[Federal Register Volume 62, Number 249 (Tuesday, December 30, 1997)]
[Rules and Regulations]
[Pages 67696-67708]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-33726]
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DEPARTMENT OF THE TREASURY
Office of Thrift Supervision
12 CFR Parts 545, 550, 563e, and 571
[No. 97-129]
RIN 1550-AB09
Fiduciary Powers; Community Reinvestment Act
AGENCY: Office of Thrift Supervision, Treasury.
ACTION: Final rule.
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SUMMARY: The Office of Thrift Supervision (``OTS'') is issuing a final
rule revising its fiduciary powers regulation. The final rule updates,
clarifies, and streamlines OTS regulations, incorporates significant
interpretive guidance, and eliminates unnecessary regulatory burden.
The final rule consolidates all regulations on the fiduciary powers of
Federal savings associations into a single part. Additionally, this
part has been revised to incorporate the OTS current policy statement
on the fiduciary activities of State-chartered savings associations.
The OTS is also amending its Community Reinvestment Act (``CRA'')
regulations. The change conforms the scope of the OTS's CRA regulations
to the regulations of the other Federal banking agencies. It exempts
certain savings associations that do not perform commercial or retail
banking services by
[[Page 67697]]
granting credit to the public in the ordinary course of business.
EFFECTIVE DATE: January 1, 1998.
FOR FURTHER INFORMATION CONTACT: Larry Clark, Senior Manager,
Compliance and Trust Programs, Compliance Policy, (202) 906-5628;
Timothy Leary, Counsel (Banking and Finance), (202) 906-7170, or Karen
Osterloh, Assistant Chief Counsel, (202) 906-6639, Regulations and
Legislation Division, Chief Counsel's Office, Office of Thrift
Supervision, 1700 G Street, N.W., Washington, D.C. 20552.
SUPPLEMENTARY INFORMATION:
I. Background
On July 23, 1997, the OTS published a notice of proposed rulemaking
seeking comment on its regulations governing the fiduciary operations
of Federal savings associations. 62 FR 39477. The proposal was the
first comprehensive revision of the fiduciary powers regulations at 12
CFR part 550 since 1980.
The proposed rule was intended to update, streamline, and clarify
these regulations. It also reflected the changes that Federal savings
associations and their fiduciary operations have undergone since 1980,
and incorporated significant interpretive opinions. Overall, the
purpose of the proposed rule was to facilitate the continued
development of fiduciary business consistent with safe and sound
practices. Consistent with section 303 of the Community Development and
Regulatory Improvement Act of 1994 (``CDRIA''), the proposed rule
conformed OTS's fiduciary powers rules more closely to rules of the
other agencies, specifically the rules issued by the Office of the
Comptroller of the Currency at 12 CFR part 9, as revised at 61 FR 68543
(December 30, 1996).
The OTS also sought comment on exemptions from the OTS's
regulations implementing the Community Reinvestment Act (``CRA'').
Specifically, the OTS proposed to conform its CRA regulations to the
other Federal banking agencies by exempting certain special purpose
savings associations. Special purpose savings associations were
exempted if they do not perform commercial or retail banking services
by granting credit to the public in the ordinary course of business,
other than as incident to their specialized operations.
II. Comments Received
Four commenters responded to the proposal: Two Federal savings
associations, one State regulatory agency, and one community
reinvestment organization. Generally, the two Federal savings
associations supported the proposal, but suggested specific changes.
The State regulatory agency did not support or oppose the proposal, but
also made suggestions. The community reinvestment organization opposed
the proposed CRA exemption for special purpose savings associations.
III. Discussion
A. Fiduciary Powers
1. Structure of Revised Part 550
The proposed fiduciary powers rule was written in a traditional
regulation format. The final fiduciary powers rule issued today uses
the plain language drafting techniques promoted by the Vice President's
National Performance Review Initiative and new guidance in the Federal
Register Document Drafting Handbook (January 1997 edition). The primary
goal of plain language drafting is to make regulations easier to
understand. Plain language drafting emphasizes informative headings
(often written as a question), non-technical language (including the
use of ``you''), and sentences in the active voice.
Although commenters did not have an opportunity to comment on the
plain language format prior to this final rule, the OTS believes that
the benefits of the plain language format justify its use. Even though
the OTS has substantially reorganized the rule, the substance of the
proposed regulation did not change as a result of the format. The OTS
welcomes comments on the format and suggestions on how to improve it.
2. Section-by-Section Discussion
A discussion of the comments follows. This discussion generally
does not address provisions on which the OTS received no comments or
only supporting comments. Unless specifically discussed below, the
proposed rules are adopted with only plain language format changes.
Section 550.10 What regulations govern the fiduciary operations of
savings associations?
Proposed Sec. 550.1 stated that part 550 is issued pursuant to 12
U.S.C. 1464(n) (section 5(n) of the Home Owners' Loan Act (``HOLA'')).
Proposed Sec. 550.1 also stated that part 550 sets forth the standards
that apply to the fiduciary activities of Federal savings associations.
This section has been incorporated into final Sec. 550.10(a), which
states that a Federal savings association is required to conduct its
fiduciary operations in accordance with 12 U.S.C. 1464(n) and the
provisions of part 550.
The final rule at Sec. 550.10(b) includes a new paragraph that was
not included in the proposed rule. This provision incorporates, without
substantive change, language from the existing policy statement
regarding the fiduciary activities of State-chartered savings
associations at 12 CFR 571.15. Final Sec. 550.10(b) states that a
State-chartered savings association must conduct its fiduciary
operations in accordance with State law. The rule, however, also
recognizes the OTS's interest in those operations. As such, the final
rule requires State-chartered savings associations to exercise
fiduciary powers in a safe and sound manner, and clarifies that these
associations and their subsidiaries should follow the standards for the
exercise of fiduciary powers set out in part 550.1 The final
rule also states that the OTS will monitor the fiduciary operations of
State-chartered savings associations and their subsidiaries, and may
restrict or prohibit activities that threaten the safety and soundness
of the association.
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\1\ State-chartered savings associations are particularly
advised to adhere to Sec. 550.140, which contains the standards for
the exercise of fiduciary powers. In exercising their fiduciary
powers, State-chartered savings associations should also observe the
procedures and policies required by Part 550 in the areas of
fiduciary personnel and facilities, custody and control of assets,
investing funds of a fiduciary account, deposit of funds awaiting
investment or distribution, restrictions on self-dealing, and audit
requirements.
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Section 550.20 What are fiduciary powers?
The proposed rule at Sec. 550.2 defined fiduciary powers as the
authority the OTS permits a Federal savings association to exercise
pursuant to 12 U.S.C. 1464(n). The definition also stated that the
scope of a Federal savings association's fiduciary powers depends on
the powers that the State grants to competing fiduciaries in the State
in which the Federal savings association is located.
One commenter argued that the OTS should explicitly state that if
an activity does not fall into the OTS's definition of fiduciary
activity, but is an otherwise permissible activity for a Federal
savings association or its operating subsidiaries, the association or
subsidiary should be permitted to engage in that activity. The
commenter maintained that it is irrelevant whether State competitors
are allowed to engage in that activity and whether that activity is
considered a fiduciary activity by the State.
The final rule adopts the language of the proposed rule. By the
terms of the
[[Page 67698]]
statute, the scope of a Federal savings association's fiduciary powers
is determined by the authority a particular State grants to competing
fiduciaries in the State in which the Federal savings association is
located. The reference in Sec. 550.20 to State law is, thus, compelled
by the statutory language.
We decline to adopt a blanket statement in this regulation about
the applicability of particular State laws to activities that are
otherwise permissible for a Federal savings association. Federal
savings associations interested in conducting such activities should
consult the statutory basis for that activity and the regulations that
govern its exercise before engaging in the activity. The applicability
of particular State law to the activity would depend on an analysis of
each situation as it arises.
Section 550.30 What fiduciary capacities does this regulation cover?
Under the proposed rule, fiduciary capacity included specified
fiduciary positions such as acting as a trustee, executor,
administrator, registrar of stocks and bonds, transfer agent, guardian,
assignee, receiver, custodian under a uniform gifts to minors act, any
capacity in which the Federal savings association possesses investment
discretion on behalf of another, or any other similar capacity that the
OTS authorizes under 12 U.S.C. 1464(n).2 The proposed
definition also included acting as an investment adviser, if the
Federal savings association receives a fee for its investment advice.
In interpreting this provision, the OTS stated that it intended to
follow a proposed OCC interpretive ruling on the meaning of investment
advisor for a fee.3 Under the OCC interpretation, the term
investment advisor generally means that the institution provides advice
or recommendations concerning the purchase or sale of specific
securities, such as an institution engaged in portfolio advisory and
management activities. The term generally excludes those activities in
which the investment advice is merely incidental to other services.
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\2\ The proposed rule sought comment on whether the final rule
should rely on State law to determine the dividing line between
fiduciary and non-fiduciary activities. One commenter opposed this
alternative. The OTS believes that the definition of fiduciary
capacity should foster consistent application of part 550 for all
Federal savings associations. Accordingly, the OTS will not rely
exclusively on State law in determining whether a particular
activity amounts to acting in a fiduciary capacity. We note that the
OCC also rejected a State law approach in its final rule on
fiduciary activities of national banks.
\3\ 62 FR 36746 (July 9, 1997).
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One commenter argued that fiduciary capacity should not include a
trustee under a deed of trust, a receiver or assignee under one's own
security instrument in a default situation, a custodian under a uniform
gift to minors act account, or a trustee under real estate or land
trust. While the commenter generally supported the adoption of the OCC
proposed interpretive ruling on investment advisors receiving a fee, it
suggested that investment advisory and related activities that do not
involve investment discretion should not be subject to part 550, even
if performed for a fee.
The final rule at Sec. 550.30 addresses the fiduciary capacities
that are covered by part 550. The final rule continues to cite the
specific fiduciary capacities in the proposed rule. Some of the
specific capacities are enumerated under 12 U.S.C. 1464(n)(1). Others,
such as custodian under a uniform gift to minors act, have long been
cited under the OTS and OCC fiduciary powers regulations. The final
rule also includes any capacity in which the association possesses
investment discretion on behalf of another, and acting as an investment
advisor for a fee.
The OTS has not adopted the commenter's proposal to exclude certain
fiduciary capacities. Initially, we note that the applicability of part
550 to some of the specifically-listed fiduciary positions will depend
on what the fiduciary in the relationship actually does. For example,
``trustee'' is a specifically-listed fiduciary capacity at
Sec. 550.30(a). The final rule at Sec. 550.580(c), however, excepts a
Federal savings association from part 550 if the association acts as
the trustee of a fiduciary account that involves no active fiduciary
duties and applicable law permits the association to act in that
capacity. Similarly, an investment adviser that receives a fee for
advice is a specifically-listed fiduciary capacity at Sec. 550.30(j).
The OTS, however, has indicated that it will follow the OCC's proposed
interpretive ruling on investment advisers, which provides numerous
examples of activities that do not constitute the provision of
investment advice.4 Finally, we note that the final rule
generally excludes relationships'--other than those specifically
listed'--where the Federal savings association does not have investment
discretion.
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\4\ These include financial advice and counseling, including
strategic planning of a financial nature, merger and acquisition
advisory services, advisory and structuring services related to
project finance transactions, and providing market economic
information to customers in general; client-directed investment
activities where the fee does not depend on the provision of
investment advice; investment advice incidental to acting as a
municipal securities dealer; real estate asset management; real
estate consulting; advice concerning bridge loans; services for
homeowners' associations; tax planning and structuring advice; and
investment advice authorized by the OCC under 12 U.S.C. 24 (Seventh)
as an incidental power necessary to carry on the business of
banking.
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As noted, one commenter argues that a Federal savings association
that gives investment advice for a fee should not be deemed to be
acting in a fiduciary capacity if it is not making the investment
decision.
The OTS disagrees. When a customer pays a Federal savings
association a fee in return for providing investment advice--whether or
not that customer follows the advice--the customer has a reasonable
expectation of receiving advice that is free of conflicts of interest.
Such an approach is also consistent with other Federal statutes that
provide enhanced protection to customers of certain investment advisers
who receive a fee.5 Consistent with the OCC's rules at part
9, the OTS believes that the distinction between paid and unpaid
investment advice reflects the reasonable expectation of Federal
savings association customers.
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\5\ See, e.g., 29 U.S.C. 1002(21)(A) (fiduciaries of ERISA
accounts); 15 U.S.C. 80b-2(a)(11) (Investment Advisers Act, which
generally applies to any person who, for compensation, engages in
the business of advising others. Although banks are exempt from the
Investment Advisers Act, Federal savings associations are not, and
investment advisers employed by Federal savings associations must
therefore register with the SEC).
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Even under this approach, the OTS maintains some flexibility in
determining what is investment advice. As noted, the OCC has issued a
proposed interpretive ruling on the meaning of this phrase, and the OTS
intends to follow that interpretation. Such guidance, in combination
with the exemption in final Sec. 550.580(c), should suffice to ensure
proper application of the concept of acting in a fiduciary capacity.
Finally, the preamble to the proposed rule noted that bank
employees who engage in certain securities transactions for customers
are subject to various recordkeeping and confirmation requirements
under the rules of the other Federal banking agencies.6 The
proposal sought comment on whether the OTS should issue a separate
proposed rulemaking adopting those rules for employees of Federal
savings associations.
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\6\ 12 CFR part 12 (OCC); 12 CFR 208.8(k) (FRB); 12 CFR part 344
(FDIC).
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Two commenters noted that the other banking agencies are currently
revising their rules. The commenters urged the
[[Page 67699]]
OTS to wait and see what revisions are made before engaging in formal
rulemaking. The OTS agrees and has deferred consideration of this
issue.
Section 550.60 What other definitions apply to this part?
The proposed rule at Sec. 550.2 defined applicable law as ``the law
of a State or other jurisdiction governing a Federal savings
association's fiduciary relationships, any applicable Federal law
governing those relationships, the terms of the instrument governing a
fiduciary relationship, or any court order pertaining to the
relationship.'' One commenter urged the OTS to specify that State law
does not apply to the fiduciary activities of Federal savings
association except to the extent specifically required by section 5(n)
of the HOLA.
The final rule does not adopt the commenter's suggestion. Both the
OTS's Trust Activities Handbook and prior OTS precedent recognize that
State law may apply to the fiduciary activities of a Federal savings
association.7 However, by defining applicable law to include
``the law of a State * * * governing a fiduciary relationship,'' the
OTS does not intend to affect its precedent in the area of Federal
preemption. The fiduciary operations of Federal savings associations
are subject to a complex interplay between Federal and State law.
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\7\ OTS Trust Activities Handbook, Sec. 130 at 75 (1992); OTS
Op. Chief Counsel (March 28, 1996) at 9. The example noted in both
of these authorities is State probate law, which prescribes the
standards of conduct of an institution acting as an executor.
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The OTS has noted that although State law may apply, in certain
circumstances, to the fiduciary operations of a Federal savings
association, Federal law grants the OTS the plenary authority to
regulate all aspects of the operations of Federal savings associations,
including fiduciary operations.8 Consistent with this role,
the OTS has promulgated these detailed regulations to govern the
fiduciary operations of Federal savings associations. Any State law
that conflicts with any of these regulations or section 5(n) of the
HOLA is preempted.9
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\8\ 12 U.S.C.A. 1464(a) (West Supp. 1995); OTS Op. Chief Counsel
(March 28, 1996) at 8.
\9\ OTS Op. Chief Counsel (March 28, 1996) at 8; OTS Trust
Activities Handbook, Sec. 130 at 75 (1992).
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Moreover, even though State law applies in limited circumstances,
the next question is: ``Which State's laws apply?'' A Federal savings
association is subject only to the laws of the State (or States) in
which it is located. The OTS has found that a Federal savings
association is located, for fiduciary purposes, in each State in which
it operates a fiduciary office.10 The OTS has further found
that an association is not located in a State in which it only markets
its fiduciary services 11 or performs certain activities
incidental to serving as a testamentary trustee or a trustee holding
real estate.12
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\10\ 62 FR 39479; OTS Op. Chief Counsel (March 28, 1996).
\11\ OTS Op. Chief Counsel (June 21, 1996).
\12\ OTS Op. Chief Counsel (August 8, 1996).
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The definition of applicable law is not intended to set an order of
priority among the various authorities. Rather, the intent of the
definition is to identify the various authorities that may govern a
Federal savings association's fiduciary activities. Preemption and
conflicts of law issues in the fiduciary area are highly fact-specific
and cannot be resolved by reference to a general blanket rule of
priority. The OTS believes the better practice is to continue to handle
specific questions about the applicability of particular State laws on
a case-by-case basis. Accordingly, the final rule adopts the proposed
definition of applicable law.
Section 550.130 What fiduciary powers may a Federal savings
association exercise?
Proposed Sec. 550.4(a) stated that a Federal savings association
may exercise only those fiduciary powers stated in the OTS's approval
of a fiduciary application. Moreover, unless otherwise provided in the
OTS's approval, a Federal savings association may exercise fiduciary
powers only in those offices listed in the application.
One commenter argued that the office limitation is restrictive, and
that there is no valid legal or policy reason for requiring a Federal
savings association to file a new application when it opens a new
branch or office. The commenter argued that appropriate information
about such expanded operations could be provided through a notice or
approval process.
The final rule adopts the proposed rule without substantive change.
Like the proposed rule, Sec. 550.130 states that the location
restriction only applies ``unless otherwise provided in the approval.''
This language gives the OTS the legal authority to specify at the time
that it approves a fiduciary powers application that the applicant may
expand the offices out of which it exercises approved fiduciary powers
by simply filing a notice with the OTS. The willingness of the OTS to
grant an initial approval that authorizes subsequent expansion through
such a process will depend on a number of factors, including an
institution's financial and managerial resources, history of regulatory
compliance, level of fiduciary expertise, and so forth.
Thus, a decision whether the OTS will authorize an expanded network
under a notice process cannot be made until the initial fiduciary
powers application is submitted and reviewed.13 Since the
proposed rule would permit the addition of new offices using notice
process where appropriate, the commenter's revision has not been
incorporated in the final rule. The proposed language is sufficient to
alleviate the commenter's concern.
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\13\ See OTS Op. Chief Counsel (December 24, 1992).
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Section 550.140 Must a Federal savings association adopt and follow
written policies and procedures in exercising fiduciary powers?
Proposed Sec. 550.6 set out the general standards that a Federal
association must follow in exercising its fiduciary powers. The
proposed rule specifically provided that a Federal savings association
must exercise its fiduciary powers prudently and in compliance with
applicable law.
The proposed rule further provided that a Federal savings
association must use standards in exercising its fiduciary powers that
are consistent with safety and soundness, promote sound fiduciary
administration, and enable the Federal savings association to
adequately monitor the condition of its fiduciary operations. Unlike
the OCC's fiduciary powers regulation, the proposed rule did not
require a Federal savings association to maintain written policies and
procedures governing the exercise of fiduciary powers. Compare 12 CFR
9.5.
Two commenters addressed proposed Sec. 550.6. One, a Federal
savings association, supported the proposal. The other, a State
regulatory agency, argued that the OTS should require Federal savings
associations to develop, maintain, and follow procedures, especially in
the areas of self-dealing and conflicts of interest. This commenter
argued that written policies and procedures are necessary to properly
manage risks in these areas.
Upon further consideration, the OTS has determined that requiring
written policies and procedures in this area is appropriate. Since
1989, the OTS Trust Activities Handbook has ``strongly encouraged''
associations to adopt written policies and procedures covering all
major aspects of their
[[Page 67700]]
fiduciary business, to communicate such policies to all interested
personnel, to monitor compliance with the policies, and to periodically
review and update the policies to ensure their current application.
Comprehensive, well-developed policies and procedures on fiduciary
activities, if followed, monitored, and enforced, are an effective
method of preventing exposure to liability, operating loss and the loss
of public confidence in the association. Such policies and procedures
promote high-quality fiduciary administration, facilitate compliance
with applicable laws and regulations, and increase operating
efficiencies.
Accordingly, consistent with the OCC's 12 CFR 9.5, the final rule
adopts the requirement for written policies and procedures.
Specifically, the OTS final rule requires Federal savings associations
to adopt and follow written policies and procedures adequate to
maintain its fiduciary activities in compliance with applicable law.
The final rule also provides examples of areas that the policies and
procedures should address, where appropriate. The list includes
brokerage placement practices, the prevention of misuse of material
inside information, the prevention of self-dealing and conflicts of
interest, the selection and retention of legal counsel, and the
investment of funds (including funds awaiting investment or
distribution).14 The OTS does not intend the list to be
exhaustive.
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\14\ We note that two of the listed areas are derived from
requirements in current part 550. They are the use of material
inside information in connection with any decision or recommendation
to purchase or sell any security (current Sec. 550.5(c)) and the
selection and retention of available legal counsel (current
Sec. 550.5(d)).
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Section 550.260 How may a Federal savings association invest funds of
a fiduciary account?
Proposed Sec. 550.12(a) provided that, where consistent with
applicable law, a Federal savings association may invest fiduciary
assets in certain described collective investment funds. One commenter
expressed concerns about the scope of this provision, specifically
whether it authorized fiduciary assets to be invested in collective
investment funds established under other authority, such as the OCC's
collective investment funds regulation, 12 CFR 9.18.
Upon review, the OTS has determined to significantly revise this
section. A collective investment fund can be exempt from taxation if it
is administered in accordance with applicable provisions of the
Internal Revenue Code. Section 584 of the Internal Revenue Code exempts
certain funds from taxation if they are administered in accordance with
OCC regulations. This IRC section applies to funds established by
savings associations as well as banks. As a result, the OTS fiduciary
powers regulation has always incorporated the requirements of 12 CFR
9.18 by reference. The OTS proposed rule included some of the OCC
requirements applicable to collective investment funds and incorporated
others by reference. By revising the final rule to incorporate all of
the requirements by reference, the OTS believes it will reduce the
confusion about the regulation's scope and applicability.
New Sec. 550.260(b) authorizes a Federal savings association to
invest fiduciary funds in a collective investment fund and to establish
and administer such a fund. All such activities must be done in
accordance with the OCC's detailed regulations governing this area. As
a Federal savings association must already comply with those
requirements in order to maintain the tax-exempt status of its
collective investment fund, this change will help to reduce regulatory
duplication and overlap, consistent with the objective of section 303
of CDRIA.
The final rule eliminates the language in Sec. 550.12(a), which
caused the commenter's concern that the proposed rule would have
prohibited a savings association from investing in an otherwise
permissible collective investment fund maintained by an affiliated or
unaffiliated State bank or trust company. Under Sec. 550.260(a), which
replaces Sec. 550.11, a savings association is authorized to invest
funds of a fiduciary account in a manner consistent with applicable
law.15
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\15\ Moreover, Sec. 9.18(a), which is intended to clarify that
traditional common law prohibitions against commingling fiduciary
assets do not affect a national bank's ability to invest in a
collective investment fund maintained by the bank or an affiliated
bank, addresses investments in collective investment funds
maintained by an affiliated State chartered trust company. This
provision permits a national bank to invest assets that it holds as
fiduciary in a collective investment fund maintained by one or more
affiliated ``banks'' exclusively for the collective investment and
reinvestment of money contributed to the fund by the bank, or by one
or more affiliated banks. Section 581 of the Internal Revenue Code,
which the OCC regulation implements, defines ``bank'' to include ``a
trust company incorporated and doing business under the laws of * *
* any State, a substantial part of the business of which consists of
* * * exercising fiduciary powers similar to those permitted to
national banks under the authority of the [OCC], and which is
subject by law to supervision and examination by State * * *
authority having supervision over banking institutions.'' Under this
definition, we believe that ``bank'' as used in the OCC regulation
includes an affiliated State chartered trust company.
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Sections 550.290-550.320 Funds Awaiting Investment or Distribution
Proposed Sec. 550.10(b)(1) and (c) stated that a Federal savings
association with investment discretion or discretion over distributions
may deposit funds awaiting investment or distribution in the
commercial, savings, or other department of the association, or with an
affiliated insured depository institution, unless the deposit is
prohibited by applicable law. To the extent that the funds are not
insured by the FDIC, the association is required to set aside
acceptable collateral as security. See proposed Sec. 550.10(b)(2). The
proposed provisions are adopted without substantive change at
Secs. 550.290 through 550.320.
Under the proposed rule, acceptable collateral includes surety
bonds, to the extent that such bonds provide adequate security and are
not prohibited by applicable law. See proposed Sec. 550.10(b)(2)(iv).
One commenter urged the OTS to adopt a national standard allowing
Federal savings associations to use security bonds, without regard to
State prohibitions.
Section 550.320(d) of the final rule continues to provide that
surety bonds may be used to collateralize self-deposits unless
prohibited by applicable law. This approach grants Federal savings
associations the ability to collateralize self-deposits with surety
bonds, while preserving for each State the ability to prohibit this
practice for all fiduciaries operating in the State.
Sections 550.440-550.480 Audit Requirements
Proposed Sec. 550.9 prescribed the audit requirements for fiduciary
activities. The proposed rule required Federal savings associations to
conduct an annual audit of significant fiduciary activities.
Alternatively, the proposed rule permitted a continuous audit, which
allows a Federal savings association to arrange for a discrete audit of
each significant fiduciary activity at an interval commensurate with
the nature and risk of the activity.16 Under the proposed
rule, all audits are conducted under the direction of the fiduciary
audit committee. This committee may consist of a committee of the
association's
[[Page 67701]]
directors or an audit committee of an affiliate of the association.
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\16\ While recognizing that the frequency of discrete audits for
Federal savings associations that use a continuous audit system will
vary depending on the nature and risk of the activity being audited,
the OTS does not intend to allow an association using a continuous
audit system to avoid discrete audits indefinitely. Although the
final rule does not specify how often such discrete audits must be
conducted, they must occur at reasonable time frames.
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One commenter supported the proposal to allow an audit committee of
a savings and loan holding company to audit the fiduciary activities of
its subsidiary Federal savings association. The commenter argued that
the same option should be available to bank holding companies that own
Federal savings associations.
Although the preamble to the proposed rule addressed the audit
committee of a savings and loan holding company, the language of the
proposed rule permitted an audit committee of an affiliate to direct
the audit. Affiliate, as defined in the rule, could include a savings
and loan holding company and a bank holding company, provided that
specified ownership, control or other criteria are met.17
Accordingly, the proposed rule would permit these arrangements. The
final rule at Sec. 550.470 is unchanged on this point.
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\17\ See 12 U.S.C.A. 221a(b)(4) (West 1989).
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In the preamble to the proposed rule, the OTS invited commenters to
address the relationship between the audit requirement and the OTS's
fiduciary examination process. In particular, the OTS sought comment on
the extent to which examiners should rely on an association's internal
or external fiduciary audits.
One commenter, a Federal savings bank, supported an audit report-
based fiduciary examination policy. The commenter suggested that the
OTS should first review an association's internal or external audit
reports, and commence an on-site fiduciary examination only when those
reports and any additional information indicated a basis for further
examination. The commenter asserted that this approach would provide
administrative savings and would not compromise safety and soundness or
consumer protection. The OTS believes that the relationship between the
audit and examination processes are properly addressed in OTS
instructions to examiners and in the Handbook, rather than the rule.
The OTS will consider these comments if it revises the Handbook or its
examination instructions.
Sections 550.580-550.620 Activities Exempt From This Part
Proposed Sec. 550.3 identified certain fiduciary activities that
are not covered by part 550. This section incorporated current
Sec. 545.102, which permits a Federal savings association to act as a
trustee or custodian of an Individual Retirement Account or a Keogh
account, including self-directed accounts. A Federal savings
association may also act as a trustee with no active fiduciary duties
so long as authorized by applicable law.
Under proposed Sec. 550.3(b), however, a Federal savings
association may invest the funds of the accounts in limited
investments. The proposed rule also set forth existing requirements
governing the administration of accounts and compensation. See proposed
Sec. 550.3(c) and (d). These provisions are adopted in the final rule
at subpart E, with one clarification. Final Sec. 550.600 has been
revised to clarify that the limitations on investments apply only to
Federal savings associations acting in the fiduciary capacities
described under Sec. 550.580.
The proposed rule at Sec. 550.3(e) required Federal savings
associations to make certain disclosures where fiduciary accounts are
not limited to FDIC-insured deposits. One commenter urged the OTS to
eliminate this requirement as duplicative and unnecessary. The
commenter noted that similar disclosures are required under the
Interagency Statement on Retail Sales of Nondeposit Investment
Products.
The OTS disagrees. The Interagency Statement ``generally do[es] not
apply to the sale of nondeposit investment products to non-retail
customers, such as sales to fiduciary accounts administered by an
institution.'' 18 To ensure that adequate disclosures are
made to non-retail customers holding fiduciary accounts with Federal
savings associations, the final rule adopts the proposed disclosure
requirement. Final Sec. 550.610 has been slightly revised to clarify
that the disclosure requirement only applies to Federal savings
associations acting in the fiduciary capacities described under
Sec. 550.580.
---------------------------------------------------------------------------
\18\ Interagency Statement on Retail Sales of Nondeposit
Investment Products at 3.
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B. CRA Exemption
The OTS also proposed to revise its regulations prescribing the
scope of the CRA regulations to make the CRA's application to savings
associations consistent with its application to banks. Under the
current rule at Sec. 563e.11(c), the CRA regulations apply to all
savings associations. By contrast, the CRA regulations of the other
banking agencies exempt certain special purpose institutions, including
fiduciaries, that do not perform commercial or retail banking services
by extending credit to the public in the ordinary course of business,
other than incident to their specialized operations.
This regulatory exemption reflects the banking agencies' long-
standing policy in this area. The OTS's scope provisions differed from
the other banking agencies' scope provisions because, at the time that
the current rule at Sec. 563e.11(c) was promulgated, the OTS did not
regulate any savings associations that could be considered special
purpose institutions. This is no longer the case. Thus, the proposed
amendment to the CRA regulations was intended to recognize the
existence of special purpose savings associations and to provide the
same regulatory treatment for such institutions as would be afforded
them if they were regulated by one of the other banking agencies.
One commenter, a community reinvestment organization, opposed any
exemption to the CRA regulations. Instead, the commenter argued that
the CRA should be expanded to include non-bank entities that provide
bank-like services. The commenter argued that the OTS should refrain
from adopting the exemption and that all the other agencies should
eliminate it.
By contrast, a Federal savings association argued that the proposed
CRA exemption does not go far enough. It notes that the OCC recently
approved a bank charter for a company that would provide bill payment
services, checking, or other deposit accounts. The OCC approved the
institution's request for designation as a wholesale or limited purpose
bank.19 The commenter argued that all such companies should
be added to the list of examples in the proposed rule, even if the
checking or other deposit accounts are linked to overdraft lines of
credit or similar products.
---------------------------------------------------------------------------
\19\ OCC Conditional Approval # 253 (August 20, 1997), 1997 OCC
Ltr. LEXIS 98.
---------------------------------------------------------------------------
The OTS has adopted the special purpose savings association
exemption without change. The OTS believes that the other Federal
banking agencies' exemption for similar institutions argues strongly
for a parallel thrift exemption. Some thrifts now meet the definition
of a special purpose institution. The OTS has, by interpretation,
exempted these institutions from coverage under the CRA regulations in
a manner identical to the way in which they would be treated if they
operated with a bank charter and were regulated by one of the bank
regulators. The amendment to the CRA regulations merely formalizes the
OTS's interpretation of the CRA regulations' application to such
charters. If any special purpose savings association takes deposits or
extends credit to the public in the ordinary
[[Page 67702]]
course of business other than as incident to its specialized
operations, so that it no longer falls within the regulatory
definition, then it immediately becomes subject to CRA regulation and
examination by the OTS. The OTS will monitor such savings associations'
activities through its safety and soundness, compliance, and trust
examinations.
The OTS believes that any expansion of coverage of the CRA to
include non-bank entities, as one of the commenters suggested, is a
legislative issue. The OTS is not today expressing a view on whether
such expansion would be appropriate or, if so, how it should be
structured or implemented. The possibility that the CRA may be applied
more broadly in the future does not convince the OTS that it should
treat thrifts differently from banks in the interim.
We also do not believe that the exemption should be unilaterally
extended to entities that only provide bill payment services and
checking or other deposit accounts, as one commenter suggested. We note
that the OCC did not exempt such institutions from the CRA regulations.
Rather, the OCC granted a request for a limited purpose designation,
which means that a separate provision of the CRA regulations
applies.20 A limited purpose designation subjects the
institution to the Community Development Test, which is specially
tailored to measure the performance of wholesale or limited purpose
institutions. A limited purpose designation, however, is not an
exemption from the CRA regulations. The OCC's approval of such a
limited purpose designation does not affect whether the same
institution is subject to the banking agencies' current, and the OTS's
new, exemption for special purpose institutions.
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\20\ 12 CFR 25.21(a)(2) and 25.25. The parallel OTS citations
are 12 CFR 563e.21(a)(2) and 563e.25.
---------------------------------------------------------------------------
IV. Derivation Chart for Revised Part 550
The following chart gives of an overview of the changes made to
part 550.
----------------------------------------------------------------------------------------------------------------
Revised provision Former provision Comments
----------------------------------------------------------------------------------------------------------------
Sec. 550.10(a)..................... ...................... Added.
Sec. 550.10(b)..................... Sec. 571.15.......... Modified and added.
Sec. 550.20........................ Sec. 550.1(k)........ Modified.
Sec. 550.30........................ Sec. 550.1(c) and (h) Significantly modified.
Sec. 550.40........................ Sec. 550.1(f)........ Modified.
Sec. 550.50........................ Sec. 550.1(a)........ Modified.
Sec. 550.60........................ Secs. 550.1(g) and Significantly modified.
(j).
Secs. 550.70-120................... Secs. 550.2(a)-(c)... Modified.
Sec. 550.130....................... Sec. 550.2(d)........ Modified.
Sec. 550.140....................... Sec. 550.5(c) and (d) Modified and new provisions added.
Secs. 550.150-190.................. Secs. 550.5(a)(1), Significantly modified.
(b) and (e).
Secs. 550.200-220.................. Sec. 550.5(a)(2)..... Significantly modified.
Secs. 550.230-250.................. Sec. 550.11.......... Modified.
Sec. 550.260....................... Secs. 550.9 and Significantly modified.
550.13.
Secs. 550.290-320.................. Sec. 550.8........... Significantly modified.
Secs. 550.330-370.................. Sec. 550.10.......... Modified.
Secs. 550.380-400.................. Sec. 550.12.......... Modified.
Secs. 550.410-430.................. Secs. 550.5(a)(2) and Significantly modified.
550.6(a).
Secs. 550.440-480.................. Sec. 550.7........... Significantly modified.
Secs. 550.490-510.................. Sec. 550.4........... Significantly modified.
Sec. 550.520....................... Sec. 550.15.......... Modified.
Secs. 550.530-550.................. Sec. 550.14.......... Modified.
Secs. 550.560-570.................. Sec. 550.16.......... Modified.
Secs. 550.580-620.................. Sec. 545.102......... Modified and added.
----------------------------------------------------------------------------------------------------------------
The following provisions from the former part 550 have been removed
in the final rule: Sec. 550.1(b); Sec. 550.1(d); Sec. 550.1(e);
Sec. 550.1(h); Sec. 550.1(i); Sec. 550.3; Sec. 550.5(d); and
Sec. 550.6(b).
V. Effective Date
Section 553(d) of the Administrative Procedure Act (``APA'')
requires an agency to publish a substantive rule at least 30 days
before its effective date. Section 553(d)(1) of the APA, however,
exempts substantive rules that relieve a restriction from the 30-day
delayed effective date requirement.
The final rule relieves regulatory restrictions. For example, the
final rule eliminates certain requirements of the old regulations, such
as former Sec. 550.3 (Consolidation or merger of two or more Federal
savings associations), former Sec. 550.5(d) (Retention of legal
counsel), and former Sec. 550.6(b) (Record of pending litigation).
Moreover, the final rule clarifies some existing responsibilities. This
final rule is therefore exempt from the 30-day delayed effective date
requirement.
VI. Executive Order 12866
The Director of OTS has determined that this final rule does not
constitute a ``significant regulatory action'' for the purposes of
Executive Order 12866.
VII. Unfunded Mandates Reform Act of 1995
Section 202 of the Unfunded Mandates Reform Act of 1995, Public Law
104-4 (Unfunded Mandates Act), requires that an agency prepare a
budgetary impact statement before promulgating a rule includes a
Federal mandate that may result in expenditure by State, local, and
tribal governments, in the aggregate, or by the private sector, of $100
million or more in any one year. If a budgetary impact statement is
required, Section 205 of the Unfunded Mandates Act also requires an
agency to identify and consider a reasonable number of regulatory
alternatives before promulgating a rule. OTS has determined that the
final rule will not result in expenditures by State, local, or tribal
governments or by the private sector of $100 million or more.
Accordingly, a budgetary impact statement is not required under section
202 of the Unfunded Mandates Act of 1995.
[[Page 67703]]
VIII. Regulatory Flexibility Act Analysis
Pursuant to section 605(b) of the Regulatory Flexibility Act, OTS
certifies that this final rule will not have a significant economic
impact on a substantial number of small entities. The final rule
liberalizes requirements and reduces burdens for Federal savings
associations that exercise fiduciary powers, regardless of size.
Accordingly, a regulatory flexibility analysis is not required.
IX. Reporting and Recordkeeping Requirements
The collection of information requirements contained in this final
rule have been submitted to and approved by the Office of Management
and Budget in accordance with the Paperwork Reduction Act of 1995 (44
U.S.C. 3507(d)) under OMB control number 1550-0037. Comments on the
collections of information should be sent to the Office of Management
and Budget, Paperwork Reduction Project (1550-0037), Washington, D.C.
20503, with copies to the Office of Thrift Supervision, 1700 G Street,
N.W., Washington, D.C. 20552.
The collection of information requirements in this final rule are
found in 12 CFR 550.70-550.120, 550.260, 550.410-550.430, 550.440-
550.480, and 550.530-550.550. The OTS requires this information for the
proper supervision of Federal savings associations' fiduciary
activities. The likely respondents/recordkeepers are Federal savings
associations.
Under the Paperwork Reduction Act of 1995, no persons are required
to respond to a collection of information unless it displays a valid
OMB control number. The valid OMB control number assigned to the
collection of information in this final rule is displayed at 12 CFR
506.1(b).
List of Subjects
12 CFR Part 545
Accounting, Consumer protection, Credit, Electronic funds
transfers, Investments, Reporting and recordkeeping requirements,
Savings associations.
12 CFR Part 550
Accounting, Reporting and recordkeeping requirements, Savings
associations, Trusts and trustees.
12 CFR Part 563e
Community development, Credit, Investments, Reporting and
recordkeeping requirements, Savings associations.
12 CFR Part 571
Accounting, Conflict of interests, Investments, Reporting and
Recordkeeping requirements, Savings associations.
Authority and Issuance
Accordingly, the Office of Thrift Supervision amends Title 12,
Chapter V, of the Code of Federal Regulations as set forth below:
PART 545--OPERATIONS
1. The authority citation for part 545 continues to read as
follows:
Authority: 12 U.S.C. 1462a, 1463, 1464, 1828.
Sec. 545.102 [Removed]
2. Section 545.102 is removed.
3. Part 550 is revised to read as follows:
PART 550--FIDUCIARY POWERS OF SAVINGS ASSOCIATIONS
Sec.
550.10 What regulations govern the fiduciary operations of savings
associations?
550.20 What are fiduciary powers?
550.30 What fiduciary capacities does this part cover?
550.40 When do I have investment discretion?
550.50 What is a fiduciary account?
550.60 What other definitions apply to this part?
Subpart A--Obtaining Fiduciary Powers
550.70 Must I obtain OTS approval before exercising fiduciary
powers?
550.80 How do I obtain OTS approval?
550.90 What information must I include in my application?
550.100 What factors may the OTS consider in its review of my
application?
550.110 Who will act on my application?
550.120 What action will the OTS take on my application?
Subpart B--Exercising Fiduciary Powers
550.130 What fiduciary powers may I exercise?
550.140 Must I adopt and follow written policies and procedures in
exercising fiduciary powers?
Fiduciary Personnel and Facilities
550.150 Who is responsible for the exercise of fiduciary powers?
550.160 What personnel and facilities may I use to perform
fiduciary services?
550.170 May my other departments or affiliates use fiduciary
personnel and facilities to perform other services?
550.180 May I perform fiduciary services for, or purchase fiduciary
services from, another association or entity?
550.190 Must fiduciary officers and employees be bonded?
Review of a Fiduciary Account
550.200 Must I review a prospective account before I accept it?
550.210 Must I conduct another review of an account after I accept
it?
550.220 Are any other account reviews required?
Custody and Control of Assets
550.230 Who must maintain custody or control of assets in a
fiduciary account?
550.240 May I hold investments of a fiduciary account off-premises?
550.250 Must I keep fiduciary assets separate from other assets?
Investing Funds of a Fiduciary Account
550.260 How may I invest funds of a fiduciary account?
Funds Awaiting Investment or Distribution
550.290 What must I do with fiduciary funds awaiting investment or
distribution?
550.300 Where may I deposit fiduciary funds awaiting investment or
distribution?
550.310 What if the FDIC does not insure the deposits?
550.320 What is acceptable collateral for uninsured deposits?
Restrictions on Self Dealing
550.330 Are there investments in which I may not invest funds of a
fiduciary account?
550.340 May I exercise rights to purchase additional stock or
fractional shares of my stock or obligations or the stock or
obligations of my affiliates?
550.350 May I lend, sell, or transfer assets of a fiduciary account
if I have an interest in the transaction?
550.360 May I make a loan to a fiduciary account that is secured by
an interest in the assets in the account?
550.370 May I sell assets or lend money between fiduciary accounts?
Compensation, Gifts, and Bequests
550.380 May I earn compensation for acting in a fiduciary capacity?
550.390 May my officer or employee retain compensation for acting
as a co-fiduciary?
550.400 May my fiduciary officer or employee accept a gift or
bequest?
Recordkeeping Requirements
550.410 What records must I keep?
550.420 How long must I keep these records?
550.430 Must I keep fiduciary records separate and distinct from
other records?
Audit Requirements
550.440 When do I have to audit my fiduciary activities?
550.450 What standards govern the conduct of the audit?
550.460 Who may conduct an audit?
550.470 Who directs the conduct of the audit?
550.480 How do I report the results of the audit?
[[Page 67704]]
Subpart C--Depositing Securities With State Authorities
550.490 When must I deposit securities with State authorities?
550.500 How much must I deposit if I administer fiduciary assets in
more than one State?
550.510 What must I do if State authorities refuse my deposit?
Subpart D--Terminating Fiduciary Activities
Receivership or Liquidation
550.520 What happens if I am placed in receivership or voluntary
liquidation?
Surrender of Fiduciary Powers
550.530 How do I surrender fiduciary powers?
550.540 When will the OTS terminate my fiduciary powers?
550.550 May I recover my deposit from State authorities?
Revocation of Fiduciary Powers
550.560 When may the OTS revoke my fiduciary powers?
550.570 What procedures govern the revocation?
Subpart E--Activities Exempt From This Part
550.580 When may I act in a fiduciary capacity without obtaining
OTS approval?
550.590 What standards must I observe when acting in exempt
fiduciary capacities?
550.600 How may I invest funds when acting in exempt fiduciary
capacities?
550.610 What disclosures must I make when acting in exempt
fiduciary capacities?
550.620 May I receive compensation for acting in exempt fiduciary
capacities?
Authority: 12 U.S.C. 1462a, 1463, 1464.
Sec. 550.10 What regulations govern the fiduciary operations of
savings associations?
(a) Federal savings associations. A Federal savings association
(``you'') must conduct its fiduciary operations in accordance with 12
U.S.C. 1464(n) and this part.
(b) State-chartered savings associations. (1) A State-chartered
savings association must conduct its fiduciary operations in accordance
with applicable State law, and must exercise its fiduciary powers in a
safe and sound manner. To ensure safe and sound operations, State-
chartered savings associations and their subsidiaries should follow the
standards for the exercise of fiduciary powers in this part.
(2) The OTS will monitor the fiduciary operations of State-
chartered savings associations and their subsidiaries to ensure that
those operations are conducted in a safe and sound manner. The OTS may
object to practices that deviate materially from the practices
described in this part, and may restrict or prohibit activities that
threaten the safety and soundness of a State-chartered savings
association.
Sec. 550.20 What are fiduciary powers?
Fiduciary powers are the authority that the OTS permits you to
exercise under 12 U.S.C. 1464(n). The scope of permissible fiduciary
powers depends on the powers that the State in which you are located
grants to competing fiduciaries in that State.
Sec. 550.30 What fiduciary capacities does this part cover?
You are subject to this part if you act in a fiduciary capacity,
except as described in subpart E of this part. You act in a fiduciary
capacity when you act in any of the following capacities:
(a) Trustee.
(b) Executor.
(c) Administrator.
(d) Registrar of stocks and bonds.
(e) Transfer agent.
(f) Assignee.
(g) Receiver.
(h) Guardian or conservator of the estate of a minor, an
incompetent person, an absent person, or a person over whose estate a
court has taken jurisdiction, other than under bankruptcy or insolvency
laws.
(i) A fiduciary in a relationship established under a State law
that is substantially similar to the Uniform Gifts to Minors Act or the
Uniform Transfers to Minors Act as published by the American Law
Institute.
(j) Investment adviser, if you receive a fee for your investment
advice.
(k) Any capacity in which you have investment discretion on behalf
of another.
(l) Any other similar capacity that the OTS may authorize under 12
U.S.C. 1464(n).
Sec. 550.40 When do I have investment discretion?
(a) General. You have investment discretion when you have, with
respect to a fiduciary account, the sole or shared authority to
determine what securities or other assets to purchase or sell on behalf
of that account. It does not matter whether you have exercised this
authority.
(b) Delegations. You retain investment discretion if you delegate
investment discretion to another. You also have investment discretion
if you receive delegated authority to exercise investment discretion
from another.
Sec. 550.50 What is a fiduciary account?
A fiduciary account is an account that you administer acting in a
fiduciary capacity.
Sec. 550.60 What other definitions apply to this part?
Affiliate has the same meaning as in 12 U.S.C. 221a(b). For
purposes of this part, substitute the term ``Federal savings
association'' for the term ``member bank'' whenever it appears in 12
U.S.C. 221a(b).
Applicable law means the law of a State or other jurisdiction
governing your fiduciary relationships, any Federal law governing those
relationships, the terms of the instrument governing a fiduciary
relationship, and any court order pertaining to the relationship.
Fiduciary officers and employees means the officers and employees
of a Federal savings association to whom the board of directors or its
designee has assigned functions involving the exercise of the
association's fiduciary powers.
Subpart A--Obtaining Fiduciary Powers
Sec. 550.70 Must I obtain OTS approval before exercising fiduciary
powers?
Unless you are covered by subpart E of this part, you must obtain
prior approval from the OTS before exercising fiduciary powers.
Sec. 550.80 How do I obtain OTS approval?
You must file an application under Sec. 516.1(c) of this chapter.
Sec. 550.90 What information must I include in my application?
You must describe the fiduciary powers that you or your affiliate
will exercise. You must also include information necessary to enable
the OTS to make the determinations described in Sec. 550.100.
Sec. 550.100 What factors may the OTS consider in its review of my
application?
The OTS may consider the following factors when reviewing your
application:
(a) Your financial condition.
(b) Your capital and whether that capital is sufficient under the
circumstances.
(c) Your overall performance.
(d) The fiduciary powers you propose to exercise.
(e) Your proposed supervision of those powers.
(f) The availability of legal counsel.
(g) The needs of the community to be served.
(h) Any other facts or circumstances that the OTS considers proper.
Sec. 550.110 Who will act on my application?
The Director of OTS may act on any application. The Regional
Director may
[[Page 67705]]
act on an application if it does not raise any significant issues of
law or policy on which the OTS has not taken a formal position.
Sec. 550.120 What action will the OTS take on my application?
The OTS may approve or deny your application. If your application
is approved, the OTS may impose conditions to ensure that the
requirements of this part are met.
Subpart B--Exercising Fiduciary Powers
Sec. 550.130 What fiduciary powers may I exercise?
You may exercise only those fiduciary powers specified in the OTS
approval under Sec. 550.120. Unless otherwise provided in the approval,
you may exercise fiduciary powers only from those offices listed in the
application.
Sec. 550.140 Must I adopt and follow written policies and procedures
in exercising fiduciary powers?
You must adopt and follow written policies and procedures adequate
to maintain your fiduciary activities in compliance with applicable
law. Among other relevant matters, the policies and procedures should
address, where appropriate, the following areas:
(a) Your brokerage placement practices.
(b) Your methods for ensuring that your fiduciary officers and
employees do not use material inside information in connection with any
decision or recommendation to purchase or sell any security.
(c) Your methods for preventing self-dealing and conflicts of
interest.
(d) Your selection and retention of legal counsel who is ready and
available to advise you and your fiduciary officers and employees on
fiduciary matters.
(e) Your investment of funds held as fiduciary, including short-
term investments and the treatment of fiduciary funds awaiting
investment or distribution.
Fiduciary Personnel and Facilities
Sec. 550.150 Who is responsible for the exercise of fiduciary powers?
The exercise of your fiduciary powers must be managed by or under
the direction of your 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 of directors, officers, or employees.
Sec. 550.160 What personnel and facilities may I use to perform
fiduciary services?
You may use your qualified personnel and facilities or an
affiliate's qualified personnel and facilities to perform services
related to the exercise of fiduciary powers.
Sec. 550.170 May my other departments or affiliates use fiduciary
personnel and facilities to perform other services?
Your other departments or affiliates may use fiduciary officers,
employees, and facilities to perform services unrelated to the exercise
of fiduciary powers, to the extent not prohibited by applicable law.
Sec. 550.180 May I perform fiduciary services for, or purchase
fiduciary services from, another association or entity?
You may perform services related to the exercise of fiduciary
powers for another association or other entity under a written
agreement. You may also purchase services related to the exercise of
fiduciary powers from another association or other entity under a
written agreement.
Sec. 550.190 Must fiduciary officers and employees be bonded?
You must obtain an adequate bond for all fiduciary officers and
employees.
Review of a Fiduciary Account
Sec. 550.200 Must I review a prospective account before I accept it?
Before accepting a prospective fiduciary account, you must review
it to determine whether you can properly administer the account.
Sec. 550.210 Must I conduct another review of an account after I
accept it?
After you accept a fiduciary account for which you have investment
discretion, you must conduct a prompt review of all assets of the
account to evaluate whether they are appropriate, individually and
collectively, for the account.
Sec. 550.220 Are any other account reviews required?
At least once every calendar year, you must conduct a review of all
assets of each fiduciary account for which you have investment
discretion. In this review, you must evaluate whether the assets are
appropriate, individually and collectively, for the account.
Custody and Control of Assets
Sec. 550.230 Who must maintain custody or control of assets in a
fiduciary account?
You must place assets of fiduciary accounts in the joint custody or
control of not fewer than two fiduciary officers or employees
designated for that purpose by the board of directors.
Sec. 550.240 May I hold investments of a fiduciary account off-
premises?
You may hold the investments of a fiduciary account off-premises,
if this practice is consistent with applicable law, and you maintain
adequate safeguards and controls.
Sec. 550.250 Must I keep fiduciary assets separate from other assets?
You must keep the assets of fiduciary accounts separate from your
other assets. You must also keep the assets of each fiduciary account
separate from all other accounts, or you must identify the investments
as the property of a particular account, except as provided in
Secs. 550.260.
Investing Funds of a Fiduciary Account
Sec. 550.260 How may I invest funds of a fiduciary account?
(a) General. You must invest funds of a fiduciary account in a
manner consistent with applicable law.
(b) Collective investment funds. (1) You may invest funds of a
fiduciary account in a collective investment fund, including a
collective investment fund that you have established. In establishing
and administering such funds, you must comply with 12 CFR 9.18.
(2) If you must file a document with the Comptroller of the
Currency under 12 CFR 9.18, you must also file that document with OTS
under Sec. 516.1(c) of this chapter. The OTS may review such documents
for compliance with this part and other laws and regulations.
(3) ``Bank'' and ``national bank'' as used in 12 CFR 9.18 shall be
deemed to include a Federal savings association.
Funds Awaiting Investment or Distribution
Sec. 550.290 What must I do with fiduciary funds awaiting investment
or distribution?
If you have investment discretion or discretion over distributions
for a fiduciary account which contains funds awaiting investment or
distribution, you must ensure that those funds do not remain uninvested
and undistributed any longer than is reasonable for the proper
management of the account and consistent with applicable law. You also
must obtain a rate of return for those funds that is consistent with
applicable law.
Sec. 550.300 Where may I deposit fiduciary funds awaiting investment
or distribution?
(a) Self deposits. You may deposit funds of a fiduciary account
that are awaiting investment or distribution in
[[Page 67706]]
your other departments, unless prohibited by applicable law.
(b) Affiliate deposits. You may also deposit funds of a fiduciary
account that are awaiting investment or distribution with an affiliated
insured depository institution, unless prohibited by applicable law.
Sec. 550.310 What if the FDIC does not insure the deposits?
If the FDIC does not insure the entire amount of a self deposit or
an affiliate deposit, you must set aside collateral as security. The
market value of the collateral must at all times equal or exceed the
amount of the uninsured fiduciary funds. You must place the collateral
under the control of appropriate fiduciary officers and employees.
Sec. 550.320 What is acceptable collateral for uninsured deposits?
Any of the following is acceptable collateral for self deposits or
affiliate deposits under Sec. 550.310:
(a) Direct obligations of the United States, or other obligations
fully guaranteed by the United States as to principal and interest.
(b) Readily marketable securities of the classes in which State-
chartered corporate fiduciaries are permitted to invest fiduciary funds
under applicable State law.
(c) Other readily marketable securities as the OTS may determine.
(d) Surety bonds, to the extent they provide adequate security,
unless prohibited by applicable law.
(e) Any other assets that qualify under applicable State law as
appropriate security for deposits of fiduciary funds.
Restrictions on Self Dealing
Sec. 550.330 Are there investments in which I may not invest funds of
a fiduciary account?
You may not invest funds of a fiduciary account for which you have
investment discretion in the following assets, unless authorized by
applicable law:
(a) The stock or obligations of, or assets acquired from, you or
any of your directors, officers, or employees.
(b) The stock or obligations of, or assets acquired from, your
affiliates or any of their directors, officers, or employees.
(c) The stock or obligations of, or assets acquired from, other
individuals or organizations if you have an interest in the individual
or organization that might affect the exercise of your best judgment.
Sec. 550.340 May I exercise rights to purchase additional stock or
fractional shares of my stock or obligations or the stock or
obligations of my affiliates?
If the retention of investments in your stock or obligations or the
stock or obligations of an affiliate in fiduciary accounts is
consistent with applicable law, you may do either of the following:
(a) Exercise rights to purchase additional stock (or securities
convertible into additional stock) when these rights are offered pro
rata to stockholders.
(b) Purchase fractional shares to complement fractional shares
acquired through the exercise of rights or through the receipt of a
stock dividend resulting in fractional share holdings.
Sec. 550.350 May I lend, sell, or transfer assets of a fiduciary
account if I have an interest in the transaction?
(a) General restriction. Except as provided in paragraph (b) of
this section, you may not lend, sell, or otherwise transfer assets of a
fiduciary account for which you have investment discretion to yourself
or any of your directors, officers, or employees; to your affiliates or
any of their directors, officers, or employees; or to other individuals
or organizations with whom you have an interest that might affect the
exercise of your best judgment.
(b) Exceptions.--(1) Funds for which you have investment
discretion. You may lend, sell or otherwise transfer assets of a
fiduciary account for which you have investment discretion to yourself
or any of your directors, officers, or employees; to your affiliates or
any of their directors, officers, or employees; or to other individuals
or organizations with whom you have an interest that might affect the
exercise of your best judgment, if you meet one of the following
conditions:
(i) The transaction is authorized by applicable law.
(ii) Legal counsel advises you in writing that you have incurred,
in your fiduciary capacity, a contingent or potential liability. Upon
the sale or transfer of assets, you must reimburse the fiduciary
account in cash in an amount equal to the greater of book or market
value of the assets.
(iii) The transaction is permitted under 12 CFR 9.18(b)(8)(iii) for
defaulted fixed-income investments.
(iv) The OTS requires you to do so.
(2) Funds held as trustee. You may make loans of funds held in
trust to any of your directors, officers, or employees if the funds are
held in an employee benefit plan and the loan is made in accordance
with the exemptions found at section 408 of the Employee Retirement
Income Security Act of 1974 (29 U.S.C. 1108).
Sec. 550.360 May I make a loan to a fiduciary account that is secured
by an interest in the assets of the account?
You may make a loan to a fiduciary account that is secured by an
interest in the assets of the account, if the transaction is fair to
the account and is not prohibited by applicable law.
Sec. 550.370 May I sell assets or lend money between fiduciary
accounts?
You may sell assets or lend money between fiduciary accounts, if
the transaction is fair to both accounts and is not prohibited by
applicable law.
Compensation, Gifts, and Bequests
Sec. 550.380 May I earn compensation for acting in a fiduciary
capacity?
If the amount of your compensation for acting in a fiduciary
capacity is not set or governed by applicable law, you may charge a
reasonable fee for your services.
Sec. 550.390 May my officer or employee retain compensation for acting
as a co-fiduciary?
You may not permit your officers or employees to retain any
compensation for acting as a co-fiduciary with you in the
administration of a fiduciary account, except with the specific
approval of your board of directors.
Sec. 550.400 May my fiduciary officer or employee accept a gift or
bequest?
You may not permit any fiduciary officer or employee to accept a
bequest or gift of fiduciary assets, unless the bequest or gift is
directed or made by a relative of the officer or employee or is
specifically approved by your board of directors.
Recordkeeping Requirements
Sec. 550.410 What records must I keep?
You must keep adequate records for all fiduciary accounts. For
example, you must keep documents on the establishment and termination
of each fiduciary account.
Sec. 550.420 How long must I keep these records?
You must keep fiduciary records for three years after the
termination of the account or the termination of any litigation
relating to the account, whichever is later.
Sec. 550.430 Must I keep fiduciary records separate and distinct from
other records?
You must keep fiduciary records separate and distinct from your
other records.
[[Page 67707]]
Audit Requirements
Sec. 550.440 When do I have to audit my fiduciary activities?
(a) Annual Audit. If you do not use a continuous audit system
described in paragraph (b) of this section, then you must arrange for a
suitable audit of all significant fiduciary activities at least once
during each calendar year.
(b) Continuous audit. Instead of an annual audit, you may adopt a
continuous audit system. Under a continuous audit system, you must
arrange for a discrete audit of each significant fiduciary activity
(i.e., on an activity-by-activity basis) at an interval commensurate
with the nature and risk of that activity. Some fiduciary activities
may receive audits at intervals greater or less than one year, as
appropriate.
Sec. 550.450 What standards govern the conduct of the audit?
Auditors must follow generally accepted standards for attestation
engagements and other standards established by the OTS. An audit must
ascertain whether your internal control policies and procedures provide
reasonable assurance of three things:
(a) You are administering fiduciary activities in accordance with
applicable law.
(b) You are properly safeguarding fiduciary assets.
(c) You are accurately recording transactions in appropriate
accounts in a timely manner.
Sec. 550.460 Who may conduct an audit?
Internal auditors, external auditors, or other qualified persons
who are responsible only to the board of directors, may conduct an
audit.
Sec. 550.470 Who directs the conduct of the audit?
Your fiduciary audit committee directs the conduct of the audit.
Your fiduciary audit committee may consist of a committee of your
directors or an audit committee of an affiliate. There are two
restrictions on who may serve on the committee:
(a) Your officers and officers of an affiliate who participate
significantly in administering your fiduciary activities may not serve
on the audit committee.
(b) A majority of the members of the audit committee may not serve
on any committee to which the board of directors has delegated power to
manage and control your fiduciary activities.
Sec. 550.480 How do I report the results of the audit?
(a) Annual audit. If you conduct an annual audit, you must note the
results of the audit (including significant actions taken as a result
of the audit) in the minutes of the board of directors.
(b) Continuous audit. If you adopt a continuous audit system, you
must note the results of all discrete audits conducted since the last
audit report (including significant actions taken as a result of the
audits) in the minutes of the board of directors at least once during
each calendar year.
Subpart C--Depositing Securities With State Authorities
Sec. 550.490 When must I deposit securities with State authorities?
You must deposit securities with a State's authorities or, if
applicable, a Federal Home Loan Bank under Sec. 550.510, if you meet
all of the following:
(a) You are located in the State.
(b) You act as a private or court-appointed trustee.
(c) The law of the State requires corporations acting in a
fiduciary capacity to deposit securities with State authorities for the
protection of private or court trusts.
Sec. 550.500 How much must I deposit if I administer fiduciary assets
in more than one State?
If you administer fiduciary assets in more than one State, you must
compute the amount of deposit required for each State on the basis of
fiduciary assets that you administer primarily from offices located in
that State.
Sec. 550.510 What must I do if State authorities refuse my deposit?
If State authorities refuse to accept your deposit under
Sec. 550.490, you must deposit the securities with the Federal Home
Loan Bank of which you are a member. The Federal Home Loan Bank will
hold the securities for the protection of private or court trusts to
the same extent as if the securities had been deposited with State
authorities.
Subpart D--Terminating Fiduciary Activities
Receivership or Liquidation
Sec. 550.520 What happens if I am placed in receivership or voluntary
liquidation?
If the OTS appoints a conservator or receiver for you under part
558 of this chapter, or if you place yourself in voluntary liquidation,
the receiver, conservator, or liquidating agent must promptly close or
transfer all fiduciary accounts to a substitute fiduciary, in
accordance with OTS instructions and the orders of the court having
jurisdiction.
Surrender of Fiduciary Powers
Sec. 550.530 How do I surrender fiduciary powers?
If you want to surrender your fiduciary powers, you must file a
certified copy of a resolution of your board of directors evidencing
that intent. You must file the resolution with the OTS under Sec. 516.1
of this chapter.
Sec. 550.540 When will the OTS terminate my fiduciary powers?
If, after appropriate investigation, the Regional Director is
satisfied that you have been discharged from all fiduciary duties, the
Regional Director will issue a written notice indicating that you are
no longer authorized to exercise fiduciary powers.
Sec. 550.550 May I recover my deposit from State authorities?
Upon issuance of the OTS written notice under Sec. 550.540, you may
recover any securities deposited with State authorities, or a Federal
Home Loan Bank, under subpart C of this part.
Revocation of Fiduciary Powers
Sec. 550.560 When may the OTS revoke my fiduciary powers?
The OTS may revoke your fiduciary powers if it determines that you
have done any of the following:
(a) Exercised those fiduciary powers unlawfully or unsoundly.
(b) Failed to exercise those fiduciary powers for five consecutive
years.
(c) Otherwise failed to follow the requirements of this part.
Sec. 550.570 What procedures govern the revocation?
The procedures for revocation of fiduciary powers are set forth in
12 U.S.C. 1464(n)(10). The OTS will conduct the hearing required under
12 U.S.C. 1464(n)(10)(B) under part 509 of this chapter.
Subpart E--Activities Exempt From This Part
Sec. 550.580 When may I act in a fiduciary capacity without obtaining
OTS approval?
You do not need OTS approval under subpart B if you act in one of
the following fiduciary capacities:
(a) Trustee of a trust created or organized in the United States
and forming part of a stock bonus, pension, or profit-sharing plan
qualifying for specific tax treatment under section 401(d) of the
Internal Revenue Code of 1954 (26 U.S.C. 401(d)).
(b) Trustee or custodian of a Individual Retirement Account within
the meaning of section 408(a) of the Internal Revenue Code of 1954 (26
U.S.C. 408(a)).
[[Page 67708]]
(c) Trustee of a fiduciary account that involves no active
fiduciary duties provided that the applicable law authorizes the
savings association to act in this capacity.
Sec. 550.590 What standards must I observe when acting in exempt
fiduciary capacities?
You must observe principles of sound fiduciary administration,
including those related to recordkeeping and segregation of assets.
Sec. 550.600 How may I invest funds when acting in exempt fiduciary
capacities?
If you act in an exempt fiduciary capacity under Sec. 550.580, you
may invest the funds of the fiduciary account in only the following:
(a) Your accounts, deposits, obligations, or securities.
(b) Other assets as the customer may direct, provided you do not
exercise any investment discretion and do not directly or indirectly
provide any investment advice for the fiduciary account.
Sec. 550.610 What disclosures must I make when acting in exempt
fiduciary capacities?
If you act in an exempt fiduciary capacity under Sec. 550.580 and
fiduciary investments are not limited to accounts or deposits insured
by the FDIC, you must include the following language in bold type on
the first page of any contract documents:
Funds invested pursuant to this agreement are not insured by the
Federal Deposit Insurance Corporation (``FDIC'') merely because the
trustee or custodian is a Federal savings association the accounts
of which are covered by such insurance. Only investments in the
accounts of a Federal savings association are insured by the FDIC,
subject to its rules and regulations.
Sec. 550.620 May I receive compensation for acting in exempt fiduciary
capacities?
You may receive reasonable compensation.
PART 563e--COMMUNITY REINVESTMENT
4. The authority citation for part 563e continues to read as
follows:
Authority: 12 U.S.C. 1462a, 1463, 1464, 1467a, 1814, 1816,
1828(c) and 2901 through 2907.
5. Section 563e.11 is amended by revising paragraph (c) to read as
follows:
Sec. 563e.11 Authority, purposes, and scope.
* * * * *
(c) Scope--(1) General. This part applies to all savings
associations except as provided in paragraph (c)(2) of this section.
(2) Certain special purpose savings associations. This part does
not apply to special purpose savings associations that do not perform
commercial or retail banking services by granting credit to the public
in the ordinary course of business, other than as incident to their
specialized operations. These associations include banker's banks, as
defined in 12 U.S.C. 24 (Seventh), and associations that engage only in
one or more of the following activities: providing cash management
controlled disbursement services or serving as correspondent
associations, trust companies, or clearing agents.
PART 571--STATEMENTS OF POLICY
6. The authority citation for part 571 continues to read as
follows:
Authority: 5 U.S.C. 552, 559; 12 U.S.C. 1462a, 1463, 1464.
Sec. 571.15 [Removed]
7. Section 571.15 is removed.
Dated: December 19, 1997.
By the Office of Thrift Supervision.
Ellen Seidman,
Director.
[FR Doc. 97-33726 Filed 12-29-97; 8:45 am]
BILLING CODE 6720-01-P
