[Federal Register Volume 60, Number 245 (Thursday, December 21, 1995)]
[Proposed Rules]
[Pages 66163-66179]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-30971]
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DEPARTMENT OF THE TREASURY
12 CFR Parts 9 and 19
[Docket No. 95-32]
RIN 1557-AB12
Fiduciary Activities of National Banks; Rules of Practice and
Procedure
AGENCY: Office of the Comptroller of the Currency, Treasury.
ACTION: Notice of proposed rulemaking.
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SUMMARY: The Office of the Comptroller of the Currency (OCC) proposes
to revise its rules that govern the fiduciary activities of national
banks. The OCC also proposes to relocate provisions concerning
disciplinary sanctions imposed by clearing agencies to its rules of
practice and procedure. This proposal is another component of the OCC's
Regulation Review Program, which is intended to update and streamline
OCC regulations and to reduce unnecessary regulatory costs and other
burdens.
DATES: Comments must be received by February 20, 1996.
ADDRESSES: Comments should be directed to: Communications Division,
Office of the Comptroller of the Currency, 250 E Street, SW,
Washington, DC 20219, Attention: Docket No. 95-32. Comments will be
available for public inspection and photocopying at the same location.
In addition, comments may be sent by facsimile transmission to FAX
number (202) 874-5274 or by electronic mail to
[email protected]
FOR FURTHER INFORMATION CONTACT: Andrew T. Gutierrez, Attorney,
Legislative and Regulatory Activities Division, (202) 874-5090; Donald
N. Lamson, Assistant Director, Securities and Corporate Practices
Division, (202) 874-5210; Lisa Lintecum, Director, Fiduciary
Activities, (202) 874-5419; Dean Miller, Special Advisor, Fiduciary
Activities, (202) 874-4852; Aida M. Plaza, Director for Compliance,
Multinational Banking, (202) 874-4610.
SUPPLEMENTARY INFORMATION:
Background
The OCC proposes to revise 12 CFR part 9, which governs the
fiduciary activities of national banks, as a component of its
Regulation Review Program. One goal of the Regulation Review Program is
to review all of the OCC's rules with a view toward eliminating
provisions that do not contribute significantly to maintaining the
safety and soundness of national banks or to accomplishing the OCC's
other statutory responsibilities, including the oversight of national
banks' fiduciary activities. Another goal of the Program is to improve
clarity of the OCC's regulations.
This rulemaking is the OCC's first comprehensive revision of the
rule since 1963.\1\ Much about national banks' fiduciary business has
changed since that time, including the nature and scope of the
fiduciary services that banks offer and the structures and operational
methods that banks use to deliver those services. The OCC's particular
goal in revising part 9 is to accommodate those changes by lifting
unnecessary regulatory burden and facilitating the continued
development of national banks' fiduciary business consistent with safe
and sound banking practices and national banks' fiduciary obligations.
Three principal themes have emerged from the OCC's review of part 9.
\1\ National banks have been authorized to exercise fiduciary
powers since 1913. In 1962, the responsibility for the oversight of
their fiduciary activities was transferred from the Board of
Governors of the Federal Reserve System to the OCC. See 12 U.S.C.
92a. Following the transfer of oversight responsibilities, the OCC
promulgated 12 CFR part 9 in 1962 (27 FR 9764), and revised it soon
thereafter in 1963 (28 FR 3309).
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First, bank organizational structures, particularly with respect to
the geographic structure of banking organizations, have changed
significantly since Congress created the basic framework for national
banks' fiduciary operations. These changes strongly suggest that part 9
should be adjusted so that its requirements are more workable for both
large, multistate fiduciary banking organizations and small banks that
conduct fiduciary activities primarily on a local basis.
Second, national banks' fiduciary activities, in many respects, are
subject to state law. In some cases, however, the OCC has the
flexibility either to prescribe a uniform Federal standard or to direct
national banks to follow state law.
Third, over the years, part 9 has been applied to a wide variety of
investment advisory activities and related services, not all of which
involve the bank's exercise of investment discretion. In some cases,
banks engaged in these activities are subject to different standards
than other types of entities that conduct the same type of business,
raising the question of whether the OCC should narrow the range of
investment advisory activities to which part 9 applies.
These three themes form the basis for requests for comment on
specific provisions and issues described in detail in the remainder of
this preamble discussion.
More generally, the proposal revises part 9 in its entirety. The
proposal updates, clarifies, and streamlines part 9, incorporates
significant interpretive positions, and eliminates unnecessary
regulatory burden wherever possible to promote more efficient operation
and supervision of national banks' fiduciary activities. The proposal
adds headings for ease of reference, but, for the most part, retains
the numbering system used in the current regulation. Commenters are
invited to address all aspects of the proposal, including recommending
further improvements to its organization, structure, and content.
Section-by-Section Description of the Proposal
Authority, Purpose, and Scope (Proposed Sec. 9.1)
The proposal adds a new provision that explicitly sets forth the
statutory authority for, and the purpose and scope of, part 9. In
addition to standards found in part 9, the OCC provides guidance
(including policies, procedures, precedents, circulars, and bulletins)
regarding the fiduciary activities of national banks in the
``Comptroller's Handbook for Fiduciary Activities.'' The OCC currently
is revising the guidance contained in the ``Comptroller's Handbook for
Fiduciary Activities.'' The OCC anticipates that the revised fiduciary
guidance will consist of a
[[Page 66164]]
series of booklets in a comprehensive ``Comptroller's Handbook,'' which
will replace the ``Comptroller's Handbook for Fiduciary Activities''
and other OCC guidance currently found in separate publications.
Definitions (Proposed Sec. 9.2)
The proposal moves the definitions currently found at Sec. 9.1 to
proposed Sec. 9.2. Some definitions are removed, and others are added.
Significant changes are noted below.
Affiliate (Proposed Sec. 9.2(a))
The proposal adds a definition of ``affiliate'' to part 9. This
definition cross-references the definition in the Federal Reserve Act
at 12 U.S.C. 221a(b), which is consistent with the way the OCC defines
the term ``affiliate'' in a number of its other regulations.
Applicable Law (Proposed Sec. 9.2(b))
The current regulation uses the term ``local law,'' as defined at
Sec. 9.1(g), to refer to the laws of the state or other jurisdiction
governing a fiduciary relationship. The proposal replaces ``local law''
with ``applicable law'' in order to streamline some of the operative
provisions of part 9 and to make clear that the bodies of authority
that govern a national bank's fiduciary relationships include Federal
law (including regulations), state law governing a national bank's
fiduciary relationships (that is, fiduciary duties and
responsibilities) the terms of the instrument governing a fiduciary
relationship, and any court order pertaining to the relationship. The
Federal law relevant to a national bank's fiduciary activities
includes, for example, provisions of the Federal banking laws (12
U.S.C. 1 et seq.), the Employee Retirement Income Security Act of 1974
(29 U.S.C. 1001 et seq.), the Securities Act of 1933 (15 U.S.C. 77a et
seq.), the Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.), the
Investment Company Act of 1940 (15 U.S.C. 80a-1 et seq.), the
Investment Advisers Act of 1940 (15 U.S.C. 80b-1 et seq.), the Trust
Indenture Act of 1939 (15 U.S.C. 77aaa et seq.), the Internal Revenue
Code of 1986 (26 U.S.C. 1 et seq.), and the rules issued pursuant to
those acts. The OCC does not intend the term ``applicable law'' to
incorporate any state law or other body of authority that would not
otherwise apply to a national bank's fiduciary relationships. The OCC
invites comment on the adequacy of this definition.
Fiduciary Capacity (Proposed Sec. 9.2(e))
Under the current regulation, the term ``fiduciary,'' defined at
Sec. 9.1(b), includes ``a bank undertaking to act alone or jointly with
others primarily for the benefit of another in all matters connected
with its undertaking'' and goes on to list the ``traditional''
fiduciary capacities enumerated by 12 U.S.C. 92a: Trustee, executor,
administrator, registrar of stocks and bonds, guardian of estates,
assignee, receiver, and committee of estates of lunatics. The proposed
definition of ``fiduciary capacity'' retains the current regulation's
list of traditional fiduciary capacities with minor modification. For
example, the phrase ``committee of estates of lunatics'' is removed
because it is outdated and because the definition of the term
``guardian'' is broad enough to encompass that capacity. The proposed
definition also clarifies that acting as registrar of stocks and bonds
includes acting as transfer agent.
The current regulation's definition of ``fiduciary'' also includes
fiduciary capacities that are not listed in the fiduciary powers
statute. These capacities include ``managing agent'' and, as a catch-
all category, ``any other similar capacity.''
The proposal attempts to establish a clearer and more objective
boundary for the coverage of part 9 while retaining the traditional
concept that acting on another's behalf is at the heart of serving in a
fiduciary capacity. Under the proposal, the term ``fiduciary capacity''
includes, in addition to the statutory fiduciary capacities, ``any
capacity involving investment discretion on behalf of another'' and
``any other similar capacity that the OCC authorizes pursuant to 12
U.S.C. 92a.'' 2 The proposal uses investment discretion as the
factor that distinguishes fiduciary from non-fiduciary investment
advisory activities. Thus, under the proposal, part 9 applies to (and,
accordingly, requires a national bank to obtain fiduciary powers for)
any investment advisory activity in which the bank manages the assets
of another. Conversely, a national bank is not subject to part 9 with
respect to an activity in which the bank does not have investment
discretion, unless, of course, the bank acts in one of the
``traditional'' fiduciary capacities. For example, part 9 does not
govern a directed custodian account (absent a ``traditional'' fiduciary
capacity) because the customer, and not the bank, has investment
discretion, although the bank may provide advice about investments
appropriate to the customer's objectives. The proposed investment
discretion test affects only those activities in which the bank does
not act in one of the enumerated ``traditional'' fiduciary capacities.
Part 9 continues to apply to activities in which the bank acts in a
``traditional'' fiduciary capacity regardless of whether the bank has
investment discretion, e.g., self-directed IRA accounts for which the
bank is a named trustee.
\2\ The term ``fiduciary capacity'' under the proposal also
includes acting as a custodian under a uniform gifts to minors act,
because a custodian under a uniform gifts to minors act is a
fiduciary under current part 9.
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As an alternative to using investment discretion as the dividing
line between fiduciary and non-fiduciary investment advisory
activities, the OCC could adopt an approach that relies on state law.
Under a state law approach, for example, part 9 would apply to a
national bank's investment advisory activity if that activity, when
engaged in by competing state fiduciaries, requires state authorization
and is regulated as a fiduciary activity under state law. Thus, the
applicability of part 9 to a national bank's investment advisory
activities could differ among states. The OCC invites comment on this
and other alternative approaches to defining which investment advisory
activities to regulate under part 9.
Adopting an approach that excludes some types of investment
advisory activities from part 9's coverage raises the question of how
to oversee these ``non-fiduciary'' investment advisory activities. Some
of these activities already are subject to the Interagency Statement on
Retail Sales of Nondeposit Investment Products (February 14,
1994),3 the anti-fraud provisions of the Securities Exchange Act
of 1934, and the recordkeeping and confirmation requirements for
brokerage customers under the OCC's rules at 12 CFR part 12. In
addition, a national bank must conduct its investment advisory
activities (as with all its activities) in a manner consistent with
safe and sound banking practices. Furthermore, the national bank must
adhere to any conditions imposed by the OCC in writing in connection
with approval of an application or request. The OCC invites comment on
whether these existing regulatory safeguards are adequate to regulate
non-fiduciary investment advisory activities. If the existing
safeguards are not adequate, the OCC invites comment on what additional
safeguards are appropriate.
\3\ The four Federal banking agencies have recently issued a
clarification of the Interagency Statement. See ``Joint
Interpretation of the Interagency Statement on Retail Sales of
Nondeposit Investment Products (September 12, 1995).
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For example, even if the OCC adopts the investment discretion
approach, the OCC could continue to subject non-discretionary
investment advice to pertinent provisions of part 9 (e.g., those
[[Page 66165]]
governing self-dealing and conflicts of interest). Alternatively, the
OCC could use provisions of the Investment Advisers Act of 1940
(Advisers Act) 4 as a point of reference. Under the Advisers Act,
as implemented by the Securities and Exchange Commission (SEC),5
an investment adviser must, among other things: (1) Provide clients and
prospective clients with a written disclosure statement about the
adviser's business practices and educational and business background;
(2) comply with specific contractual requirements in their dealings
with clients, including a prohibition against assigning an advisory
contract without client consent and restrictions on performance fee
arrangements; (3) comply with prohibitions against misstatements or
misleading omissions of material facts and fraudulent acts or
practices; and (4) comply with anti-fraud provisions dealing with
advertising, solicitations, and custody or possession of client funds.
In addition, the Supreme Court has held that a registered investment
adviser owes its clients an affirmative duty of good faith and full and
fair disclosure of all material facts, especially where the adviser's
interests may conflict with those of its clients.6
\4\ 15 U.S.C. 80b-1-80b-21. Under the Advisers Act, investment
advisers generally must register with the Securities and Exchange
Commission if, for compensation, they engage in the business of
advising others, either directly or through certain types of
publications or writings, as to the value of securities or the
advisability of investing in, purchasing, or selling securities.
Banks and bank holding companies are, for the most part, exempt from
the requirements of the Advisers Act.
\5\ The SEC's rules governing investment advisers are found at
17 CFR part 275.
\6\ See SEC v. Capital Gains Research Bureau, 375 U.S. 180
(1963); Transamerica Mortgage Advisors, Inc., v. Lewis, 444 U.S. 11,
17 (1979).
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Fiduciary Officers and Employees (Proposed Sec. 9.2(f))
The proposal replaces the term ``trust department,'' defined at
Sec. 9.1(j), with the term ``fiduciary officers and employees,'' to
reflect the increasing diffusion of fiduciary functions throughout a
national bank.
Investment Discretion (Proposed Sec. 9.2(j))
As mentioned earlier, the proposal defines the term ``fiduciary
capacity'' to include any capacity involving investment discretion on
behalf of another. The new term ``investment discretion,'' in turn,
includes any account for which a national bank has the authority to
determine what securities or other assets to purchase or sell on behalf
of the account. The OCC considers this term to apply whether or not the
bank itself in fact exercises that discretion or delegates that
function to another.
Approval Requirements (Proposed Sec. 9.3)
Consistent with Sec. 9.2 of the current regulation, the proposal
directs a national bank seeking approval to exercise fiduciary powers
and a person seeking approval to organize a special-purpose national
bank limited to fiduciary powers, to appropriate provisions in 12 CFR
part 5 (rules, policies, and procedures for corporate activities).
Administration of Fiduciary Powers (Proposed Sec. 9.4)
The proposal relocates most of the substance of current Sec. 9.7 to
proposed Sec. 9.4, but relocates provisions in current Sec. 9.7
relating to policies and procedures, review of assets, and
recordkeeping, to other sections specifically addressing those topics
(proposed Secs. 9.5, 9.6, and 9.8, respectively). The proposal also
relocates a provision in current Sec. 9.7 relating to the need for
fiduciary counsel to proposed Sec. 9.5 (policies and procedures).
The proposal continues to place the primary responsibility for a
national bank's fiduciary activities on its directors. Under the
proposal, as under the current rule, the board may assign functions
related to the exercise of fiduciary powers to bank directors,
officers, employees, and committees thereof. The proposal allows a
national bank to use personnel and facilities of the bank to perform
services related to the exercise of its fiduciary powers, and to allow
any department of the bank to use fiduciary officers and employees and
facilities to perform services unrelated to the exercise of fiduciary
powers, to the extent not prohibited by applicable law. The proposal
retains the requirement that all fiduciary officers and employees must
be adequately bonded.
The proposal adds a new provision, at proposed Sec. 9.4(c), to
clarify that a national bank may enter into an agency agreement with
another entity to purchase or sell services related to the exercise of
fiduciary powers. This provision reflects the OCC position contained in
Fiduciary Precedent 9.1300 (found in the ``Comptroller's Handbook for
Fiduciary Activities'').7
7 See also 12 U.S.C. 1867 (regulation and examination of bank
service corporations); Fiduciary Precedent 9.1390 (fiduciary support
services rendered by agent); and Trust Interpretive Letter #168
(August 3, 1988) (use of an affiliate to perform trust
administrative and investment services).
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Policies and Procedures (Proposed Sec. 9.5)
Current Sec. 9.5 requires a national bank to adopt policies and
procedures with respect to brokerage placement practices but not with
respect to other areas of fiduciary practice. The proposal, on the
other hand, requires that a national bank have written policies and
procedures to ensure that its fiduciary practices comply with
applicable law. The proposal lists particular areas that a bank's
policies and procedures should address.
Several of the items on this list of required policies and
procedures stem from provisions located in other sections of the
current regulation, including methods for ensuring that fiduciary
officers and employees do not use material inside information in
connection with any decision or recommendation to purchase or sell any
security (current Sec. 9.7(d)); selection and retention of legal
counsel readily available to advise the bank and its fiduciary officers
and employees on fiduciary matters (current Sec. 9.7(c)); and
investment of funds held as fiduciary, including short-term investments
and the treatment of fiduciary funds awaiting investment or
distribution (current Sec. 9.10(a)).
Other items on the list are not based on requirements in the
current regulation, including methods for preventing self-dealing and
conflicts of interest, allocation to fiduciary accounts of any
financial incentives the bank may receive for investing fiduciary funds
in a particular investment,8 and disclosure to beneficiaries and
other interested parties of fees and expenses charged to fiduciary
accounts. The OCC believes that these new items are important to the
proper exercise of national bank fiduciary powers, and should be
addressed in a bank's policies and procedures.
8 See Fiduciary Precedent 9.3115 (acceptance of financial
benefits by bank fiduciaries).
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The OCC invites comment on whether to add any items to, or delete
any items from, the proposed list.
Review of Assets of Fiduciary Accounts (Proposed Sec. 9.6)
The proposal clarifies current Sec. 9.7(a)(2) by explicitly
requiring national banks to perform two distinct types of written asset
reviews with respect to fiduciary accounts: individual account reviews
and reviews of assets by issuer.9 Before accepting a fiduciary
account, a national bank must review the account to determine whether
it can administer the account properly. After accepting a fiduciary
account for which
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a national bank has investment discretion, and each year thereafter,
the bank promptly must conduct an individual account review of the
account's assets to evaluate whether they are appropriate, individually
and collectively, for the account. In addition to the individual
account review, a bank must conduct an annual review of assets by
issuer to determine the investment merit of the assets (or potential
assets) in fiduciary accounts for which the bank has investment
discretion, to the extent appropriate for that asset. The OCC
anticipates that the scope of a bank's assets review will vary,
depending on the nature of the particular asset.
9 See Fiduciary Precedent 9.4102.
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To contrast the two types of review, a review of assets by issuer
determines what investments, by issuer, (e.g., common stock of
Corporation X) are potentially appropriate investments for the bank's
fiduciary accounts. In some banks, for example, the review of assets by
issuer results in a list of permissible fiduciary investments for the
bank's fiduciary accounts. The person or committee in charge of
investing for a particular fiduciary account chooses investments from
this list. An individual account review, on the other hand, determines
whether the investments chosen for that particular account are
appropriate, individually and collectively, given the objectives of the
account.
The OCC invites comment on whether these specific standards are
necessary or appropriate and, if not, what alternative approaches are
preferable. For example, commenters may wish to discuss approaches that
distinguish between large and small accounts or between large and small
institutions.
Recordkeeping (Proposed Sec. 9.8)
The proposal clarifies the recordkeeping requirements currently
found at Secs. 9.7(a)(2) and 9.8. In particular, a national bank must
document the establishment and termination of fiduciary accounts, must
maintain adequate records for fiduciary accounts, must retain records
for a specified period of time, and must make sure its fiduciary
records are distinguishable from other bank records.
Audit of Fiduciary Activities (Proposed Sec. 9.9)
The proposal retains the current Sec. 9.9 requirement that a
national bank perform suitable audits of its fiduciary activities
annually (specifically, at least once during each calendar year and not
later than 15 months after the last audit), and that the bank report
the results of the audit (including all actions taken as a result of
the audit) in the minutes of the board. The proposal removes as
redundant the requirement that the national bank ascertain compliance
with ``law, this part, and sound fiduciary principles.''
The proposal clarifies that if a bank adopts a continuous audit
system in lieu of performing annual audits, the bank may perform
discrete audits of each fiduciary activity, on an activity-by-activity
basis, at intervals appropriate for that activity. For example, a bank
may determine that it is appropriate to audit certain low-risk
fiduciary activities every 18 months. A bank that adopts a continuous
audit system must report the results of any discrete audits performed
since the last audit report (including all actions taken as a result of
the audits) in the minutes of the board of directors at least once
during each calendar year and not later than 15 months after the last
audit report.
The proposal also clarifies that a national bank's audit committee
may not include directors who are members of a fiduciary committee of
the bank.10 The proposal also modifies the current regulation's
position that active officers of the bank may not serve on the audit
committee. Under the proposal, only officers who participate
significantly in the administration of the bank's fiduciary activities
are barred from serving on the audit committee. This proposed position
provides some degree of flexibility to smaller banks, which may have a
limited number of outside directors.
10 See Fiduciary Precedent 9.2505 (a member of a
fiduciary committee may not serve on the trust audit committee).
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Finally, the proposal permits an audit committee of an affiliate of
the bank to conduct the required audit. This change allows a bank
holding company to audit the fiduciary activities of its subsidiary
national banks through a central audit committee. This approach
facilitates consolidation of functions, and the accompanying
efficiencies, within a bank holding company structure.
The OCC invites comment on these proposed changes and, in addition,
on the relationship between the audit requirement and the OCC's
fiduciary examination process (in particular, the extent to which OCC
examiners should rely on a bank's internal or external fiduciary
audits).
Fiduciary Funds Awaiting Investment or Distribution (Proposed
Sec. 9.10)
As mentioned earlier, the proposal relocates to proposed Sec. 9.5
the current regulation's requirement that a national bank adopt
policies and procedures regarding short-term investments. The proposal
retains the current regulation's general prohibition against allowing
fiduciary funds to remain uninvested and undistributed any longer than
reasonable for proper account management. The OCC invites comment on
whether reasonableness is a sufficiently clear standard and, if not, on
what standard is appropriate.
The proposal continues to allow a national bank to deposit idle
fiduciary funds (i.e., fiduciary funds awaiting investment or
distribution) in its commercial, savings, or another department,
provided that the bank secures the deposit with appropriate collateral.
Additionally, the proposal explicitly allows a national bank to use, as
collateral for self- deposits of idle fiduciary funds, assets
(including surety bonds) that qualify under state law as appropriate
security for deposits of fiduciary funds. The proposal also permits a
national bank to deposit idle fiduciary funds with affiliates.
Surety bonds as collateral. Under 12 U.S.C. 92a(d), a national bank
may deposit idle fiduciary funds with itself (e.g., in its commercial
or savings department) only if it pledges United States bonds or
``other securities'' approved by the OCC. Current Sec. 9.10(b)(3)
allows a bank to meet this requirement by pledging qualifying assets of
the bank to secure a deposit in compliance with local law.
Under the OCC's interpretation of Sec. 9.10(b)(3), a national bank
may pledge, as a qualifying asset, a surety bond as collateral for a
deposit of idle fiduciary funds if a surety bond is permissible
collateral under state law, unless the instrument governing the
fiduciary relationship prohibits the use of a surety bond. This
interpretation recognizes that a surety bond provides protection that
is functionally at least equivalent to the protection provided by other
types of assets that the OCC has approved under section 92a(d).
Moreover, this interpretation promotes Congress' policy objective of
protecting the interests of beneficiaries and ensures that national
banks are not disadvantaged in a state that permits its institutions to
use surety bonds to secure deposits of idle fiduciary funds.
The proposal explicitly incorporates this interpretation into part
9 by allowing a national bank to secure deposits of idle fiduciary
funds with assets, including surety bonds, that qualify under state law
as appropriate security for deposits of fiduciary funds. The theory
that a surety bond is comparable to other forms of security permitted
by the OCC could have a broader application, however. In particular,
the OCC invites comment on
[[Page 66167]]
whether to adopt a uniform standard allowing national banks in all
states to use surety bonds as collateral for these deposits.
Deposits with affiliates. Section 92a(d) authorizes a national bank
to pledge assets to secure self-deposits of idle fiduciary funds. Thus,
section 92a(d) accommodates a bank with a trust department and a
commercial or savings department, the bank organizational structure
prevalent when Congress enacted the statutory language in 1918.
However, the statutory language does not address other organizational
structures that have evolved since 1918. For example, some banks today
are special-purpose trust companies. These entities do not have
commercial or savings departments in which to deposit idle fiduciary
funds, but many are affiliated with banks that do. Other banks operate
as part of a large system of affiliated banks and wish, for reasons of
efficiency, to consolidate their fiduciary payment and disbursement
functions in a single bank. In these situations, a bank may want to
deposit idle fiduciary funds with an affiliated bank. However, the OCC
has previously applied 12 CFR 9.12(c) to restrict a national bank from
depositing idle fiduciary funds with an affiliated bank unless
authorized by the instrument governing the account, court order, or
state law.
Some states explicitly authorize their banks to deposit idle
fiduciary funds with affiliated banks, however. Thus, a national bank
in any of these states may deposit idle fiduciary funds in an
affiliated bank in accordance with current 12 CFR 9.12(c) (because the
deposit is authorized by state law). Additionally, however, many of
these states require that these deposits be secured with a pledge of
assets. The OCC previously took the position that neither a national
bank making a deposit of idle fiduciary funds with an affiliate, nor a
national bank accepting the deposit, can pledge assets to secure the
deposit, regardless of whether state banks can pledge in that
situation. Consequently, a national bank could not legitimately comply
with a state's pledging requirement and, thus, could not avail itself
of the state's authorization to deposit idle fiduciary funds with an
affiliate bank. The OCC believes that a prohibition on pledging assets
to secure idle fiduciary funds deposited by or with affiliates is not
legally required and may prevent a national bank from achieving
efficiencies in its fiduciary operations.
Consequently, the OCC proposes to allow a national bank to secure a
deposit of idle fiduciary funds by or with an affiliate if consistent
with applicable law. This change is consistent with a recent OCC
interpretative letter,11 and should facilitate more efficient
fiduciary operations in multi-bank holding companies.
11 Letter from Julie L. Williams, Chief Counsel (November
6, 1995).
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Investment of Fiduciary Funds (proposed Sec. 9.11)
The proposal condenses current Sec. 9.11 without changing its
substance. The proposal simply directs a national bank to invest
fiduciary funds in a manner consistent with applicable law. Applicable
law, as described earlier, includes Federal law, state law governing a
national bank's fiduciary relationships, the terms of the instrument
governing the relationships, and any court order pertaining to the
relationships.
Self-dealing and Conflicts of Interest (Proposed Sec. 9.12)
The proposal retains the substance of current Sec. 9.12, which
addresses fiduciary conflicts of interest. However, the proposal
clarifies a point concerning the general rule, found at current
Sec. 9.12(b), that a national bank may not lend, sell, or otherwise
transfer assets held in a fiduciary capacity to the bank or any of its
directors, officers, or employees, or to affiliates of the bank or any
of their directors, officers, or employees, or to individuals or
organizations with whom there exists an interest that might affect the
exercise of the best judgment of the bank. Current Sec. 9.12(b)
provides certain exceptions to this general rule, such as where local
law authorizes those loans. However, under 12 U.S.C. 92a(h), it is
unlawful for a national bank to lend to its directors, officers, or
employees any funds it holds in trust. A national bank cannot invoke
the exceptions in current Sec. 9.12(b) in contravention of section
92a(h). Thus, the proposal clarifies that despite the exceptions to the
general rule, a bank may not lend to any of its directors, officers, or
employees any funds it holds in trust, except with respect to bank's
own employee benefit plans in accordance with section 408(b)(1) of the
Employee Retirement Income Security Act of 1974 (29 U.S.C. 1108(b)(1)),
which specifically authorizes loans to participants and beneficiaries
of such plans under certain circumstances.
Custody of Fiduciary Assets (Proposed Sec. 9.13)
The proposal retains the substance of current Sec. 9.13, which
addresses custody of fiduciary assets. The proposal continues to
require joint custody or control of fiduciary assets, separation of
fiduciary assets from the assets of the bank, and separation or
identification of the assets of each fiduciary account from all other
accounts (except when assets are invested in collective investment
funds). The proposal also continues to allow a national bank to
maintain fiduciary assets off-premises.
Deposit of Securities With State Authorities (Proposed Sec. 9.14)
Under current Sec. 9.14, whenever state law requires institutions
acting as fiduciaries to deposit securities with state authorities for
the protection of trust accounts, a national bank in that state must
make a similar deposit before it can act in a fiduciary capacity.\12\
The proposal retains this general requirement.
\12\ This provision stems from the fiduciary powers statute. See
12 U.S.C. 92a(f).
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However, current Sec. 9.14 does not address how a bank should
calculate the amount of its required deposit when the bank administers
trust assets from offices located in more than one state--i.e., whether
the bank must compute the amount of deposit required by a particular
state on the basis of all of the bank's trust assets nationwide, or on
the basis of the bank's trust assets in that state. This issue will
become increasingly significant as interstate branching becomes more
common. Many states have laws requiring a state fiduciary to deposit an
amount of securities based on its total trust assets. These laws
apparently did not contemplate that state fiduciaries would expand
geographically and administer significant amounts of trust assets from
other states.
It is unnecessary to require a bank with multistate trust
operations to deposit in each state in which it administers trust
assets an amount based on its total trust assets nationwide. To do so
goes far beyond the deposit requirement's purpose of protecting trust
assets relating to a particular state, and unnecessarily burdens a bank
that conducts fiduciary operations in multiple states. Consequently,
the proposal allows a national bank to meet its deposit requirement in
each state based on the
[[Page 66168]]
amount of trust assets administered from offices located in that
state.\13\
\13\ See also Op. Chief Counsel, Office of Thrift Supervision
(December 24, 1992) (interpreting 12 U.S.C. 1464(n)(5) (the Federal
savings association equivalent of 12 U.S.C. 92a(f) with virtually
identical language) and concluding that a Federal savings
association should compute the amount of a required state deposit
based on the amount of trust assets administered from offices
located in that particular state, rather than on the basis of the
bank's total trust assets nationwide).
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Fiduciary Compensation (Proposed Sec. 9.15)
The proposal retains the substance of current Sec. 9.15, which
addresses fiduciary compensation. Under the proposal, a national bank
may charge a reasonable fee for its fiduciary services if the amount is
not set or governed by applicable law. Moreover, the proposal prohibits
an officer or an employee of a national bank from retaining any
compensation for acting as a co-fiduciary with the bank in the
administration of a fiduciary account, except with the specific
approval of its board of directors.
Receivership or Voluntary Liquidation of Bank (Proposed Sec. 9.16)
The proposal retains the substance of current Sec. 9.16, which
addresses receivership and voluntary liquidation. The proposal directs
a receiver or liquidating agent to close promptly all fiduciary
accounts to the extent practicable (in accordance with OCC instructions
and the orders of the court having jurisdiction) and to transfer all
remaining fiduciary accounts to substitute fiduciaries.
Surrender or Revocation of Fiduciary Powers (Proposed Sec. 9.17)
The proposal retains the substance of current Sec. 9.17, which
addresses surrender and revocation of fiduciary powers. The proposal
sets forth the standards and procedures that apply when a national bank
seeks to surrender its fiduciary powers. The proposal also describes
the standards that apply when the OCC seeks to revoke a bank's
fiduciary powers.
Collective Investment Funds (Proposed Sec. 9.18)
The proposal revises current Sec. 9.18, which governs the
establishment and operation of common trust funds and other collective
investment funds by national banks.\14\ The central purpose of this
proposed revision is to lift certain unnecessary regulatory burdens
currently imposed on institutions that administer collective investment
funds, while preserving appropriate protections to beneficiaries (and
other interested parties) of fiduciary accounts participating in those
funds.
\14\ Because the regulations of the Office of Thrift Supervision
incorporate Sec. 9.18, this revision also affects collective
investment funds administered by Federally-chartered savings and
loan associations. 12 CFR 550.13(b). Moreover, because common trust
funds must comply with Sec. 9.18 in order to qualify for tax-exempt
status under section 584 of the Internal Revenue Code of 1986, as
amended (26 U.S.C. 584), this revision affects state-chartered
banks, trust companies, and other financial institution fiduciaries
that administer collective investment funds.
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The OCC has not rewritten Sec. 9.18 since 1972. In 1982, the OCC
published an advance notice of proposed rulemaking requesting public
comment on Sec. 9.18 (47 FR 27833, June 25, 1982). The OCC specifically
solicited comments on several issues.\15\ Moreover, the OCC indicated
its intention to undertake a comprehensive review of its collective
investment fund regulation.
\15\ These issues included: (1) operations of guaranteed
insurance contract funds; (2) establishment of commingled agency
accounts; (3) commingling of Keogh trusts with corporate employee
benefit funds; (4) establishment of common trust funds for
individual retirement accounts; (5) advertising of common trust
funds; and (6) commingling of charitable trusts with employee
benefit trusts.
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The OCC received over 70 comments, most of which indicated that
technological advances and new customer needs rendered portions of
Sec. 9.18 obsolete or even counter-productive. In November 1984,
however, the OCC suspended its consideration of amendments to
Sec. 9.18, due to pending litigation stemming from the OCC's approval
of collective investment funds consisting of Individual Retirement
Accounts, Keogh Accounts, or other employee benefit accounts that are
exempt from taxation (collective IRA funds).\16\ The OCC determined
that it would be premature to pursue significant changes to Sec. 9.18
under the circumstances.
\16\ See, e.g., ``Decision of the Comptroller of the Currency on
the Application by Citibank, N.A., pursuant to 12 CFR 9.18(c)(5) to
Establish Common Trust Funds for the Collective Investment of
Individual Retirement Account Trusts Exempt from Taxation under
Section 408 of the Internal Revenue Code of 1954'' (Oct 31, 1982),
reprinted in 1 Comptroller of the Currency Q.J. No. 4 (1982), at 45;
and ``Decision of the Office of the Comptroller of the Currency on
the Application by Wells Fargo Bank, N.A. to Establish a Common
Trust Fund for the Collective Investment of Individual Retirement
Account Trust Assets Exempt From Taxation Under section 408(a) of
the Internal Revenue Code of 1954, as amended'' (Jan. 28, 1984)
(Wells Fargo Decision).
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In view of the disposition of the collective IRA fund
litigation,\17\ the OCC decided in 1990 to resume the rulemaking
process by publishing a proposal to amend Sec. 9.18 (55 FR 4184,
February 7, 1990) (1990 Proposal) based largely on the public comments
received in 1982.\18\ The OCC received 150 comment letters on the 1990
Proposal. In 1994, the OCC decided to revise Sec. 9.18 as part of the
comprehensive review of part 9 under its Regulation Review Program,
rather than proceed with Sec. 9.18 alone. This proposal incorporates
many of the elements of the 1990 Proposal. Readers seeking additional
background on these elements may refer to the 1990 Proposal.
\17\ See Investment Company Institute v. Clarke, 789 F.2d 175
(2d Cir. 1986), cert. denied, 479 U.S. 940 (1986); Investment
Company Institute v. Conover, 790 F.2d 925 (D.C. Cir. 1986), cert.
denied, 479 U.S. 939 (1986), Investment Company Institute v. Clarke,
No. 86-3725 (W.D.N.C. August 25, 1986, appeal withdrawn by
stipulation, Jan. 6, 1987).
\18\ The 1990 proposal included revisions that would: (1)
Eliminate the requirement for specific approval by an institution's
board of directors prior to establishing a collective investment
fund, and eliminate the requirement for national banks to file fund
plans of operation with the OCC; (2) clarify the participation in
collective investment funds by certain tax-exempt employee benefit
funds; (3) broaden the authority to establish ``closed-end''
collective investment funds, the assets of which are illiquid; (4)
eliminate the specific regulatory prohibition in Sec. 9.18(b)(5)(v)
on advertising the availability and performance of common trust
funds; (5) eliminate the fixed percentage limitation in
Secs. 9.18(b)(9)(i) and 9.18(c)(3) on the interest a single
participating account may have in a particular common trust fund;
(6) eliminate the fixed percentage limitation in Sec. 9.18(b)(9)(ii)
on the concentration of investment by a common trust fund in the
obligations of any one entity; (7) eliminate the liquidity
requirement in Sec. 9.18(b)(9)(iii) applicable to the assets of
common trust funds; (8) eliminate the limitations in
Sec. 9.18(b)(12) on fees and expenses incurred by an institution in
the administration of a collective investment fund, but require
appropriate disclosure; (9) eliminate the requirement in
Sec. 9.18(c)(2)(ii) that investments in variable-amount notes be
made on a short-term basis; (10) provide an expeditious procedure
for the review of new types of funds; and (11) codify the authority
to establish registered collective investment funds whose assets
consist solely of Individual Retirement Accounts, Keogh Accounts, or
other eligible employee benefit accounts.
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This current proposal retains the general structure of Sec. 9.18.
Paragraph (a) authorizes national banks to invest fiduciary assets in
two types of collective investment funds. Paragraph (b) sets forth the
requirements applicable to funds authorized under paragraph (a).
Paragraph (c) describes other types of collective investments available
to national bank fiduciaries. Significant changes to current Sec. 9.18
are noted below.
(a)(1) and (a)(2) Funds (Proposed Sec. 9.18(a)).
The proposal retains the substance of current Sec. 9.18(a), which
authorizes national banks to invest fiduciary assets in common trust
funds ((a)(1) funds) and funds consisting of employee benefit and other
tax-exempt trusts ((a)(2) funds). The proposal, however, relocates to
Sec. 9.18(a) the substance of current Sec. 9.18(b)(2), which provides
[[Page 66169]]
guidance on the circumstances under which a bank may place employee
benefit and other tax-exempt trust assets in either an (a)(1) or an
(a)(2) fund, and on the circumstances under which a bank may place
trusts for which the bank is not the trustee in an (a)(2) fund.\19\
\19\ Like the 1990 Proposal, this proposal eliminates from
current Sec. 9.18(b)(2) references to specific sections of the
Internal Revenue Code and to specific Internal Revenue Service
rulings to make clear that the OCC promulgates this regulation
solely on the authority of Federal banking law and not under
authority of the Internal Revenue Code.
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The proposal makes significant changes to current Sec. 9.18(b),
which sets forth the requirements for (a)(1) and (a)(2) funds. On
balance, these changes, described below, will reduce the Federal
regulatory burdens imposed on collective investment funds and enable
banks to operate collective investment funds more efficiently. The term
``collective investment fund,'' as used in Sec. 9.18, encompasses both
(a)(1) funds and (a)(2) funds.
Written Plan (Proposed Sec. 9.18(b)(1)).
Like the 1990 Proposal, this proposal eliminates as unnecessary
two requirements from current Sec. 9.18(b)(1). First, instead of
requiring the full board of directors to approve new collective
investment fund plans, the proposal allows a committee of the board to
perform this function. Second, the proposal removes the requirement
that the bank file (a)(1) and (a)(2) fund plans with the OCC.\20\
Additionally, the proposal relocates a provision on fund valuation from
current Sec. 9.18(b)(1) to proposed Sec. 9.18(b)(4), described below.
\20\ However, national banks must file written plans with the
OCC in order to establish special exemption funds (i.e., funds that
deviate from the requirements of Sec. 9.18(a) and (b)), in
accordance with proposed Sec. 9.18(c)(5).
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Fund Management (Proposed Sec. 9.18(b)(2))
The proposal provides an exception to the ``exclusive management''
requirement, found in current Sec. 9.18(b)(12), to allow prudent
delegation of responsibilities to others.\21\ This exception is
consistent with the modern prudent investor rule as set forth in the
American Law Institute's Restatement (Third) of Trusts (1992).\22\
\21\ In the past, the OCC recognized only limited exceptions to
the exclusive management requirement. See, e.g., Fiduciary Precedent
9.5320 (an affiliate may manage a bank's collective investment
fund).
\22\ See Rest. 3rd, Trusts (Prudent Investor Rule), section 171
(Duty with Respect to Delegation): ``A trustee has a duty personally
to perform the responsibilities of the trusteeship except as a
prudent person might delegate those responsibilities to others. In
deciding whether, to whom and in what manner to delegate fiduciary
authority in the administration of a trust, and thereafter in
supervising agents, the trustee is under a duty to the beneficiaries
to exercise fiduciary discretion and to act as a prudent person
would act in similar circumstances.''
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The proposal also provides an exception to the exclusive management
requirement for collective IRA funds registered under the Investment
Company Act of 1940. A bank with a collective IRA fund generally
registers that fund as an investment company under the Investment
Company Act because the SEC takes the position that IRA, Keogh, and
certain other similar trusts may not qualify for exemption from
registration. However, the exclusive management requirement of current
Sec. 9.18(b)(12) arguably conflicts with the Investment Company
Act.\23\ Currently, the OCC grants waivers of the exclusive management
requirement for collective IRA funds that register as investment
companies. The proposal obviates the need for these routine waivers.
\23\ See, e.g., Wells Fargo Decision, supra note 16, at 10.
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Proportionate Interests (Proposed Sec. 9.18(b)(3))
The proposal retains the requirement in current Sec. 9.18(b)(3)
that all participating accounts in a collective investment fund must
have a proportionate interest in all of the fund's assets. However, the
proposal eliminates the language concerning the propriety of investing
fiduciary assets in a collective investment fund. The permissibility of
investing the assets of a fiduciary account in a particular collective
investment fund is governed by proposed Sec. 9.11, which allows
investments consistent with applicable law.
Valuation (Proposed Sec. 9.18(b)(4))
The proposal consolidates existing provisions relating to valuation
of collective investment funds, including current Sec. 9.18(b)(1)
(method of valuation), current Sec. 9.18(b)(4) (frequency and date of
valuation), and current Sec. 9.18(b)(15) (valuation of short-term
investment funds). The OCC invites comment on the need to clarify
valuation issues in the regulatory text or an interpretive ruling
accompanying part 9.
The OCC also invites comment on the proposed exception to the
quarterly valuation requirement for collective investment funds that
are invested primarily in real estate or other assets that are not
readily marketable. Allowing banks to value these illiquid collective
investment funds annually rather than quarterly appears consistent with
the one-year prior notice allowance for withdrawals from these funds,
found at Sec. 9.18(b)(4).
Admission and Withdrawal of Accounts (Proposed Sec. 9.18(b)(5))
The proposal consolidates existing provisions relating to
admissions and withdrawals of accounts, including current
Sec. 9.18(b)(4) (prior request or notice), current Sec. 9.18(b)(6)
(method of distribution), and current Sec. 9.18(b)(7) (segregation of
investments).
The proposal also substantially revises the current regulation's
standard for distributions to an account withdrawing from a collective
investment fund. Current Sec. 9.18(b)(6) sets a Federal standard
requiring the bank to make distributions in cash, ratably in kind
(i.e., a proportional share in each of the assets held by the
collective investment fund), or a combination of the two. The OCC
believes that this Federal standard may not be sufficiently flexible to
address distribution problems that arise, particularly with respect to
collective investment funds that invest primarily in assets that are
not readily marketable (illiquid assets). Even with respect to these
collective investment funds that invest primarily in illiquid assets,
banks generally make distributions in cash only, either from the fund's
cash reserves or after selling some of the fund's assets within the
one-year prior notice period. However, if withdrawal requests exceed
the fund's cash reserves, and if the bank believes the market for the
fund's assets is depressed, a bank under the constraint of the one-year
time limit may have to resort to ratable in-kind distributions rather
than (1) sell fund assets at depressed prices, or (2) liquidate the
fund. With ratable in-kind distributions of certain assets, such as
readily marketable securities, a withdrawing participant may easily
convert the distribution into cash. However, that may not be the case
for ratable in-kind distributions of illiquid assets, where valuation
may be complicated and a recipient may have no practical avenue to
liquidate its proportionate share of an asset.
In response to these concerns, the proposal allows any
distributions consistent with applicable law. The OCC believes that
this approach will provide banks with sufficient flexibility to address
complex distribution problems that may arise (particularly with respect
to collective investment funds that invest primarily in illiquid
assets), while maintaining the basic
[[Page 66170]]
protections of state fiduciary law.\24\ The OCC invites comment on
whether to adopt this proposed state law-based approach instead of
retaining a Federal standard. In the event that the OCC does not adopt
the state law-based approach, the OCC also invites comment on what
Federal standard is appropriate.
\24\ Thus, for example, a bank with a collective investment fund
facing distribution problems, or beneficiaries (or interested
parties) of fiduciary accounts participating in that fund, could
seek from a court of competent jurisdiction an order authorizing an
equitable solution. Allowing a bank to make distributions in
accordance with a court order allows the bank to seek a solution
more flexible than what current OCC regulations prescribe. A court-
ordered solution also provides all interested parties with the
opportunity to present their concerns in a judicial forum, ensuring
that the distribution reflects a consideration of all relevant
interests.
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Moreover, the OCC invites comment on whether, if the OCC adopts a
state law-based standard, there is a need to retain the provision that
allows a prior notice period of up to one year for withdrawals from
funds with assets not readily marketable (proposed
Sec. 9.18(b)(5)(iii)).
Audits and Financial Reports (Proposed Sec. 9.18(b)(6))
The proposal retains the requirements in current
Sec. 9.18(b)(5)(i)-(iv) regarding collective investment fund annual
audits and financial reports. The proposal also adds a requirement that
a national bank disclose in the annual financial report fees and
expenses charged to the fund, consistent with OCC precedent.\25\
\25\ See, e.g., Fiduciary Precedent 9.5330 (requiring disclosure
of management fees).
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The proposal, however, provides an exception to this requirement
for collective IRA funds registered under the Investment Company Act.
As mentioned earlier, a bank generally registers a collective IRA fund
as an investment company under the Investment Company Act. The
requirement that the auditors are responsible only to the bank's board
of directors arguably conflicts with the Investment Company Act.\26\
Currently, the OCC grants waivers of this requirement for collective
IRA funds registered as investment companies. The proposal obviates the
need for these routine waivers.
\26\ See, e.g., Wells Fargo Decision, supra note 16, at 11-12.
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Advertising Prohibition for Common Trust Funds (Proposed
Sec. 9.18(b)(7))
The proposal retains and clarifies the current regulation's
prohibition on advertising (a)(1) funds. Current Sec. 9.18(b)(5)(v)
prohibits a national bank from advertising or publicizing (a)(1) funds
except as provided in the regulation. Current Sec. 9.18(b)(5)(iv)
allows a national bank to publicize the availability of financial
reports for (a)(1) funds in connection with the promotion of the
general fiduciary services of the bank. The OCC interprets these
provisions to allow a bank to advertise (a)(1) funds only in connection
with the advertisement of the general fiduciary services of the
bank.\27\
\27\ See, e.g., Fiduciary Precedent 9.5113.
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Self-dealing and Conflicts of Interest (Proposed Sec. 9.18(b)(8))
The proposal retains the substance of current Sec. 9.18(b)(8),
which addresses self-dealing and conflicts of interest specific to
collective investment funds. A national bank administering a collective
investment fund must comply with these provisions in addition to the
self-dealing and conflicts of interest provisions found in Sec. 9.12,
which apply to all fiduciary activities of national banks.
Mortgage Reserve Account (Proposed Sec. 9.18(b)(9))
The proposal retains the substance of current Sec. 9.18(b)(11),
which allows a bank administering a collective investment fund to
establish a mortgage reserve account for overdue interest payments on
mortgages in the fund. The OCC invites comment on the extent to which
banks use mortgage reserve accounts, and whether their experience
suggests the need for any modifications to this provision.
Fees and Expenses (Proposed Sec. 9.18(b)(10))
The proposal retains the quantitative management fee limitation,
found in current Sec. 9.18(b)(12). Under this limitation, a bank
administering a collective investment fund may charge a fund management
fee only if the total fees charged to a participating account
(including the fund management fee) does not exceed the total fees that
the bank would have charged if it had not invested assets of the
account in the fund. Moreover, the proposal retains the requirement
that the bank absorb fund establishment and reorganization expenses,
also found in current Sec. 9.18(b)(12).
The proposal, however, eliminates other provisions in Sec. 9.18(b)
that specifically permit or prohibit certain expenses, including
current Sec. 9.18(b)(5)(i) (expenses for audits performed by
independent public accountants), current Sec. 9.18(b)(5)(iv) (expenses
for printing and distributing financial reports), and current
Sec. 9.18(b)(10) (expenses incurred in servicing mortgages). Rather
than mandating the treatment of specific expenses (other than
establishment and reorganization expenses), the proposal defers to
state law, in effect, by allowing a bank to charge any reasonable
expenses incurred in operating the collective investment fund to the
extent not prohibited by applicable law. When expenses of a fund are
reasonable and permissible under state law, and are fully disclosed in
appropriate documentation,\28\ the OCC believes that it is not
necessary to micromanage the precise types of expenses charged directly
to collective investment funds.
\28\ See proposed Sec. 9.18(b)(1)(iii) (disclosure of
anticipated fees and expenses in the written plan) and proposed
Sec. 9.18(b)(6)(ii) (disclosure of fees and expenses in the annual
financial report).
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Additionally, the OCC invites comment on whether to defer to
applicable law instead of retaining the quantitative management fee
limitation.
Prohibition Against Certificates (Proposed Sec. 9.18(b)(11))
The proposal retains the substance of current Sec. 9.18(b)(13),
which prohibits a national bank administering a collective investment
fund from issuing certificates evidencing an interest in the fund.
Good Faith Mistakes (Proposed Sec. 9.18(b)(12))
The proposal retains the substance of current Sec. 9.18(b)(14),
which provides that if a bank, in good faith and in the exercise of due
care, makes a mistake in administering a collective investment fund,
the bank will not be in violation of this part if it takes prompt
action to remedy the mistake.
Elimination of Participation, Investment, and Liquidity Requirements
The proposal eliminates the 10 percent participation limitation,
the 10 percent investment limitation, and the liquidity requirement
applicable to common trust funds under current Sec. 9.18(b)(9), in
accordance with the 1990 Proposal. These Federal restrictions have at
times interfered with optimal management of common trust funds, and the
protections found in state fiduciary law adequately address the
concerns underlying these restrictions.
Other Collective Investments (Proposed Sec. 9.18(c))
In addition to (a)(1) and (a)(2) funds, current Sec. 9.18
authorizes other means by which a national bank may invest fiduciary
assets collectively. These other collective investments, described in
[[Page 66171]]
proposed Sec. 9.18(c), are not subject to the requirements of
Sec. 9.18(b).
The proposal eliminates the requirement in current
Sec. 9.18(c)(2)(ii) that investments in variable-amount notes be made
on a short-term basis, in accordance with the 1990 Proposal. The
proposal also eliminates the requirement applicable to mini-funds
(i.e., funds established for the collective investment of cash
balances) that no participating account's interest in the fund exceed
$10,000, again in accordance with the 1990 Proposal.\29\ Moreover, the
proposal expands the total amount of assets permitted in a mini-fund to
$1,000,000.
\29\ Under current Sec. 9.18(c)(3), a mini-fund may not exceed
$100,000. Limiting participation in this fund to $10,000 is
equivalent to limiting participation to 10 percent. Thus,
eliminating the $10,000 limitation is consistent with eliminating
the 10 percent participation limitation found in current
Sec. 9.18(b)(9).
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Finally, the proposal provides an expeditious procedure for the
review of new types of funds, in accordance with the 1990 Proposal. The
purpose of this new procedure is to encourage innovation by improving
the approval procedures for banks that wish to establish new types of
funds.
Transfer Agents (Proposed Sec. 9.20)
The proposal incorporates by means of cross-reference the SEC's
rules prescribing procedures for registration of transfer agents for
which the SEC is the appropriate regulatory agency (17 CFR 240.17Ac2-
1). Although section 17A(d)(1) of the Securities Exchange Act of 1934
(15 U.S.C. 78q-1(d)(1)) generally subjects all transfer agents to SEC
rules, section 17A(c) (15 U.S.C. 78q-1(c)) provides that transfer
agents shall register with their appropriate regulatory agencies.
Current 12 CFR 9.20 sets forth procedural requirements for national
banks that register as transfer agents that are virtually identical to
the SEC's registration rules. Thus, the OCC does not need to maintain
separate procedures, and the proposal simply incorporates the SEC's
rule instead.
The proposal also clarifies that a national bank transfer agent
must comply with rules adopted by the SEC pursuant to section 17A of
the Securities Exchange Act (15 U.S.C. 78q-1) prescribing operational
and reporting requirements that apply to all transfer agents (17 CFR
240.17Ac2-2, and 240.17Ad-1 through 240.17Ad-16).
The OCC's ``National Bank Transfer Agents' Guide'' provides
additional guidance regarding the transfer agent activities of national
banks, including the forms that national banks must file. The OCC sends
the Guide to all national bank transfer agents, and to any person who
requests it from the Communications Division, Office of the Comptroller
of the Currency, 250 E Street, SW, Washington, DC 20219.
Disciplinary Sanctions Imposed by Clearing Agencies (Proposed
Sec. 19.135)
The proposal relocates provisions concerning applications by
national banks for stay or review of disciplinary sanctions imposed by
registered clearing agencies from current Secs. 9.21 and 9.22 to 12 CFR
part 19, the OCC's rules of practice and procedure. Proposed
Sec. 19.135 incorporates by cross-reference the SEC's rules on this
subject, which are virtually identical to current Secs. 9.21 and 9.22.
Other Issues for Comment
The OCC has identified several other issues that relate to national
banks' fiduciary activities. The OCC is not proposing specific
regulatory text on these issues at this time, but invites comment on
whether and how to address these issues in part 9.
Multistate Fiduciary Operations
As noted at the outset of this preamble discussion, bank
organizational structures have changed significantly since 1913, when
Congress first enacted the national bank fiduciary powers statute. Many
bank holding companies currently conduct multistate fiduciary
operations through separate bank or trust company subsidiaries
chartered in different states. The Riegle-Neal Interstate Banking and
Branching Efficiency Act of 1994 (Interstate Act) facilitates the
consolidation of multistate fiduciary operations by permitting
interstate bank mergers. Moreover, the ability to branch interstate may
encourage some banks to expand the multistate fiduciary business they
already have, and others to enter the fiduciary business on a
multistate basis for the first time. However, the Interstate Act does
not define the scope of a national bank's multistate fiduciary
authority. For example, it does not address activities conducted at
places other than interstate branches.
In a recent letter, the OCC analyzed the authority of a national
bank to exercise fiduciary powers on an interstate basis under 12
U.S.C. 92a. See Letter from Julie L. Williams, Chief Counsel (December
8, 1995). The letter dealt with a proposal for a national bank to
establish non-branch trust offices in many states and to conduct
fiduciary business in each state. But the interstate considerations
discussed below also apply to fiduciary activities conducted at
interstate branches.
In brief, section 92a authorizes a national bank to conduct
fiduciary activities but imposes no limitations on the places where, or
the customers for whom, the bank may conduct those activities.30
Since an office that conducts only fiduciary activities and does not
engage in any of the so-called ``core banking functions'' in 12 U.S.C.
36(j) is not a branch for purposes of the McFadden Act (12 U.S.C.
36(c)), a bank may establish non-branch trust offices at any location,
without regard to branching limitations. Thus, a national bank may
conduct fiduciary activities at non-branch trust offices in states
other than the state in which it has its main office. A national bank
may also offer fiduciary services at its interstate branches.
\30\ The basic authority for national banks to exercise
fiduciary powers is found in 12 U.S.C. 92(a) and (b):
(a) Authority of the Comptroller of the Currency
The Comptroller of the Currency shall be authorized and
empowered to grant by special permit to national banks applying
therefor, when not in contravention of State or local law, the right
to act as trustee, executor, administrator, registrar of stocks and
bonds, guardian of estates, assignee, receiver, committee of estates
of lunatics, or in any other fiduciary capacity in which State
banks, trust companies, or other corporations which come into
competition with national banks are permitted to act under the laws
of the State in which the national bank is located.
(b) Grant and exercise of powers deemed not in contravention of
State or local law
Whenever the laws of such State authorize or permit the
exercise of any or all of the foregoing powers by State banks, trust
companies, or other corporations which compete with national banks,
the granting to and the exercise of such powers by national banks
shall not be deemed to be in contravention of State or local law
within the meaning of this section.
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The OCC believes that the effect of section 92a is that in any
specific state, the extent of fiduciary powers is the same for out-of-
state national banks as for in-state national banks and depends upon
what the state permits for its own state institutions. A state may
limit national banks from exercising any or all fiduciary powers in
that state, but only if it also bars its own institutions from
exercising the same powers. Therefore, a national bank with its main
office in one state may exercise fiduciary powers in that state and
other states, depending upon--with respect to each state--the powers
each state allows its own institutions to exercise. In essence, with
respect to national bank fiduciary powers in a given state, the OCC
believes that section 92a applies the same standards to all national
banks, regardless of where a national bank has its main office. Whether
state administrative requirements connected
[[Page 66172]]
with fiduciary activities apply to national banks (other than the
requirements specifically made applicable by sections 92a(f), (g), and
(h)), is determined by principles of federal preemption and must be
considered on a case-by-case basis.31
\31\ Some earlier OCC letters suggesting that all aspects of
state law governing fiduciary institutions apply to national banks
have generally dealt with substantive fiduciary law and have not
fully distinguished between state substantive fiduciary duties and
standards and state administrative requirements. See, e.g., OCC
Letter No. 525 (August 8, 1990), reprinted in Fed. Banking L. Rep.
(CCH) para. 83,236.
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The OCC invites comment on the legal framework under section 92a
for interstate fiduciary powers of national banks as discussed above
and in the Letter (December 8, 1995). The OCC also invites comment on
whether to add any new provisions to part 9, or modify any existing
provisions (in addition to the modification of Sec. 9.14(b)), to
address other issues presented by fiduciary activities conducted on an
interstate basis.
Investment Adviser to an Investment Company
When a bank or its operating subsidiary acts as an investment
adviser to an investment company (such as a mutual fund), that activity
raises conflicts of interest and other concerns that part 9 was not
designed to address. The OCC currently addresses these concerns by
imposing certain conditions on a case-by-case basis in connection with
operating subsidiary filings involving mutual fund advisory
activities.32 The OCC has generally imposed the following
conditions when a national bank's operating subsidiary acts as
investment adviser to an investment company:
\32\ See, e.g., Interpretive Letter No. 647 (April 15, 1994),
reprinted in, [1994 Transfer Binder] Fed. Banking L. Rep. (CCH)
para. 83,558 (Letter approving notification by First Union National
Bank of North Carolina to establish three wholly-owned operating
subsidiaries to acquire the partnership interests of Lieber and
Company and the assets and liabilities of Evergreen Management
Corporation); Interpretive Letter No. 648 (May 4, 1994), reprinted
in, [1994 Transfer Binder] Fed. Banking L. Rep. (CCH) para. 83,557
(Letter approving notification by Mellon Bank, N.A. and Mellon Bank
(DE), N.A. to establish certain operating subsidiaries to acquire
most of the assets, operations, and activities of The Dreyfus
Corporation).
---------------------------------------------------------------------------
(1) The investment company is treated as an affiliate of the bank
and its operating subsidiary for purposes of Sections 23A and 23B of
the Federal Reserve Act (12 U.S.C. 371c and 371c-1) and thus is subject
to the restrictions on transactions between affiliates;
(2) The bank's aggregate direct and indirect investments in and
advances to the subsidiary may not exceed an amount equal to the bank's
legal lending limit under 12 CFR part 32;
(3) Neither the bank nor the subsidiary may purchase shares of the
investment company for its own account; and
(4) The bank and the subsidiary are subject to the Interagency
Statement on Retail Sales of Nondeposit Investment Products (February
15, 1994).
The OCC invites comment on whether these conditions are appropriate
in all situations where a national bank or its operating subsidiary
acts as investment adviser to an investment company, and, if so,
whether to include them in part 9.
Indenture Trustee Conflicts of Interest
A national bank that serves as an indenture trustee to an issue of
debt securities and also provides additional banking services to, or
has additional relationships with, the securities issue or issuer, is
subject to potential conflicts of interest. An indenture trustee to a
debt securities issuance represents the security holders as their
fiduciary, seeking interest and principal payments from the securities
issuer on their behalf. If a bank provides a letter of credit to an
issuer while acting as the indenture trustee for the issuer's
securities, and the issuer fails to make a scheduled payment to the
security holders, the bank, as indenture trustee, must declare the
issuer in default and seek payment from itself as issuer of the letter
of credit. In this situation, the bank's role as trustee may conflict
with its own interest as issuer of the letter of credit. Upon default,
when the bank extends credit to the defaulted securities issuance, the
bank, as creditor, becomes a competing creditor with itself as trustee
for the security holders.
Before 1990, the Trust Indenture Act of 1939 contained conflict of
interest prohibitions that disqualified banks from serving as indenture
trustees to certain debt securities issuances if they provided credit
to the securities issuer. Given the provisions of the statute, the OCC
did not need to address conflicts of interest that a national bank
might face with respect to securities covered by the Trust Indenture
Act.
Some securities issuances, however, are exempt from the Trust
Indenture Act. Exempt securities include those exempt from registration
under the Securities Exchange Act of 1934, such as municipal industrial
revenue bond issuances. With respect to exempt securities issuances,
the OCC recommended, consistent with the pre-1990 policies articulated
in the Trust Indenture Act, that a national bank avoid acting both as
indenture trustee and as issuer of a letter of credit.33
\33\ See Interpretive Letter No. 293 (May 11, 1984), reprinted
in Fed. Banking L. Rep. (CCH) para. 85,463.
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In 1990, Congress amended the Trust Indenture Act to permit a bank
to serve as both creditor and indenture trustee.34 The Trust
Indenture Act now requires that, upon default of the issuance, the
indenture trustee must eliminate the conflict within 90 days or
disqualify itself from further service as indenture trustee. As a
result of the 1990 amendments, OCC precedent treats exempt securities
more stringently than the Trust Indenture Act treats covered
securities. These developments raise the issue of whether and how to
address conflicts that may arise when a national bank serves as
indenture trustee.
\34\ See Securities Act Amendments of 1990, Pub. L. 101-550.
---------------------------------------------------------------------------
The OCC is inclined to allow a national bank to act as creditor and
indenture trustee until 90 days after default, consistent with the
Trust Indenture Act, with the added condition that the banks maintain
adequate controls to manage the potential conflicts of interest.
Additionally, the OCC is inclined to apply this policy consistently to
all debt securities issuances, including debt securities issuances
exempt from the Trust Indenture Act.
Because many national banks already have adopted policies and
procedures to manage these potential conflicts of interest,35 the
OCC may not need to address this issue by regulation. It may be
sufficient for the OCC to develop guidance on what controls banks
should maintain in order to manage potential conflicts.
\35\ Among these policies and procedures are: (1) Favoring debt
issuers that have a low risk rating to minimize the possibility of
default; (2) ensuring that the credit is fully collateralized by
cash or cash equivalents to give the bank a lower credit and asset
quality risk and superior credit rights (compared to bondholders);
(3) participating out most of the credit to reduce the bank's total
credit risk; and (4) employing an independent, third party to become
trustee upon default.
---------------------------------------------------------------------------
The OCC invites comment on how banks are managing these conflicts,
and on the need to address this issue in part 9.
Waiver of Regulatory Requirements
The OCC also is considering whether to establish standards and
procedures for obtaining waivers of any of the requirements in part 9.
The OCC notes that a banking circular, BC-205 (dated July 26, 1985),
already provides general guidance to national banks, bank counsel, and
interested members of the public on requests for staff no-objection
positions. The banking circular
[[Page 66173]]
establishes procedures for obtaining the informal views of the OCC
legal staff regarding the applicability of national banking law
requirements to contemplated transactions or activities, including
fiduciary activities. The OCC invites comment on whether these
procedures are sufficient to accommodate meet banks that seek
clarification of, or relief from, requirements in part 9, or whether
the OCC should add a waiver provision specific to part 9.
This table directs readers to the provisions of the current 12 CFR
part 9, if any, on which the revised 12 CFR part 9 and the amended 12
CFR part 19 are based
DERIVATION TABLE FOR 12 CFR PART 9
------------------------------------------------------------------------
Revised Provision Current Provision Comments
------------------------------------------------------------------------
Sec. 9.1................. ..................... Added.
Sec. 9.2(a).............. ..................... Added.
(b)................... Sec. 9.1(g)......... Significantly
modified.
(c)................... Sec. 9.1(l)......... Modified.
(d)................... Sec. 9.1(a)......... Modified.
(e)................... Sec. 9.1(b) and (h). Significantly
modified.
(f)................... Sec. 9.1(j)......... Modified.
(g)................... Sec. 9.1(d)......... Modified.
(h)................... Sec. 9.1(c)......... Modified.
(i)................... Sec. 9.1(e)......... Modified.
(j)................... ..................... Added.
Sec. 9.3................. Sec. 9.2............ Modified.
Sec. 9.4................. Sec. 9.7(a)(1), (b), Significantly
and (d). modified.
Sec. 9.5................. Secs. 9.5, 9.7(c), Significantly
9.7(d), and 9.10(a). modified.
Sec. 9.6................. Sec. 9.7(a)(2)...... Significantly
modified.
Sec. 9.8................. Secs. 9.7(a)(2) and Modified.
9.8.
Sec. 9.9................. Sec. 9.9............ Significantly
modified.
Sec. 9.10................ Sec. 9.10........... Significantly
modified.
Sec. 9.11................ Sec. 9.11........... Modified.
Sec. 9.12................ Sec. 9.12........... Modified.
Sec. 9.13................ Sec. 9.13........... Modified.
Sec. 9.14................ Sec. 9.14........... Significantly
modified.
Sec. 9.15................ Sec. 9.15........... Modified.
Sec. 9.16................ Sec. 9.16........... Modified.
Sec. 9.17................ Sec. 9.17........... Modified.
Sec. 9.18(a)............. Sec. 9.18 (a) and Modified.
(b)(2).
(b)(1)................ (b)(1)........... Significantly
modified.
(b)(2)................ (b)(12).......... Significantly
modified.
(b)(3)................ (b)(3)........... Modified.
(b)(4)................ (b) (1), (4), and Significantly
(15). modified.
(b)(5)................ (b) (4), (6), and Significantly
(7). modified.
(b)(6)................ (b) (5)(i)-(iv).. Significantly
modified.
(b)(7)................ (b) (5)(iv) and Significantly
(v). modified.
(b)(8)................ (b)(8)........... Modified.
(b)(9)................ (b)(11).......... Modified.
(b)(10)............... (b)(12).......... Significantly
modified.
(b)(11)............... (b)(13).......... Modified.
(b)(12)............... (b)(14).......... Modified.
(c)(1)................ (c)(1)........... Modified.
(c)(2)................ (c)(2)........... Modified.
(c)(3)................ (c)(3)........... Significantly
modified.
(c)(4)................ (c)(4)........... Modified.
(c)(5)................ (c)(5)........... Significantly
modified.
Sec. 9.20............ Sec. 9.20........... Modified.
Sec. 19.135.......... Secs. 9.21 and 9.22. Modified.
------------------------------------------------------------------------
Regulatory Flexibility Act
It is hereby certified that this proposal will not have a
significant economic impact on a substantial number of small entities.
Accordingly, a regulatory flexibility analysis is not required. The
proposal's requirements, for the most part, are not new to the
regulation. The proposal liberalizes requirements and reduces burden
for all national banks that exercise fiduciary powers, regardless of
size.
Executive Order 12866
The OCC has determined that this proposal is not a significant
regulatory action under Executive Order 12866.
Paperwork Reduction Act of 1995
The OCC invites comment on:
(1) Whether the proposed information collection contained in this
proposal is necessary for the proper performance of the OCC's
functions, including whether the information has practical utility;
(2) The accuracy of the OCC's estimate of the burden of the
proposed information collection;
(3) Ways to enhance the quality, utility, and clarity of the
information to be collected; and
(4) Ways to minimize the burden of the information collection on
respondents, including through the use of automated collection
techniques or other forms of information technology.
Respondents/recordkeepers are not required to respond to this
collection of
[[Page 66174]]
information unless it displays a currently valid OMB control number.
The collection of information requirements contained in this
proposal have been submitted to the Office of Management and Budget for
review in accordance with the Paperwork Reduction Act of 1995 (44
U.S.C. 3507(d)). Comments on the collections of information should be
sent to the Office of Management and Budget, Paperwork Reduction
Project (1557-AB12), Washington, DC 20503, with copies to the
Legislative and Regulatory Activities Division (1557-AB12), Office of
the Comptroller of the Currency, 250 E Street, SW, Washington, DC
20219.
The collection of information requirements in this proposed rule
are found in 12 CFR 9.8, 9.9, 9.17, and 9.18. The OCC requires this
information for the proper supervision of national banks' fiduciary
activities. The likely respondents/recordkeepers are national banks.
Estimated average annual burden hours per respondent/recordkeeper:
15.01 hours.
Estimated number of respondents and/or recordkeepers: 1,000.
Estimated total annual reporting and recordkeeping burden: 15,010
hours.
Start-up costs to respondents: None.
Unfunded Mandates Act of 1995
The OCC has determined that this proposal will not result in
expenditures by state, local, and tribal governments, or by the private
sector, of more than $100 million in any one year. Accordingly, a
budgetary impact statement is not required under section 202 of the
Unfunded Mandates Act of 1995.
List of Subjects
12 CFR Part 9
Estates, Investments, National banks, Reporting and recordkeeping
requirements, Trusts and trustees.
12 CFR Part 19
Administrative practice and procedure, Crime, Investigations,
National banks, Penalties, Securities.
Authority and Issuance
For the reasons set out in the preamble, chapter I of title 12 of
the Code of Federal Regulations is proposed to be amended as follows:
1. Part 9 is revised to read as follows:
PART 9--FIDUCIARY ACTIVITIES OF NATIONAL BANKS
Sec.
9.1 Authority, purpose, and scope.
9.2 Definitions.
9.3 Approval requirements.
9.4 Administration of fiduciary powers.
9.5 Policies and procedures.
9.6 Review of assets of fiduciary accounts.
9.8 Recordkeeping.
9.9 Audit of fiduciary activities.
9.10 Fiduciary funds awaiting investment or distribution.
9.11 Investment of fiduciary funds.
9.12 Self-dealing and conflicts of interest.
9.13 Custody of fiduciary assets.
9.14 Deposit of securities with state authorities.
9.15 Fiduciary compensation.
9.16 Receivership or voluntary liquidation of bank.
9.17 Surrender or revocation of fiduciary powers.
9.18 Collective investment funds.
9.20 Transfer agents.
Authority: 12 U.S.C. 24(Seventh), 92a, and 93a; 15 U.S.C. 78q,
78q-1, and 78w.
Sec. 9.1 Authority, purpose, and scope.
(a) Authority. The OCC issues this part pursuant to its authority
under 12 U.S.C. 24 (Seventh), 92a, and 93a, and 15 U.S.C. 78q, 78q-1,
and 78w.
(b) Purpose. The purpose of this part is to set forth the standards
that apply to the fiduciary activities of national banks.
(c) Scope. This part applies to all national banks that act in a
fiduciary capacity, as defined in Sec. 9.2(e).
Sec. 9.2 Definitions.
For the purposes of this part, the following definitions apply:
(a) Affiliate has the same meaning as in 12 U.S.C. 221a(b).
(b) Applicable law means Federal law, state law governing a
national bank's fiduciary relationships, the terms of the instrument
governing a fiduciary relationship, or any court order pertaining to
the relationship.
(c) Custodian under a uniform gifts to minors act means a fiduciary
relationship established pursuant to a state law substantially similar
to the Uniform Gifts to Minors Act as published by the American Law
Institute.
(d) Fiduciary account means an account administered by a national
bank acting in a fiduciary capacity.
(e) Fiduciary capacity means: acting as trustee, executor,
administrator, registrar of stocks and bonds (including transfer
agent), guardian, assignee, receiver, or custodian under a uniform
gifts to minors act; any capacity involving investment discretion on
behalf of another; or any other similar capacity that the OCC
authorizes pursuant to 12 U.S.C. 92a.
(f) Fiduciary officers and employees means all officers and
employees of a national bank to whom the board of directors or its
designees has assigned functions involving the exercise of the bank's
fiduciary powers.
(g) Fiduciary records means all written or otherwise recorded
information that a national bank creates or receives relating to a
fiduciary account or the fiduciary activities of the bank.
(h) Fiduciary powers means the authority the OCC grants to a
national bank to act in a fiduciary capacity pursuant to 12 U.S.C. 92a.
(i) Guardian means the guardian or committee, by whatever name
employed by state law, of the estate of an infant, an incompetent
person, an absent person, or a person over whose estate a court has
taken jurisdiction, other than under bankruptcy or insolvency laws.
(j) Investment discretion means, with respect to an account, the
authority to determine what securities or other assets to purchase or
sell on behalf of the account.
Sec. 9.3 Approval requirements.
(a) A national bank may not exercise fiduciary powers unless it
obtains prior approval from the OCC to the extent required under 12 CFR
5.26.
(b) A person seeking approval to organize a special-purpose
national bank limited to fiduciary powers shall file an application
with the OCC pursuant to 12 CFR 5.20.
Sec. 9.4 Administration of fiduciary powers.
(a) Responsibilities of the board of directors. A national bank's
fiduciary activities shall be managed by or under the direction of its
board of directors. In discharging its responsibilities, the board may
assign any function related to the exercise of fiduciary powers to any
director, officer, employee, or committee thereof.
(b) Use of other personnel. The national bank may use any qualified
personnel and facilities of the bank to perform services related to the
exercise of its fiduciary powers, and any department of the bank may
use fiduciary officers and employees and facilities to perform services
unrelated to the exercise of fiduciary powers, to the extent not
prohibited by applicable law.
(c) Agency agreements. A national bank exercising fiduciary powers
may perform services related to the exercise of fiduciary powers for
another bank or other entity, and may purchase services related to the
exercise of fiduciary powers from another bank or other entity,
pursuant to a written agreement.
(d) Bond requirement. A national bank shall ensure that all
fiduciary officers and employees are adequately bonded.
[[Page 66175]]
Sec. 9.5 Policies and procedures.
A national bank exercising fiduciary powers shall adopt and follow
written policies and procedures adequate to ensure that its fiduciary
practices comply with applicable law. Among other relevant matters, the
policies and procedures should address, where appropriate, the bank's:
(a) Brokerage placement practices, including:
(1) Selection of persons to effect securities transactions and the
evaluation of the reasonableness of any brokerage commissions paid to
those persons;
(2) Acquisition of services or products, including research
services, in return for brokerage commissions;
(3) Allocation of research or other services among accounts,
including those that did not generate commissions to pay for that
research or other services; and
(4) Disclosure of information concerning these brokerage placement
policies and procedures to prospective and existing customers;
(b) Methods for ensuring that fiduciary officers and employees do
not use material inside information in connection with any decision or
recommendation to purchase or sell any security;
(c) Methods for preventing self-dealing and conflicts of interest;
(d) Selection and retention of legal counsel who is readily
available to advise the bank and its fiduciary officers and employees
on fiduciary matters;
(e) Investment of funds held as fiduciary, including short-term
investments and the treatment of fiduciary funds awaiting investment or
distribution;
(f) Allocation to fiduciary accounts of any financial incentives
the bank may receive for investing fiduciary funds in a particular
investment; and
(g) Disclosure to beneficiaries and other interested parties of
fees and expenses charged to fiduciary accounts.
Sec. 9.6 Review of assets of fiduciary accounts.
(a) Individual account review--(1) Pre-acceptance review. Before
accepting a fiduciary account, a national bank shall review the
prospective account to determine whether it can properly administer the
account.
(2) Initial post-acceptance review. Upon the acceptance of a
fiduciary account for which a national bank has investment discretion,
the bank shall conduct a prompt, written review of all assets of the
account to evaluate whether they are appropriate, individually and
collectively, for the account.
(3) Annual review. At least once during every calendar year, and
not later than 15 months after the last review, a bank shall conduct a
written review of all assets of each account for which the bank has
investment discretion to evaluate whether they are appropriate,
individually and collectively, for the account.
(b) Annual review of assets by issuer. At least once during every
calendar year, and not later than 15 months after the last review, a
bank shall conduct a written review of the investment merit of each
asset in fiduciary accounts for which the bank has investment
discretion, to the extent appropriate for that asset.
Sec. 9.8 Recordkeeping.
(a) Documentation of accounts. A national bank shall adequately
document the establishment and termination of each fiduciary account
and shall maintain adequate records for all fiduciary accounts,
including any records required under 12 CFR part 12.
(b) Retention of records. A national bank shall retain all
fiduciary records relating to an account for a period of three years
from the later of the termination of the account or the termination of
any litigation relating to the account.
(c) Separation of records. The bank shall ensure that its fiduciary
records are separate and distinct from other records of the bank.
Sec. 9.9 Audit of fiduciary activities.
(a) Annual audit. At least once during each calendar year and not
later than 15 months after the last audit, a national bank shall
perform, through its audit committee, a suitable audit of all of its
fiduciary activities, unless the bank adopts a continuous audit system
in accordance with paragraph (b) of this section. The bank shall note
the results of the audit (including all actions taken as a result of
the audit) in the minutes of the board of directors.
(b) Continuous audit. In lieu of performing annual audits under
paragraph (a) of this section, a national bank may adopt a continuous
audit system under which the bank performs, through its audit
committee, a discrete audit of each fiduciary activity (i.e., on an
activity-by-activity basis) at intervals appropriate for that activity.
Thus, a bank may audit certain fiduciary activities at intervals
greater or less than one year, as appropriate. A bank that adopts a
continuous audit system shall note the results of all discrete audits
performed since the last audit report (including all actions taken as a
result of the audits) in the minutes of the board of directors at least
once during each calendar year and not later than 15 months after the
last audit report.
(c) Audit committee. A national bank's audit committee may consist
of a committee of the bank's directors or an audit committee of an
affiliate of the bank. However, the national bank's audit committee
must not include:
(i) Any officers of the bank who participate significantly in the
administration of the bank's fiduciary activities or;
(ii) Any members of a fiduciary committee of the bank.
Sec. 9.10 Fiduciary funds awaiting investment or distribution.
(a) In general. A national bank shall not allow funds of a
fiduciary account that are awaiting investment or distribution to
remain uninvested and undistributed any longer than is reasonable for
the proper management of the account and consistent with applicable
law.
(b) Self-deposits--(1) In general. Unless prohibited by applicable
law, a national bank may deposit funds of a fiduciary account that are
awaiting investment or distribution in the commercial, savings, or
another department of the bank. To the extent that the funds are not
insured by the Federal Deposit Insurance Corporation, the bank shall
secure them by setting aside collateral, under the control of
appropriate fiduciary officers and employees, in accordance with
paragraph (b)(2) of this section. The market value of the collateral
set aside must at all times equal or exceed the amount of the uninsured
fiduciary funds.
(2) Acceptable collateral. A national bank may satisfy the
collateral requirement of paragraph (b)(1) of this section with any of
the following:
(i) Direct obligations of the United States, or other obligations
fully guaranteed by the United States as to principal and interest;
(ii) Readily marketable securities that qualify as investment
securities pursuant to 12 CFR part 1;
(iii) Readily marketable securities of the classes in which state
banks, trust companies, or other corporations exercising fiduciary
powers are permitted to invest fiduciary funds under state law; and
(iv) Assets, including surety bonds, that qualify under applicable
state law as appropriate security for deposits of fiduciary funds.
(c) Affiliate deposits. If consistent with applicable law, a
national bank may deposit funds of a fiduciary account that are
awaiting investment or
[[Page 66176]]
distribution with an affiliate insured depository institution. If
consistent with applicable law, a national bank may secure a deposit by
or with an affiliate of fiduciary funds awaiting investment or
distribution.
Sec. 9.11 Investment of fiduciary funds.
A national bank shall invest funds that it holds as fiduciary in a
manner consistent with applicable law.
Sec. 9.12 Self-dealing and conflicts of interest.
(a) Investments for fiduciary accounts--(1) In general. Unless
consistent with applicable law, a national bank shall not invest
fiduciary funds in the stock or obligations of, or in assets acquired
from: the bank or any of its directors, officers, or employees;
affiliates of the bank or any of their directors, officers, or
employees; or individuals or organizations with whom there exists an
interest that might affect the exercise of the best judgment of the
bank.
(2) Additional securities investments. If retention of stock or
obligations of the bank or its affiliates is consistent with applicable
law, the bank may:
(i) Exercise rights to purchase additional stock (or securities
convertible into additional stock) when offered pro rata to
stockholders; and
(ii) Purchase fractional shares to complement fractional shares
acquired through the exercise of rights or the receipt of a stock
dividend resulting in fractional share holdings.
(b) Loans, sales, or other transfers from fiduciary accounts--(1)
In general. A national bank shall not lend, sell, or otherwise transfer
assets held in a fiduciary capacity to the bank or any of its
directors, officers, or employees, or to affiliates of the bank or any
of their directors, officers, or employees, or to individuals or
organizations with whom there exists an interest that might affect the
exercise of the best judgment of the bank, unless:
(i) The transaction is consistent with applicable law;
(ii) Legal counsel advises the bank in writing that the bank has
incurred, in its fiduciary capacity, a contingent or potential
liability, in which case the bank, upon the sale or transfer of assets,
shall reimburse the fiduciary account in cash at the greater of book or
market value of the assets;
(iii) As provided in Sec. 9.18(b)(8)(iii) for defaulted fixed-
income investments; or
(iv) Required in writing by the OCC.
(2) Loans of funds held in trust. Notwithstanding paragraph (b)(1)
of this section, a national bank shall not lend to any of its
directors, officers, or employees any funds held in trust, except with
respect to the bank's own employee benefit plans in accordance with
section 408(b)(1) of the Employee Retirement Income Security Act of
1974 (29 U.S.C. 1108(b)(1)).
(c) Loans to fiduciary accounts. A national bank may make a loan to
a fiduciary account and may hold a security interest in assets of the
account if the transaction is fair to the account and is not prohibited
by applicable law.
(d) Sales between fiduciary accounts. A national bank may sell
assets between any of its fiduciary accounts if the transaction is fair
to both accounts and is not prohibited by applicable law.
(e) Loans between fiduciary accounts. A national bank may make a
loan between any of its fiduciary accounts if the transaction is
authorized by the instrument creating the account from which the loan
is made and is not prohibited by applicable law.
Sec. 9.13 Custody of fiduciary assets.
(a) Control of fiduciary assets. A national bank shall place assets
of fiduciary accounts in the joint custody or control of not fewer than
two of the fiduciary officers or employees designated for that purpose
by the board of directors. A national bank may maintain the investments
of a fiduciary account off-premises, if the bank maintains adequate
safeguards and controls.
(b) Separation of fiduciary assets. A national bank shall keep the
assets of fiduciary accounts separate from the assets of the bank. A
national bank shall keep the assets of each fiduciary account separate
from all other accounts or shall identify the investments as the
property of a particular account, except as provided in Sec. 9.18.
Sec. 9.14 Deposit of securities with state authorities.
(a) In general. If state law requires corporations acting in a
fiduciary capacity to deposit securities with state authorities for the
protection of private or court trusts, then before a national bank acts
as a private or court-appointed trustee in that state, it shall make a
similar deposit with state authorities. If the state authorities refuse
to accept the deposit, the bank shall deposit the securities with the
Federal Reserve Bank of the district in which the national bank is
located, to be held for the protection of private or court trusts to
the same extent as if the securities had been deposited with state
authorities.
(b) Assets held in more than one state. If a national bank
administers trust assets in more than one state, the bank may compute
the amount of deposit required for each state on the basis of trust
assets that the bank administers from offices located in that state.
Sec. 9.15 Fiduciary compensation.
(a) Compensation of bank. If the amount of a national bank's
compensation for acting in a fiduciary capacity is not set or governed
by applicable law, the bank may charge a reasonable fee for its
services.
(b) Compensation of co-fiduciary officers and employees. A national
bank shall not permit any officer or employee to retain any
compensation for acting as a co-fiduciary with the bank in the
administration of a fiduciary account, except with the specific
approval of the bank's board of directors.
Sec. 9.16 Receivership or voluntary liquidation of bank.
If the OCC appoints a receiver for a national bank, or if a
national bank places itself in voluntary liquidation, the receiver or
liquidating agent shall promptly close all fiduciary accounts to the
extent practicable, in accordance with OCC instructions and the orders
of the court having jurisdiction. The receiver or liquidating agent
shall transfer all remaining fiduciary accounts to substitute
fiduciaries.
Sec. 9.17 Surrender or revocation of fiduciary powers.
(a) Surrender. In accordance with 12 U.S.C. 92a(j), a national bank
seeking to surrender its fiduciary powers shall file with the OCC a
certified copy of the resolution of its board of directors evidencing
that intent. If satisfied that the bank has been discharged from all
fiduciary duties, the OCC will provide written notice that the bank is
no longer authorized to exercise fiduciary powers.
(b) Revocation. If the OCC determines that a national bank has
unlawfully or unsoundly exercised, or has failed for a period of five
consecutive years to exercise, its fiduciary powers, the Comptroller
may, in accordance with the provisions of 12 U.S.C. 92a(k), revoke the
bank's fiduciary powers.
Sec. 9.18 Collective investment funds.
(a) In general. Where consistent with applicable law, a national
bank may invest assets that it holds as fiduciary in the following
collective investment funds:
(1) A fund maintained by the bank, or by one or more affiliate
banks,1
[[Page 66177]]
exclusively for the collective investment and reinvestment of money
contributed to the fund by the bank, or by one or more affiliate banks,
in its capacity as trustee, executor, administrator, guardian, or
custodian under a uniform gifts to minors act.
1 A fund established pursuant to Sec. 9.18(a)(1) that
includes moneys contributed by entities that are affiliates under 12
U.S.C. 221a(b), but are not members of the same affiliated group, as
defined at 26 U.S.C. 1504, may fail to qualify for tax-exempt status
under the Internal Revenue Code. See 26 U.S.C. 584.
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(2) A fund consisting solely of assets of retirement, pension,
profit sharing, stock bonus or other trusts that are exempt from
Federal income taxation under the Internal Revenue Code.
(i) A national bank may invest assets of retirement, pension,
profit sharing, stock bonus or other trusts exempt from Federal income
taxation and that the bank holds in its capacity as trustee in a
collective investment fund established under paragraph (a)(1) or (a)(2)
of this section.
(ii) A national bank may invest assets of retirement, pension,
profit sharing, stock bonus or other employee benefit trusts exempt
from Federal income taxation and that the bank holds in any capacity
(including agent), in a collective investment fund established under
paragraph (a)(2) of this section if the fund itself qualifies for
exemption from Federal income taxation.
(b) Requirements. A national bank administering a collective
investments fund authorized under paragraph (a) of this section shall
comply with the following requirements:
(1) Written plan. The bank shall establish and maintain each
collective investment fund in accordance with a written plan approved
by a resolution of the bank's board of directors or by a committee
thereof (Plan). The bank shall make a copy of the Plan available for
public inspection at its main office during all banking hours, and
shall provide a copy of the Plan to any person who requests it. The
Plan must contain appropriate provisions, not inconsistent with this
part, regarding the manner in which the bank will operate the fund,
including provisions relating to:
(i) Investment powers and policies with respect to the fund;
(ii) Allocation of income, profits, and losses;
(iii) Fees and expenses that will be charged to the fund and to
participating accounts;
(iv) Terms and conditions governing the admission and withdrawal of
participating accounts;
(v) Audits of participating accounts;
(vi) Basis and method of valuing assets in the fund;
(vii) Expected frequency for income distribution to participating
accounts;
(viii) Minimum frequency for valuation of fund assets;
(ix) Period following each valuation date during which the
valuation must be made;
(x) Bases upon which the bank may terminate the fund; and
(xi) Any other matters necessary to define clearly the rights of
participating accounts.
(2) Fund management. A bank administering a collective investment
fund shall have exclusive management thereof, except as a prudent
person might delegate responsibilities to others.2
2 If a fund, the assets of which consist solely of Individual
Retirement Accounts, Keogh Accounts, or other employee benefit
accounts that are exempt from taxation, is registered under the
Investment Company Act of 1940 (15 U.S.C. 80a-1 et seq.), the fund
will not be deemed in violation of paragraph (b)(2) of this section
as a result of its compliance with section 10(c) of the Investment
Company Act of 1940 (15 U.S.C. 80a-10(c)).
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(3) Proportionate interests. Each participating account in a
collective investment fund must have a proportionate interest in all
the fund's assets.
(4) Valuation--(i) Frequency of valuation. A bank administering a
collective investment fund shall determine the value of the fund's
assets at least once every three months. However, in the case of a fund
that is invested primarily in real estate or other assets that are not
readily marketable, the bank shall determine the value of the fund's
assets at least once each year.
(ii) Method of valuation--(A) In general. Except as provided in
paragraph (b)(4)(ii)(B) of this section, a bank shall value each fund
asset at market value as of the date set for valuation, unless the bank
cannot readily ascertain market value, in which case the bank shall use
a fair value determined in good faith.
(B) Short-term investment funds. A bank may value a fund's assets
on a cost, rather than market value, basis for purposes of admissions
and withdrawals, if the Plan requires the bank to:
(1) Invest at least 80 percent of the fund's assets in bonds,
notes, or other evidences of indebtedness that are payable on demand
(including variable amount notes), or that have a maturity date not
exceeding 91 days from the date of purchase;
(2) Accrue on a straight-line basis the difference between the cost
and anticipated principal receipt on maturity;
(3) Hold the fund's assets until maturity under usual
circumstances; and
(4) Ensure that, after effecting admissions and withdrawals, at
least 20 percent of the value of the remaining fund assets are cash,
demand obligations, or assets that will mature on the fund's next
business day.
(5) Admission and withdrawal of accounts--(i) In general. A bank
administering a collective investment fund shall admit an account to or
withdraw an account from the fund only on the basis of the valuation
described in paragraph (b)(4) of this section.
(ii) Prior request or notice. A bank administering a collective
investment fund may admit an account to or withdraw an account from a
collective investment fund only if the bank has approved a request for
or notice of intention of taking that action on or before the valuation
date on which the admission or withdrawal is based. No requests or
notices may be canceled or countermanded after the valuation date.
(iii) Prior notice period for withdrawals from funds with assets
not readily marketable. A bank administering a collective investment
fund described in paragraph (a)(2) of this section that is invested
primarily in real estate or other assets that are not readily
marketable, may require a prior notice period, not to exceed one year,
for withdrawals.
(iv) Method of distributions. A bank administering a collective
investment fund shall make distributions to accounts withdrawing from
the fund in a manner consistent with applicable law.
(v) Segregation of investments. If an investment is withdrawn in
kind from a collective investment fund for the benefit of all
participants in the fund at the time of the withdrawal but the
investment is not distributed ratably in kind, the bank shall segregate
and administer it for the benefit ratably of all participants in the
collective investment fund at the time of withdrawal.
(6) Audits and financial reports--(i) Annual audit. At least once
during each 12-month period, a bank administering a collective
investment fund shall arrange for an audit of the collective investment
fund by auditors responsible only to the board of directors of the
bank.3
3 If a fund, the assets of which consist solely of Individual
Retirement Accounts, Keogh Accounts, or other employee benefit
accounts that are exempt from taxation, is registered under the
Investment Company Act of 1940 (15 U.S.C. 80a-1 et seq.), the fund
will not be deemed in violation of paragraph (b)(6)(i) of this
section as a result of its compliance with section 10(c) of the
Investment Company Act of 1940 (15 U.S.C. 80a-10(c)), if the bank
has access to the audit reports of the fund.
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(ii) Financial report. At least once during each 12-month period, a
bank administering a collective investment fund shall prepare a
financial report of
[[Page 66178]]
the fund based on the audit required by paragraph (b)(6)(i) of this
section. The report must disclose fees and expenses charged to the
fund. This report must contain a list of investments in the fund
showing the cost and current market value of each investment, and a
statement covering the period after the previous report showing the
following (organized by type of investment):
(A) Summaries of all purchases (with costs);
(B) Summaries of all sales (with profit or loss and any other
investment changes);
(C) Income and disbursements; and
(D) An appropriate notation as to any investments in default.
(iii) Limitation on representations. A bank may include in the
financial report a description of the fund's value on previous dates,
as well as its income and disbursements during previous accounting
periods. A bank shall not publish in the financial report any
predictions or representations as to future results. In addition, with
respect to funds described in paragraph (a)(1) of this section, a bank
shall not publish the performance of funds other than those
administered by the bank or its affiliates.
(iv) Availability of the report. A bank administering a collective
investment fund shall provide a copy of the financial report, or shall
provide notice that a copy of the report is available upon request
without charge, to each person who ordinarily would receive a regular
periodic accounting with respect to each participating account. The
bank may provide a copy of the financial report to prospective
customers. In addition, the bank shall provide a copy of the report
upon request to any person for a reasonable charge.
(7) Advertising prohibition for common trust funds. A bank shall
not advertise or publicize any fund authorized under paragraph (a)(1)
of this section, except in connection with the advertisement of the
general fiduciary services of the bank.
(8) Self-dealing and conflicts of interest--(i) Bank interests. A
bank administering a collective investment fund shall not have an
interest in that fund other than in its fiduciary capacity. Except for
temporary net cash overdrafts or as otherwise specifically provided in
this paragraph, the bank shall not lend to, sell assets to, or purchase
assets from a fund. The bank shall not invest fund assets in stock or
obligations, including time or savings deposits, of the bank or any of
its affiliates, except for funds awaiting investment or distribution.
If, because of a creditor relationship or otherwise, the bank acquires
an interest in a participating account, the participating account must
be withdrawn on the next withdrawal date. However, a bank may invest
assets that it holds as fiduciary for its own employees in a collective
investment fund.
(ii) Loans to participating accounts. A bank administering a
collective investment fund shall not make any loan on the security of a
participant's interest in the fund. An unsecured advance to a fiduciary
account participating in the fund until the time of the next valuation
date does not constitute the acquisition of an interest in a
participating account by the bank.
(iii) Purchase of defaulted fixed-income investments. A bank
administering a collective investment fund may purchase for its own
account any defaulted fixed-income investment held by the fund if, in
the judgment of the bank, the cost of segregation of the investment is
greater than the difference between its market value and its principal
amount plus interest and penalty charges due. If the bank elects to
purchase a defaulted fixed-income investment, it shall do so at the
greater of market value or the sum of cost, accrued unpaid interest,
and penalty charges.
(9) Mortgage reserve account--(i) In general. A bank administering
a collective investment fund may transfer to a reserve account up to 5
percent of the net income derived by the fund from mortgages held by
the fund during any regular accounting period. The amount held in the
reserve account must not exceed 1 percent of the outstanding principal
amount of all mortgages held in the fund. The bank shall deduct the
amount of the reserve account from the fund's assets in determining the
fair market value of the fund for the purposes of admissions and
withdrawals.
(ii) Charges against reserve account. At the end of each accounting
period, the bank shall charge all interest payments that are due but
unpaid with respect to mortgages in the fund against the reserve
account to the extent available, and shall credit the payments to
income distributed to participating accounts. In the event of
subsequent recovery of the payments by the fund, the bank shall credit
the reserve account with the amounts recovered.
(10) Fees and expenses--(i) Fund management fees. A bank
administering a collective investment fund may charge a fund management
fee if the total fees charged to a participating account (including the
fund management fee) does not exceed the total fees that the bank would
have charged had it not invested assets of the account in the fund.
(ii) Reasonable expenses. A bank administering a collective
investment fund may charge reasonable expenses incurred in operating
the collective investment fund, to the extent not prohibited by
applicable law. However, a bank shall absorb the expenses of
establishing or reorganizing a collective investment fund.
(11) Prohibition against certificates. A bank administering a
collective investment fund shall not issue any certificate or other
document evidencing a direct or indirect interest in the fund.
(12) Good faith mistakes. No mistake made in good faith and in the
exercise of due care in connection with the administration of a
collective investment fund will be deemed to be a violation of this
part if, promptly after the discovery of the mistake, the bank takes
whatever action is practicable under the circumstances to remedy the
mistake.
(c) Other collective investments. In addition to the collective
investment funds authorized under paragraph (a) of this section, a
national bank may invest assets that it holds as fiduciary, to the
extent not prohibited by applicable law, as follows:
(1) Bank fiduciary funds. In shares of a mutual trust investment
company, organized and operated pursuant to a statute that specifically
authorizes the organization of those companies exclusively for the
investment of funds held by corporate fiduciaries.
(2) Single loans or obligations. In the following loans or
obligations, if the bank's only interest in the loans or obligations is
its capacity as fiduciary:
(i) A single real estate loan, a direct obligation of the United
States, or an obligation fully guaranteed by the United States, or a
single fixed amount security, obligation, or other property, either
real, personal, or mixed, of a single issuer; or
(ii) A variable amount note of a borrower of prime credit, if the
bank uses the note solely for investment of funds held in its fiduciary
accounts.
(3) Mini-funds. In a fund maintained by the bank for the collective
investment of cash balances received or held by a bank in its capacity
as trustee, executor, administrator, or guardian, or custodian under a
uniform gifts to minors act, that the bank considers to be too small to
be invested separately to advantage. The total assets in the fund must
not exceed $1,000,000, and the number of participating accounts must
not exceed 100.
(4) Trust funds of corporations and closely-related settlors. In
any
[[Page 66179]]
investment specifically authorized by the instrument creating the
fiduciary account or a court order, in the case of trusts created by a
corporation, including its affiliates and subsidiaries, or by several
individual settlors who are closely related.
(5) Special exemption funds. In any other manner described by the
bank in a written plan approved by the OCC. The written plan is deemed
approved by the OCC 30 days after it receives the plan, unless the OCC
notifies the bank that the OCC has disapproved the plan or is extending
review beyond the 30-day period because the proposal raises issues that
require additional information or additional time for analysis. The
written plan must set forth:
(i) The reason that the proposed fund requires a special exemption;
(ii) The provisions of the proposed fund that are inconsistent with
paragraphs (a) and (b) of this section;
(iii) The provisions of paragraph (b) of this section for which the
bank seeks an exemption; and
(iv) The manner in which the proposed fund addresses the rights and
interests of participating accounts.
Sec. 9.20 Transfer agents.
(a) The rules adopted by the Securities and Exchange Commission
(SEC) pursuant section 17A of the Securities Exchange Act of 1934 (15
U.S.C. 78q-1) prescribing procedures for registration of transfer
agents for which the SEC is the appropriate regulatory agency (17 CFR
240.17Ac2-1) apply to national bank transfer agents. References to the
``Commission'' are deemed to refer to the ``OCC.''
(b) The rules adopted by the SEC pursuant section 17A of the
Securities Exchange Act of 1934 prescribing operational and reporting
requirements for transfer agents (17 CFR 240.17Ac2-2, and 240.17Ad-1
through 240.17Ad-16) apply to national bank transfer agents.
PART 19--RULES OF PRACTICE AND PROCEDURE
2. The authority citation for part 19 is revised to read as
follows:
Authority: 5 U.S.C. 504, 554-557; 12 U.S.C. 93(b), 164, 505,
1817, 1818, 1820, 1831o, 1972, 3102, 3108(a), and 3909; 15 U.S.C.
78(h), 78(i), 78o-4(c), 78o-5, 78q-1, 78s, 78u, 78u-2, 78u-3, and
78w; and 31 U.S.C. 330.
3. A new Sec. 19.135 is added to subpart E to read as follows:
Sec. 19.135 Applications for stay or review of disciplinary actions
imposed by registered clearing agencies.
(a) Stays. The rules adopted by the Securities and Exchange
Commission (SEC) pursuant to section 19 of the Securities Exchange Act
of 1934 (15 U.S.C. 78s) regarding applications by persons for whom the
SEC is the appropriate regulatory agency for stays of disciplinary
sanctions or summary suspensions imposed by registered clearing
agencies (17 CFR 240.19d-2) apply to applications by national banks.
References to the ``Commission'' are deemed to refer to the ``OCC.''
(b) Reviews. The regulations adopted by the SEC pursuant to section
19 of the Securities Exchange Act of 1934 (15 U.S.C. 78s) regarding
applications by persons for whom the SEC is the appropriate regulatory
agency for reviews of final disciplinary sanctions, denials of
participation, or prohibitions or limitations of access to services
imposed by registered clearing agencies (17 CFR 240.19d-3(a)-(f)) apply
to applications by national banks. References to the ``Commission'' are
deemed to refer to the ``OCC.''
Dated: December 11, 1995.
Eugene A. Ludwig,
Comptroller of the Currency.
[FR Doc. 95-30971 Filed 12-20-95; 8:45 am]
BILLING CODE 4810-33-P
