. Six of the seven commenters explicitly supported the
proposal, and no commenter opposed it. Several of the commenters
suggested minor modifications to the list of excluded activities.
[[Page 6473]]
One commenter recommended that the OCC modify three of the items on
the list of excluded activities, proposed Sec. 9.101(b)(2) (ii), (iv),
and (v), to mirror the more specific language in OCC Bulletin 97-22
(May 15, 1997) (the OCC's Q&As on revised 12 CFR part 9). The OCC
agrees the additional detail in the OCC Bulletin is helpful, and thus
is following that recommendation.
Another commenter recommended that the OCC add to the list of
excluded activities, advice or information with respect to an employee
benefit plan governed by the Employee Retirement Income Security Act of
1974 (ERISA) that is not deemed ``investment advice'' under ERISA. The
OCC agrees that, with respect to employee benefit plans, ERISA should
govern whether or not an activity involves ``investment advice'' and,
more generally, whether or not an activity is fiduciary in nature.
Thus, with respect to employee benefit plans, whether a national bank
is considered a fiduciary under ERISA determines whether it is a
fiduciary under part 9. The OCC believes that this principle is
understood generally, and thus is not addressing the issue in this
final rule.
A third commenter recommended that the OCC add estate planning and
retirement counseling services to the list of excluded activities. The
OCC believes that estate planning and retirement counseling can vary
widely in the types of advice and services offered and, in some cases,
may involve investment advice within the scope of part 9. Consequently,
the OCC is not including the recommended exemption, but rather will
address these activities on a case-by-case basis as questions arise.
A fourth commenter recommended that the OCC modify proposed
Sec. 9.101(b)(2)(ii)--the paragraph that excludes investment advice
authorized under 12 U.S.C. 24(Seventh) as an incidental power necessary
to carry on the business of banking--to limit that exclusion to
situations that do not involve the exercise of substantial investment
discretion. However, under part 9, if a bank exercises investment
discretion, it is acting in a fiduciary capacity, as defined at
Sec. 9.2(e). Whether or not the bank is also providing investment
advice for a fee does not affect the fact that it is acting in a
fiduciary capacity. Consequently, the OCC believes that the recommended
modification is not necessary.
Regulatory Flexibility Act
Pursuant to section 605(b) of the Regulatory Flexibility Act, the
OCC certifies that this final rule will not have a significant economic
impact on a substantial number of small entities in accord with the
spirit and purposes of the Regulatory Flexibility Act (5 U.S.C. 601 et
seq.). Accordingly, a regulatory flexibility analysis is not required.
This final rule merely clarifies the scope of the 12 CFR part 9, and
does not add any new requirements.
Executive Order 12866
The Office of Management and Budget has concurred with the OCC's
determination that this final rule is not a significant regulatory
action under Executive Order 12866.
Unfunded Mandates Reform Act of 1995
The OCC has determined that this final rule will not result in
expenditures by state, local, and tribal governments, or by the private
sector, of $100 million or more in any one year. Accordingly, a
budgetary impact statement is not required under section 202 of the
Unfunded Mandates Reform Act of 1995. This final rule merely clarifies
the scope of 12 CFR part 9 and does not add any new requirements.
List of Subjects in 12 CFR Part 9
Estates, Investments, National banks, Reporting and recordkeeping
requirements, Trusts and trustees.
Authority and Issuance
For the reasons set out in the preamble, chapter I of title 12 of
the Code of Federal Regulations is amended as follows:
PART 9--FIDUCIARY ACTIVITIES OF NATIONAL BANKS
1. The authority citation for part 9 continues to read as follows:
Authority: 12 U.S.C. 24(Seventh), 92a, and 93a; 15 U.S.C. 78q,
78q-1, and 78w.
2. A new Sec. 9.101 is added under the undesignated centerheading
``Interpretations'' to read as follows:
Sec. 9.101 Providing investment advice for a fee.
(a) In general. The term ``fiduciary capacity'' at Sec. 9.2(e) is
defined to include ``investment adviser, if the bank receives a fee for
its investment advice.'' In other words, if a bank is providing
investment advice for a fee, then it is acting in a fiduciary capacity.
For purposes of that definition, ``investment adviser'' generally means
a national bank that provides advice or recommendations concerning the
purchase or sale of specific securities, such as a national bank
engaged in portfolio advisory and management activities (including
acting as investment adviser to a mutual fund). Additionally, the
qualifying phrase ``if the bank receives a fee for its investment
advice'' excludes those activities in which the investment advice is
merely incidental to other services.
(b) Specific activities--(1) Full-service brokerage. Engaging in
full-service brokerage may entail providing investment advice for a
fee, depending upon the commission structure and specific facts. Full-
service brokerage involves investment advice for a fee if a non-bank
broker engaged in that activity is considered an investment adviser
under the Investment Advisers Act of 1940 (15 U.S.C. 80b-1 et seq.).
(2) Activities not involving investment advice for a fee. The
following activities generally do not entail providing investment
advice for a fee:
(i) Financial advisory and counseling activities, including
strategic planning of a financial nature, merger and acquisition
advisory services, advisory and structuring services related to project
finance transactions, and providing market economic information to
customers in general;
(ii) Client-directed investment activities (i.e., the bank has no
investment discretion) where investment advice and research may be made
available to the client, but the fee does not depend on the provision
of investment advice;
(iii) Investment advisory activities incidental to acting as a
municipal securities dealer;
(iv) Real estate management services provided to other financial
institutions;
(v) Real estate consulting services, including acting as a finder
in locating, analyzing, and making recommendations regarding the
purchase of property, and making recommendations concerning the sale of
property;
(vi) Advisory activities concerning bridge loans;
(vii) Advisory activities for homeowners' associations;
(viii) Advisory activities concerning tax planning and structuring;
and
(ix) Investment advisory activities authorized by the OCC under 12
U.S.C. 24(Seventh) as incidental to the business of banking.
Dated: February 3, 1998.
Eugene A. Ludwig,
Comptroller of the Currency.
[FR Doc. 98-3191 Filed 2-6-98; 8:45 am]
BILLING CODE 4810-33-P
