97-19157. Fiduciary Powers of Federal Savings Associations; Community Reinvestment Act

[Federal Register Volume 62, Number 141 (Wednesday, July 23, 1997)]
[Proposed Rules]
[Pages 39477-39490]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-19157]


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DEPARTMENT OF THE TREASURY

Office of Thrift Supervision

12 CFR Parts 545, 550 and 563e

[No. 97-68]
RIN 1550-AB09


Fiduciary Powers of Federal Savings Associations; Community 
Reinvestment Act

AGENCY: Office of Thrift Supervision, Treasury.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Office of Thrift Supervision (OTS) proposes to revise its 
fiduciary powers regulations in order to promote the more efficient 
operation and supervision of Federal savings associations' fiduciary 
activities. The proposed changes are intended to update, clarify, and 
streamline OTS regulations, to incorporate significant interpretive 
guidance, and to eliminate unnecessary regulatory burden. OTS proposes 
these revisions pursuant to the Regulatory Reinvention Initiative of 
the Vice President's National Performance Review (Reinvention 
Initiative) and section 303 of the Community Development and Regulatory 
Improvement Act of 1994 (CDRIA). OTS also proposes to amend its 
Community Reinvestment Act (CRA) regulations. The proposed change would 
bring the scope of OTS's CRA regulation into accord with the CRA 
regulations of the other federal banking agencies. It would exempt from 
the CRA regulations savings associations that do not perform commercial 
or retail banking services by granting credit to the public in the 
ordinary course of business.

DATES: Comments must be received on or before September 22, 1997.

ADDRESSES: Send comments to Manager, Dissemination Branch, Records 
Management and Information Policy, Office of Thrift Supervision, 1700 G 
Street, N.W., Washington, D.C. 20552, Attention Docket No. 97-68. These 
submissions may also be hand-delivered to 1700 G Street, N.W., from 
9:00 A.M. to 5:00 P.M. on business days; sent by facsimile transmission 
to FAX Number [phone]; or sent by e-mail to 
[e-mail]. Those commenting by e-mail should include 
their name and telephone number. Comments will be available for 
inspection at 1700 G Street, N.W., from 9:00 A.M. until 4:00 P.M. on 
business days.

FOR FURTHER INFORMATION CONTACT: Larry Clark, Senior Manager, 
Compliance and Trust Programs, Compliance Policy, [phone]; 
Timothy Leary, Counsel (Banking and Finance), [phone], or Karen 
Osterloh, Assistant Chief Counsel, [phone], Regulations and 
Legislation Division, Chief Counsel's Office, Office of Thrift 
Supervision, 1700 G Street, N.W., Washington, D.C. 20552.

SUPPLEMENTARY INFORMATION:

II. Background

    In 1995, pursuant to the Reinvention Initiative and section 303 of 
CDRIA, OTS conducted a comprehensive review of its rules and 
regulations. As part of that review, OTS identified its trust 
regulations at 12 CFR Part 550 for updating and streamlining.
    Part 550 is promulgated under Section 5(n) of the Home Owners' Loan 
Act (HOLA), 12 U.S.C. 1464(n), which authorizes the Director of OTS to 
authorize a Federal savings association to exercise fiduciary powers. 
Congress enacted section 5(n) in order to give Federal savings 
associations the ``ability to offer trust services on the same basis as 
national banks'' and to ``enhance the ability of thrifts to offer 
complete financial service to the consumer.''1
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    \1\ S. Rep. 96-368 at 13 (1980), reprinted in 1980 U.S.C.C.A.N. 
248. Congress further amended Sec. 5(n) in the Financial 
Institutions Reform, Recovery and Enforcement Act (``FIRREA'') of 
1989. Pub. L. 101-73.
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    As originally enacted, section 5(n) of the HOLA empowered the 
Federal Home Loan Bank Board (FHLBB), the predecessor agency to OTS, to 
issue regulations regarding the proper exercise of Federal association 
trust powers.2 Pursuant to that authority, the FHLBB issued 
the current part 550 in December, 1980.3 These regulations 
have not been substantially changed since their promulgation.
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    \2\ 12 U.S.C. 1464(n)(10)(D)(1980).
    \3\ 45 FR 82162 (December 15, 1980).
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    Since 1980, however, much about Federal savings associations' 
fiduciary business has changed. These changes have affected the nature 
and scope of the fiduciary services that associations offer, and the 
structures and operational methods that associations use to deliver 
those services. OTS's primary goals in revising part 550 are to 
accommodate these changes, remove unnecessary regulatory burden, and 
facilitate the continued development of Federal

[[Page 39478]]

savings associations' fiduciary business consistent with safe and sound 
banking practices.
    Today's proposal has several themes. First, the proposal recognizes 
that the geographic and organizational structure of many Federal 
savings associations' fiduciary operations has changed considerably 
over the years. Consequently, OTS proposes to adjust part 550 so that 
its requirements are workable for both large, multi-state fiduciary 
organizations and small institutions that conduct fiduciary activities 
primarily on a local basis.
    Second, Federal savings associations' fiduciary activities, in 
several respects, are subject to State law. In some cases, OTS has the 
flexibility to prescribe a uniform Federal standard or to direct 
Federal savings associations to follow State law. In the proposal, OTS 
has attempted to strike an appropriate balance between Federal and 
State law.
    Third, over the years, part 550 has been interpreted to apply to 
investment advisory activities and related services which do not 
involve the association's exercise of investment discretion. In some 
cases, savings associations engaged in these activities operate under 
different standards than other financial service providers that conduct 
the same business.
    Finally, consistent with section 303 of CDRIA, the proposal 
conforms OTS rules more closely to those rules of other Federal banking 
agencies, specifically the rules issued by the Office of the 
Comptroller of the Currency (OCC) at 12 CFR Part 9. Section 5(n) of the 
HOLA closely resembles 12 U.S.C. 92a, which authorizes the OCC to grant 
fiduciary powers to national banks. In December 1996, the OCC 
comprehensively revised its rules governing national banks' fiduciary 
operations. 61 FR 68543 (December 30, 1996). To promote continuity and 
reasonable consistency in the exercise of fiduciary powers by 
Federally-chartered financial institutions, OTS's proposal draws 
extensively on the OCC's final rule and the comments the OCC received 
on its proposed rule. As a consequence, today's proposal more 
accurately reflects current legal, regulatory, and business 
developments in the area of fiduciary services and activities.

II. Section-by-Section Description of the Proposal

Proposed Sec. 550.1 (Authority and Scope)

    Proposed Sec. 550.1 is a new provision. It explicitly states the 
statutory authority for, and the purpose and scope of, part 550.

Proposed Sec. 550.2 (Definitions)

    The proposal moves the definitions currently found at Sec. 550.1 to 
proposed Sec. 550.2. Some definitions are removed and others are added. 
Significant changes are highlighted below.
Affiliate
    The proposal adds a definition of ``affiliate'' to part 550. The 
proposed definition follows the OCC's fiduciary powers regulation by 
cross referencing the definition in the Federal Reserve Act at 12 
U.S.C. 221a(b). That definition varies from OTS's current default 
definition of ``affiliate'' found at 12 CFR 561.4. Specifically, the 
Federal Reserve Act definition includes holding companies as 
affiliates, whereas OTS's standard definition does not. To reflect the 
variety of corporate structures through which Federal savings 
associations exercise their fiduciary powers, and to promote regulatory 
consistency with the OCC's new Rule 9, OTS proposes to adopt the 
Federal Reserve Act definition of ``affiliate.''
Applicable Law
    The term ``local law'' is used throughout existing part 550. 
Currently, Sec. 550.1(g) defines local law as the law of the State or 
other jurisdiction governing the fiduciary relationship. The proposal 
would replace the term ``local law'' with ``applicable law.'' This 
change would clarify that the legal authority governing a Federal 
savings association's fiduciary relationships may include Federal law 
and regulations governing fiduciary relationships, State laws governing 
these relationships, the terms of the instrument governing a fiduciary 
relationship, and any court order pertaining to the 
relationship.4 Applicable law would not incorporate any 
State law or other body of authority that would not otherwise apply to 
a Federal savings association's fiduciary activities, such as 
licensing, examination, access to examination reports, and other 
matters left to Federal law under this regulation.
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    \4\ Relevant Federal law includes the HOLA (12 U.S.C. 1461 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 Advisor's 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 rules issued 
pursuant to those acts.
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    Recently, a number of savings associations have asked OTS about how 
State law applies to their exercise of fiduciary powers, including when 
those fiduciary powers are exercised in an operating subsidiary or 
other subsidiary. Section 5(n) of the HOLA recognizes a specific role 
for State law in Federal savings associations' exercise of fiduciary 
powers, unlike other operations of Federal savings associations.
    In a recent legal opinion, OTS determined that State law applies to 
Federal savings associations' fiduciary activities to the extent 
specifically provided by section 5(n) of the HOLA. This includes the 
scope of those powers (Sec. 5(n)(1)), capitalization requirements 
(Sec. 5(n)(2)), the deposit of securities with State authorities 
(Sec. 5(n)(5)), and provision of an oath or affidavit from trust 
fiduciaries (Sec. 5(n)(6)).5 OTS requests comment on the 
scope of federal preemption for Federal savings associations and their 
subsidiaries in dealing with other State law requirements in this area.
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    \5\ OTS Op. Chief Counsel (March 28, 1996) at 8-9.
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Fiduciary Capacity
    Under existing Sec. 550.1(c), fiduciary means ``a Federal savings 
association undertaking to act alone, through an affiliate, or jointly 
with others primarily for the benefit of another in all matters 
connected with its undertaking.'' The current definition also lists the 
specific fiduciary capacities enumerated in section 5(n) of the HOLA 
(trustee, executor, administrator, guardian) and several other 
fiduciary capacities in which State banks, trust companies, or other 
corporations competing with Federal savings corporations are permitted 
to act under State law (receiver, managing agent, registrar of stocks 
and bonds, escrow, transfer, or paying agent, and trustee of employee 
pension, welfare, and profit sharing trust).
    Under the proposal, the term ``fiduciary capacity'' would replace 
``fiduciary.'' The proposed definition of ``fiduciary capacity'' 
attempts to establish a clear, objective boundary for the coverage of 
Part 550 while retaining the traditional core concept that serving in a 
fiduciary capacity involves acting on another's behalf. Under the 
proposed definition, fiduciary capacity includes specific fiduciary 
activities, such as acting as trustee, executor, administrator, 
registrar of stocks and bonds, transfer agent, guardian, assignee, 
receiver, or custodian under a uniform gift to minors act. In addition, 
fiduciary capacity would include any capacity in which the association 
possesses investment discretion on behalf of another, and any other 
similar capacity that OTS authorizes under 12 U.S.C. 1464(n).

[[Page 39479]]

    The proposed definition also includes a Federal savings association 
that acts as an investment advisor for a fee, even though the 
association may not act in any traditional fiduciary capacity or 
exercise investment discretion.6 This provision recognizes 
that when a customer pays a fee in return for investment advice, 
whether or not the customer follows that advice, the customer has a 
reasonable expectation of receiving advice that is free of conflicts of 
interest. It is also consistent with other Federal statutes that 
provide enhanced protection to customers of certain investment advisers 
who receive a fee.7
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    \6\ Part 550 continues to apply to associations acting in the 
enumerated fiduciary capacities (e.g., trustee) even though the 
association has no investment discretion and receives no fee for 
investment advice. OTS notes, however, that a Federal savings 
association that acts as trustee of certain stock bonus, pension or 
profit sharing plans, IRAs, and fiduciary accounts with no active 
fiduciary duties may be exempted from part 550 under proposed 
Sec. 550.3.
    \7\ 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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    On July 9, 1997, the OCC proposed to issue an interpretive ruling 
codifying a recent interpretive letter that clarified how the OCC 
intends to apply the term ``acting as an investment adviser for a 
fee.'' 8 The OCC interprets the term ``investment adviser'' 
to generally mean a national bank that provides advice or 
recommendations concerning the purchase or sale of specific securities, 
such as a national bank engaged in portfolio advisory and management 
activities (including acting as investment adviser to a mutual fund). 
The qualifying phrase ``if the bank receives a fee for its investment 
advice'' excludes those activities in which the investment advice is 
merely incidental to other services.
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    \8\ 62 FR 36746 (July 9, 1997), codifying Interpretive Letter 
No. 769 (January 28, 1997).
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    Under the OCC interpretation, a national bank that engages in full-
service brokerage activities may provide investment advice for a fee, 
depending upon the commission structure and the specific facts. The OCC 
will consider full-service brokerage to involve investment advice for a 
fee if a non-bank broker engaged in that activity is considered an 
investment adviser under the Investment Advisers Act of 
1940.9
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    \9\ 15 U.S.C. 80b-1, et seq.
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    The OCC also has indicated that certain activities generally will 
not entail providing investment advice for a fee. 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 the OCC under 12 U.S.C. 24 (Seventh) as an 
incidental power necessary to carry on the business of banking.
    OTS agrees with the OCC's interpretation and intends to apply it 
when determining whether a Federal savings association is acting as an 
``investment adviser.'' OTS invites comment on the OCC interpretation 
and whether similar language should be incorporated into the OTS final 
rule or guidance.
    The OCC, in its December, 1996 revisions to Part 9, considered 
relying on State law as an alternative dividing line between fiduciary 
and non-fiduciary investment advisory activities. Under a State law 
approach, for example, part 550 would apply to an association's 
investment advisory activity if that activity, when engaged in by 
competing State fiduciaries, would require State authorization and 
would be regulated as a fiduciary activity under State law.
    While the OCC rejected this approach in its final rule, OTS invites 
comment on this and other alternative approaches to defining which 
investment advisory activities to include within the definition of 
fiduciary capacity.
    The adoption of any approach that excludes some types of investment 
advisory activities from coverage under part 550 raises the question of 
how to oversee ``non-fiduciary'' investment advisory activities. Some 
of these activities already are subject to the Interagency Statement on 
Retail Sales of Non-deposit Investment Products (February 14, 
1994),10 and the anti-fraud provisions of the Securities 
Exchange Act of 1934.11 A Federal savings association also 
must conduct all its activities, including its investment advisory 
activities, in a manner consistent with safe and sound banking 
practices.
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    \10\ The four Federal banking agencies have issued a 
clarification of the Interagency Statement. See Joint Interpretation 
of the Interagency Statement on Retail Sales of Nondeposit 
Investment Products (Sept. 12, 1995).
    \11\ See, e.g., 15 U.S.C. 78i (manipulation of securities 
prices), 78j (manipulative and deceptive practices), 78r (liability 
for misleading statements), 78z (unlawful representations).
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    Finally, OTS notes that employees of banks who engage in certain 
securities transactions for customers are subject to various 
recordkeeping and confirmation regulations.12 OTS is 
considering whether to issue a separate proposed rulemaking adopting 
similar rules for employees of savings associations who engage in non-
fiduciary investment advisory services. As such, OTS invites comment on 
whether such requirements should be considered in a future rulemaking.
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    \12\ 12 CFR Part 12 (OCC); 12 CFR 208.8(k) (FRB); 12 CFR Part 
344 (FDIC). These rules are currently being revised by the Federal 
banking agencies.
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Fiduciary Officers and Employees
    Existing part 550 uses the term ``trust department'' to refer to 
the group of employees that are assigned fiduciary responsibilities. 
The proposal replaces this term with the term ``fiduciary officers and 
employees.'' This proposed change reflects the increasing diffusion of 
fiduciary functions throughout a Federal savings association.
Fiduciary Powers
    The proposed definition of ``fiduciary powers'' in Sec. 550.2 
specifies that the scope of a Federal savings association's fiduciary 
powers depends upon the power that the State in which the Federal 
savings association is located grants to competing fiduciaries. See 12 
U.S.C. 1464(n)(1). This is consistent with the OCC's definition of 
fiduciary powers for national banks in new Sec. 9.2(g).
    Under OTS's current regulations and past interpretive opinions, a 
federal thrift is located, for trust purposes, in each State where it 
operates a trust office.13 A trust office may be the 
association's home office, any branch office, any agency office, or 
alternatively, a fiduciary presence within a State that is the 
functional equivalent of operating a brick and mortar trust office--a 
so-called de facto trust office.14 Thus, a Federal savings

[[Page 39480]]

association may provide trust services from office located in more than 
one State.15
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    \13\ 12 CFR 550.2(c)(2); OTS Op. Chief Counsel (June 21, 1996).
    \14\ OTS Op. Chief Counsel (March 28, 1996). Conversely, OTS has 
found that an association will not be ``located'' in states in which 
it only markets its trust services (OTS Op. Chief Counsel (June 21, 
1996)), or performs certain activities incidental to serving as a 
testamentary trustee or a trustee holding real estate. (OTS Op. 
Chief Counsel (August 8, 1996). The interpretive letters reaching 
these conclusions were each based on a specific, detailed set of 
facts. An institution interested in conducting such operations 
should carefully consult those letters and its trust counsel, and 
discuss its proposed business plan with the appropriate OTS regional 
office.
    \15\ OTS Op. Chief Counsel (December 24, 1992). See also 12 CFR 
556.5 (authorizing Federal savings association to expand their 
branch operations nationwide).
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Investment Discretion
    As discussed above, fiduciary capacity would include any capacity 
in which the association possesses investment discretion on behalf of 
another. With respect to an account, ``investment discretion'' is 
defined as the authority ``to determine what securities or other assets 
to purchase or sell on behalf of the account.'' This term would apply 
whether the investment discretion is sole or shared. Moreover, a 
savings association would have investment discretion where it receives 
delegated authority over investments and where it delegates this 
authority to another.

Proposed Sec. 550.3 (Exempt Activities)

    Currently, OTS approval under part 550 is not required for a 
Federal savings association to act as trustee or custodian of certain 
trusts and accounts. See 12 CFR 545.102. Under this provision, a 
savings association may act as a trustee or custodian of an Individual 
Retirement Account or a Keogh account, including self directed 
accounts. The association may also act as a trustee with no active 
fiduciary duties, if applicable law authorizes it to act in that 
capacity. Under this provision, however, the association may invest the 
funds of the trust or account only: (1) in the association's own 
accounts, deposits, obligations or securities, or (2) in such other 
assets as the customer may direct, provided that the association does 
not exercise any investment discretion or provide any investment advice 
with respect to the trust or account assets. Section 545.102 further 
requires the Federal savings association to observe principles of sound 
trust administration, including those relating to recordkeeping and 
segregation of assets, and requires the association to make certain 
specific disclosures.
    In order to more efficiently organize OTS's fiduciary regulations 
and to clarify when applications for fiduciary powers are required, the 
proposal would move current 12 CFR 545.102, with slight modifications, 
to new Sec. 550.3.

Proposed Sec. 550.4 (Approval Requirements)

    Proposed Sec. 550.4 would clarify and streamline the requirements 
governing applications for fiduciary powers. The current requirements 
are found at Sec. 550.2.

Proposed Sec. 550.5 (Administration of Fiduciary Powers)

    Proposed Sec. 550.5 would govern the administration of fiduciary 
powers. Paragraph (a) of the proposal would continue to place the 
primary responsibility for the proper exercise of a Federal savings 
association's fiduciary activities on its board of directors. The board 
may continue to assign functions related to the exercise of fiduciary 
powers to any director, officer, employee, or to a committee of 
directors, officers or employees. Compare existing Sec. 550.5(a)(1).
    Paragraph (b) would address the use of personnel and facilities. 
Under this provision, a Federal savings association may use its 
personnel and facilities to perform services related to the exercise of 
its fiduciary powers. Moreover, any department of the association 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. See existing Sec. 550.5(b). The proposed 
rule would also permit a Federal savings association to use the 
facilities of an affiliate to perform services related to its fiduciary 
activities, and allow an affiliate to use fiduciary officers, 
employees, and facilities to perform services unrelated to the exercise 
of fiduciary powers. Such authority does not, of course, restrict OTS's 
ability to impose conditions on a Federal savings association's 
relationship with its affiliates.
    Proposed Sec. 550.5(c) is a new provision addressing agency 
agreements. This provision would clarify that a Federal savings 
association may enter into a written agency agreement with another 
entity to purchase or sell services related to the exercise of 
fiduciary powers. This provision provides Federal savings associations 
with greater flexibility and is consistent with recent agency 
guidance.16 As with an association's relationships with its 
affiliates, this provision does not restrict OTS's ability to impose 
conditions on an association's agency agreements. Finally, proposed 
paragraph (d) retains the existing requirement that all fiduciary 
officers and employees must be adequately bonded. See existing 
Sec. 550.5(e).
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    \16\ Op. Chief Counsel, Office of Thrift Supervision (November 
22, 1995).
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Proposed Sec. 550.6 (General Standards for the Exercise of Fiduciary 
Powers)

    Proposed Sec. 550.6 sets out general standards that a Federal 
savings associations must meet in exercising its fiduciary powers. The 
proposal specifies that a Federal savings associations must exercise 
its fiduciary powers prudently and in compliance with applicable law. 
Proposed Sec. 550.6 further specifies 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 association to monitor the conditions of 
its fiduciary operations. The standards should also take into account 
an association's size, the nature and scope of its fiduciary 
operations, and the conditions in the market in which it exercises 
fiduciary powers.
    In its recent revisions of its fiduciary powers regulation, the OCC 
included a provision, 12 CFR 9.5, requiring national banks to maintain 
and follow written policies and procedures in certain areas. Several of 
those areas, such as brokerage placement practices, the use of material 
inside information when buying or selling securities, the selection and 
retention of readily available legal counsel, and the investment of 
funds held as fiduciary, were drawn from various existing sections of 
the OCC's prior fiduciary powers regulation. The new final OCC rule 
gathered those separate requirements into one section, and added a 
requirement that national banks adopt and follow written policies and 
procedures addressing methods for preventing self-dealing and conflicts 
of interest.
    After consideration, OTS has decided not to specifically require 
written policies and procedures in its regulation. Adopting a provision 
similar to 12 CFR 9.5 would require Federal savings associations to 
adopt and follow written policies and procedures in four areas not 
found in current Part 550: brokerage placement services, methods for 
preventing self-dealing and conflicts of interest, selection and 
retention of readily available legal counsel, and the investment of 
funds held as fiduciary. Proposing similar requirements for Federal 
savings associations would impose an additional regulatory burden by 
expanding the areas in which Federal savings associations must maintain 
and follow written policies and procedures.
    OTS has opted for a less rigid approach that will still require 
associations to exercise their fiduciary

[[Page 39481]]

powers prudently and in compliance with applicable law. We believe this 
is consistent with the intent of section 2242 of the Economic Growth 
and Regulatory Paperwork Reduction Act of 1996, 110 Stat. 3009-418, 
which amended section 303(a) of the CDRIA, 12 U.S.C. 4803(a), by 
requiring each Federal banking agency to ``review the extent to which 
existing regulations require insured depository institutions . . . to 
produce unnecessary internal written policies and eliminate such 
requirements, where appropriate.''
    The only provision in current Part 550 relating to written policies 
and procedures is current Sec. 550.5(c), which requires a Federal 
savings association to adopt and follow written policies and procedures 
to ensure compliance with the Federal securities laws. That section 
further specifies that those policies and procedures should ensure that 
fiduciary departments not use material inside information in connection 
with the sale or purchase of securities.17
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    \17\ The current 12 CFR 9.5 requires that a national bank adopt 
and follow written policies and procedures only in preventing the 
use of inside information, not the broader requirement in current 
Sec. 550.5(c) that those policies and procedures more generally 
ensure compliance with the federal securities laws.
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    By deleting current Sec. 550.5(c), OTS does not intend to remove 
the requirement that Federal savings associations comply with the 
Federal securities laws. In this regard, proposed Sec. 550.6 states 
that a Federal savings association must exercise its fiduciary powers 
``in compliance with applicable law.'' As noted above, the term 
``applicable law'' includes all the relevant Federal securities laws. 
Federal savings associations may find that adapting written policies 
and procedures will enhance their ability to comply with applicable 
laws and operate prudently.
    Federal savings associations can find additional guidance regarding 
standards for the exercise of fiduciary powers in Section 210 of the 
Trust Activities Handbook. Section 210 discusses the advantages of 
maintaining and following written policies and procedures and provides 
illustrative examples of the areas those policies and procedures should 
cover. Those examples include conflicts of interest, asset and account 
administration, operations, personnel, and business development and 
profitability. See Trust Activities Handbook at 97-98.

Proposed Sec. 550.7 (Review of Assets of Fiduciary Accounts)

    Currently, Sec. 550.5(a)(2) addresses the review of assets 
contained in fiduciary accounts. Proposed Sec. 550.7 incorporates the 
requirements of this existing regulation, but reorganizes, clarifies 
and streamlines the text.
    Under the proposed rule, a Federal savings association must conduct 
three types of reviews of fiduciary accounts--a pre-acceptance review, 
an initial post-acceptance review, and an annual review. In a pre-
acceptance review, an association must review a prospective account 
prior to its acceptance to determine whether the association can 
properly administer the account. In the initial post-acceptance review, 
an association must conduct a prompt review of all assets of a 
fiduciary account for which it has investment discretion to evaluate 
whether the assets are appropriate for the account. At least once 
during every calendar year thereafter, the association must conduct a 
similar review of assets of each fiduciary account for which it has 
investment discretion.
    Existing Sec. 550.5(a)(2) requires that each annual review must 
occur within 15 months of the prior annual review. OTS believes that 
this requirement is too rigid, raises timing issues, and may not 
contribute to safety and soundness. Accordingly, the OTS proposal does 
not retain this requirement.

Proposed Sec. 550.8 (Recordkeeping)

    Under proposed Sec. 550.8, a Federal savings association would be 
required to maintain adequate records for all fiduciary accounts 
(including adequate documentation of the establishment and termination 
of each fiduciary account) 18 for all fiduciary accounts for 
a specified period, and ensure that fiduciary records are kept separate 
and distinct from other records of the association. These requirements 
implement section 5(n)(2) of the HOLA and reflect the substance of 
existing Secs. 550.5(a)(2) and 550.6.
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    \18\ The adequacy of an association's records may be determined 
only on a case-by-case basis. Section 5(n)(2) of the HOLA, however, 
provides some guidance. It requires the association to maintain a 
separate set of books and records ``showing in proper detail all 
transactions. . . .''
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    Under existing Sec. 550.6, a Federal savings association must 
retain fiduciary records ``for such time as to enable the Federal 
savings association to furnish such information or reports with respect 
thereto as may be required by the [OTS].'' By contrast, the proposed 
rule would require an association to retain fiduciary records for three 
years from the later of the termination of the account or termination 
of litigation relating to the account. OTS believes that the proposed 
three-year retention period is easier to apply and understand.

Proposed Sec. 550.9 (Audit of Fiduciary Activities)

    Under existing Sec. 550.7, a Federal savings association must 
perform a suitable annual audit of its fiduciary operations. Proposed 
Sec. 550.9 retains the substance of this section with certain 
clarifications of current OTS policy.
    Proposed Sec. 550.9(a) requires the association to conduct a 
suitable audit of all significant fiduciary activities at least once 
during each calendar year and to report the results of the audit 
(including all significant actions taken as a result of the audit) in 
the minutes of the board of directors. The proposal clarifies that the 
audit requirement applies to all significant fiduciary activities. 
Thus, an association would not be required to audit de minimis 
activities. OTS intends the de minimis standard to apply in very 
limited circumstances, such as where an association has only one small 
account under a particular fiduciary activity.
    Paragraph (b) of the proposed rule clarifies that the required 
audit program may be implemented either through an annual or a 
continuous audit.19 Under a continuous audit system, the 
association may perform discrete audits of specific activities at 
intervals appropriate for the nature and risk of that activity. For 
example, an association may determine that it is appropriate to audit 
certain low-risk fiduciary activities every 18 months. An association 
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.
---------------------------------------------------------------------------

    \19\ This change is consistent with current OTS policy. See 
Trust Activities Regulatory Handbook (1992) at 142.
---------------------------------------------------------------------------

    The proposed audit standards at Sec. 550.9(c) restate the existing 
requirements in Sec. 550.7. This paragraph provides that an audit must 
ascertain whether the association's internal control policies and 
procedures provide reasonable assurance that fiduciary activities are 
administered in accordance with applicable law, fiduciary assets are 
properly safeguarded, and transactions are accurately recorded in the 
appropriate accounts in a timely manner. In addition, proposed 
paragraph (c) requires audits to be conducted in accordance with 
generally accepted standards for attestation engagements (and other 
standards established by OTS). An audit may be conducted by

[[Page 39482]]

external or internal auditors, or other qualified persons who are 
responsible only to the association's board of directors.
    All audits, whether annual or continuous, must be performed under 
the direction of the association's fiduciary audit committee. Under the 
proposed rule, the audit committee may consist of a committee of the 
association's directors or an audit committee of an affiliate of the 
association. By contrast, the current rule does not expressly permit an 
audit committee of an affiliate to conduct audits. Compare existing 
Sec. 550.7(a).
    The proposed change will allow a savings and loan holding company 
to audit the fiduciary activities of its subsidiary Federal savings 
association through a central audit committee. This will facilitate the 
consolidation of functions within a holding company structure. Even 
where the audit is performed under the direction of an affiliate's 
audit committee, the Federal savings association's board of directors 
is still ultimately responsible for the association's fiduciary 
activities. See proposed Sec. 550.5(a).
    Existing Sec. 550.7(a) requires the audit committee to be 
independent of management. The proposal provides guidance regarding the 
independence of the audit committee. Specifically, proposed 
Sec. 550.9(d) states that the audit committee may not include any 
officers of the association or an affiliate who participate 
significantly in the administration of the association's fiduciary 
activities. Additionally, a majority of the members of the audit 
committee may not also be members of a committee to which the board of 
directors has delegated power to manage and control the fiduciary 
activities of the association.
    OTS invites comment on the relationship between the audit 
requirement and OTS's fiduciary examination process. In particular, 
commenters should address the extent to which OTS examiners should rely 
on an association's internal or external fiduciary audits.

Proposed Sec. 550.10 (Fiduciary Funds Awaiting Investment or 
Distribution)

    Under current Sec. 550.8(a), a Federal savings association may not 
allow fiduciary funds to remain uninvested and undistributed any longer 
than reasonable for proper account management. Proposed Sec. 550.10(a) 
clarifies this requirement in two ways. First, the proposal explicitly 
recognizes that applicable law may limit the amount of time that funds 
may remain uninvested. Second, it clarifies that the prohibition 
applies only to fiduciary accounts over which the association has 
investment discretion or discretion over distributions.
    With respect to a fiduciary account for which a Federal savings 
association has investment discretion, proposed Sec. 550.10(a) requires 
the association to obtain a rate of return for funds awaiting 
investment or distribution that is consistent with applicable law. This 
provision prescribes a uniform policy for the investment of all idle 
funds and recognizes the role that applicable law may play in 
prescribing standards in this area. Compare existing Sec. 550.8(b)(3) 
(funds waiting investment or distribution ``shall be made 
productive.'')
    Proposed Sec. 550.10(b) addresses self deposits. Like the existing 
regulation at Sec. 550.8(b), the proposed rule permits a Federal 
savings association to deposit fiduciary funds awaiting investment or 
distribution in other departments of the Federal savings association, 
unless the deposit is prohibited by applicable law. To the extent that 
funds are not FDIC-insured, the association would be required to secure 
the deposit with collateral.
    Under the existing rule, acceptable collateral includes direct 
obligations of the United States, other fully guaranteed obligations of 
the United States, readily marketable securities of the classes in 
which State-chartered corporate fiduciaries may invest under State law, 
and other readily marketable securities as OTS may determine.
    The proposal would add two new classes of acceptable collateral for 
self-deposits--assets that qualify under State law as appropriate 
security for deposits of fiduciary funds and surety bonds unless they 
are prohibited by applicable law. OTS believes that a surety bond is 
comparable to other forms of security permitted as collateral for self-
deposits. OTS believes that this interpretation will promote the 
interests of beneficiaries while ensuring that Federal savings 
associations are not disadvantaged in States that permit state-
chartered institutions to secure deposits of idle fiduciary funds with 
surety bonds. OTS is considering whether to adopt a uniform national 
standard that would allow Federal savings associations to use surety 
bonds as collateral, without regard to State prohibitions. OTS invites 
public comment on this issue.
    The proposed rule includes a new provision at Sec. 550.10(c) which 
addresses the deposit of idle fiduciary funds with affiliates. Section 
5(n)(3) of the HOLA authorizes a Federal savings association to pledge 
assets to secure self deposits of fiduciary funds. This provision, 
thus, accommodates an association with a trust department and a savings 
department, the organizational structure prevalent in 1980. However, 
the statutory language does not address the evolution of Federal 
savings association organizational structures in recent years.
    Today, some Federal savings associations do not operate departments 
that accept deposits of idle fiduciary funds. In some cases, however, 
these associations may be affiliated with other depository institutions 
that will accept such deposits. Other Federal savings associations 
operate as part of a large system of affiliated financial institutions 
and wish, for reasons of efficiency, to consolidate their fiduciary 
payment and disbursement functions in a single entity.
    In these situations, a Federal savings association may wish to 
deposit idle fiduciary funds with an affiliated entity.
    Consequently, OTS proposes to allow a Federal savings association 
to deposit idle fiduciary funds with an affiliate, if not prohibited by 
applicable law. A Federal savings association must set aside acceptable 
collateral, as described above, as security for a deposit by or with an 
affiliate, unless prohibited by applicable law. This change is 
consistent with the position taken in OCC's revised part 9, and should 
facilitate more efficient fiduciary operations in multi-entity holding 
companies.

Proposed Sec. 550.11 (Investment of Fiduciary Funds)

    Proposed Sec. 550.11 simply directs a Federal savings association 
to invest funds in a fiduciary account in a manner consistent with 
applicable law. This section condenses the existing provisions on the 
investment of fiduciary funds without any change in substance. Compare 
existing Sec. 550.9.

Proposed Sec. 550.12 (Collective Investment Funds)

    Proposed Sec. 550.12 governs the establishment and operation of 
common trust funds and other collective investment funds by Federal 
savings associations. Common trust funds maintained for the investment 
and reinvestment of funds held in a fiduciary capacity may be exempted 
from taxation under section 584 of the Internal Revenue Code of 1986, 
as amended (26 U.S.C. 584). Section 584 requires the funds to meet the 
standards for collective investment under the OCC's regulations (12 CFR 
9.18), regardless of the identity of the financial institution 
fiduciary. Thus, Federal savings associations maintaining section

[[Page 39483]]

584 common trust funds are bound by the OCC regulations.
    Accordingly, the proposed rule requires Federal savings 
associations to observe the requirements of 12 CFR 9.18 in 
administering any common fund. Compare existing Sec. 550.13(b). In its 
recent rulemaking, the OCC promulgated various rule changes designed to 
lift unnecessary regulatory burdens on institutions that administer 
collective investment funds, while preserving appropriate protections 
to beneficiaries (and other interested parties). The OTS proposed rule 
continues to cross-reference the OCC regulation, as recently amended.

Proposed Sec. 550.13 (Self-dealing and Conflicts of Interest)

    Proposed Sec. 550.13 addresses self-dealing and conflicts of 
interest. This section retains much of the substance of existing 
Sec. 550.10.
    Unless authorized by applicable law, proposed Sec. 550.13(a)(1) 
would prohibit a Federal savings association from investing funds in 
stocks or obligations of, or assets acquired from, the association or 
any of its directors, officers or employees; affiliates of the 
association 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 association. The 
proposed rule would clarify that the general prohibition against self-
dealing and conflicts of interests only applies to those fiduciary 
accounts for which the Federal savings association has investment 
discretion. Proposed Sec. 550.13(a)(2) specifically sets forth the 
conditions under which a Federal savings association may exercise the 
right to purchase additional stock or fractional shares of stock.
    Proposed Sec. 550.13(b) restates the existing prohibitions against 
loans, sales or other transfers from fiduciary accounts. See existing 
Sec. 550.10(b). Under the proposal, a Federal savings association may 
not lend, sell, or otherwise transfer assets held in a fiduciary 
account for which the association has investment discretion to the 
association or any of its directors, officers, or employees; to 
affiliates of the association 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 
association. Proposed Sec. 550.13(b)(1)(i) through (iv) retain the 
existing exceptions to this general prohibition, with one 
clarification. Section 5(n)(7) of the HOLA prohibits a Federal savings 
association from lending funds held in fiduciary accounts to its 
directors, officers, or employees. For ease of reference, proposed 
Sec. 550.13(b)(2) restates this statutory prohibition.20
---------------------------------------------------------------------------

    \20\ The proposed rule permits an association to make these 
loans with respect to employee benefit plans in accordance with the 
exemptions found at section 408 of the Employee Retirement Income 
Security Act of 1974 (29 U.S.C. 1108). Section 408 specifically 
authorizes loans to participants and beneficiaries of such plans 
under certain circumstances. Under these exemptions, the association 
may make loans to directors, officers, or employees that are 
participants or beneficiaries in the association's own ERISA plan or 
in ERISA plans that the association administers for other employers.
---------------------------------------------------------------------------

    Finally, consistent with current Sec. 550.10(d), the proposed rule 
would permit a Federal savings association to make loans to fiduciary 
accounts, sell assets between fiduciary accounts and make loans between 
fiduciary accounts. See proposed Secs. 550.13(c), (d) and (e). Such 
loans and sales would be permitted if the transactions are fair to the 
fiduciary accounts and are not prohibited by applicable law.

Proposed Sec. 550.14 (Custody of Fiduciary Funds)

    Proposed Sec. 550.14 retains the substance of existing Sec. 550.11, 
which addresses custody of fiduciary assets. The proposal continues to 
require the association to place assets of fiduciary accounts in the 
joint custody or control of not fewer than two fiduciary officers or 
employees. The proposal also continues to allow a Federal savings 
association to maintain fiduciary assets off-premises, if consistent 
with applicable law. Consistent with section 5(n)(2) of the HOLA, a 
Federal savings association must keep fiduciary assets separate from 
the assets of the association. Further, the proposed rule would require 
the association to keep assets in each fiduciary account separate from 
all other accounts or to identify the investments as the property of a 
particular account (except when assets are invested in collective 
investment funds).

Proposed Sec. 550.15 (Deposit of Securities With State Authorities)

    Under section 5(n)(5) of the HOLA and current Sec. 550.4, whenever 
local law requires corporations acting as fiduciaries to deposit 
securities with State authorities for the protection of trust accounts, 
a Federal savings association must make a similar deposit before it can 
act in a fiduciary capacity.21 Proposed Sec. 550.15 restates 
this general requirement with two clarifications.
---------------------------------------------------------------------------

    \21\ 12 U.S.C. 1464(n)(5).
---------------------------------------------------------------------------

    First, the proposed rule would require a deposit only if the laws 
of the state in which the Federal savings association is located 
require the deposit.22 In addition, the current rule does 
not address how to calculate the required deposit when an association 
administers trust assets from offices located in more than one State. 
The current rule is unclear whether the association must compute the 
deposit based on the amount of trust assets held in the State or the 
amount of all trust assets.
---------------------------------------------------------------------------

    \22\ See Op. Chief Counsel, Office of Thrift Supervision 
(December 24, 1992) (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 
State, rather than on the amount of its nationwide trust assets).
---------------------------------------------------------------------------

    Consistent with current agency guidance, the proposed rule does not 
require a Federal savings association with multi-state trust operations 
to compute the State deposit based on its nationwide trust assets. To 
do so would go far beyond the deposit requirement's purpose of 
protecting trust assets in a particular State, and would unnecessarily 
burden an association with multi-state fiduciary 
operations.23 Accordingly, the proposed rule would permit a 
Federal savings association to calculate the deposit requirement in 
each State based on the amount of trust assets administered primarily 
from offices located in that State.
---------------------------------------------------------------------------

    \23\ Id.
---------------------------------------------------------------------------

Proposed Sec. 550.16 (Fiduciary Compensation)

    Proposed Sec. 550.16 retains the substance of current Sec. 550.12, 
which addresses fiduciary compensation. Under the proposal, a Federal 
savings association may charge a reasonable fee for its fiduciary 
services if the amount of the compensation is not set or governed by 
applicable law. The proposal further prohibits an officer or an 
employee of a Federal savings association from retaining any 
compensation for acting as a co-fiduciary with the association in the 
administration of a fiduciary account, except with the specific 
approval of the board of directors. Finally, the proposal prohibits a 
Federal savings association from permitting a fiduciary officer or 
employee from accepting a bequest or gift of trust assets, unless the 
bequest or gift is directed or made by a relative of the officer or 
employee or is specifically approved by the association's board of 
directors.

Proposed Sec. 550.17 (Receivership or Voluntary Liquidation)

    The proposal retains the substance of current Sec. 550.15, which 
addresses receivership and voluntary liquidation.

[[Page 39484]]

Proposed Sec. 550.17 directs a receiver, conservator, or liquidating 
agent of a Federal savings association to promptly close, or transfer 
to a substitute fiduciary, all fiduciary accounts, in accordance with 
OTS instructions and the orders of the court having jurisdiction.

Proposed Sec. 550.18 (Surrender of Fiduciary Powers)

    Proposed Sec. 550.18 sets forth the procedures that apply when a 
Federal savings association seeks to surrender its fiduciary powers. 
Specifically, paragraph (a) requires a Federal savings association to 
file a certified copy of a resolution of its board of directors 
evidencing its intent to surrender its fiduciary powers. If, after an 
appropriate investigation, the Regional Director is satisfied that the 
Federal savings association has been discharged from all fiduciary 
duties, the Regional Director will notify the association that it is no 
longer authorized to exercise its fiduciary powers. See proposed 
Sec. 550.18(b). The proposal incorporates the OTS practice of providing 
a written notice rather than a certificate that the association is no 
longer authorized to exercise trust powers. Compare existing 
Sec. 550.14(b).
    Existing Sec. 550.14 states that upon surrender of fiduciary 
powers, a Federal savings association is no longer subject to part 550, 
cannot exercise fiduciary powers, and is entitled to return of any 
deposit with State authorities. Except for the return of the State 
deposit, OTS believes that these provisions are self-evident and 
unnecessary. Accordingly, the proposed rule does not include these 
provisions.

Proposed Sec. 550.19 (Revocation of Fiduciary Powers)

    Proposed Sec. 550.19 sets forth standards and procedures for the 
revocation of fiduciary powers. This section retains the standards 
currently set forth in existing Sec. 550.16(a), pursuant to which OTS 
may revoke fiduciary powers if the association has unlawfully or 
unsoundly exercised its fiduciary powers, has failed to exercise its 
fiduciary powers for five consecutive years, or has otherwise failed to 
comply with part 550.
    Existing Sec. 550.16(b) details the procedural requirements 
governing the revocation of fiduciary powers. This rule generally 
repeats the statutory requirements for a hearing contained in the HOLA. 
Because the requirements are already set out in the statute, proposed 
Sec. 550.19(b) simply states that OTS revocation procedures are set 
forth at 12 U.S.C. 1464(n)(10) and that the hearing required under 12 
U.S.C. 1464(n)(10)(B) will be conducted in accordance with 12 CFR Part 
509 (OTS regulations governing administrative hearings).

III. Miscellaneous Fiduciary Powers Provisions

Consolidation or Merger

    In its recent rulemaking, the OCC deleted, without discussion, its 
regulation dealing with the consolidation or merger of two or more 
national banks. OTS's regulation dealing with that situation is 
currently found at Sec. 550.3. This provision states that when two or 
more Federal savings associations merge, and one of those associations 
is authorized to exercise fiduciary powers, the resulting association 
is also authorized to exercise fiduciary powers. No new application to 
exercise those powers is necessary. OTS believes that this proposition 
is self-evident and not likely to be the subject of dispute. 
Accordingly, the proposal does not contain a provision that corresponds 
to existing Sec. 550.3.

Transfer Agents

    Also in its recent rulemaking, the OCC adopted Sec. 9.20, which 
specified that the rules adopted by the Securities and Exchange 
Commission (SEC) under section 17A of the Securities and Exchange Act 
of 1934 (1934 Act) (15 U.S.C. 78q-1, et seq.) apply to the domestic 
activities of national bank transfer agents. Those rules are found at 
17 CFR 240.17Ac2-2 and 240.17Ad-1 through 16.
    Section 17A(c) of the 1934 Act (15 U.S.C. 78q-1(c)) provides, inter 
alia, that transfer agents must register with their appropriate 
regulatory agencies. Under section 3(a)(34)(B) of the 1934 Act (15 
U.S.C. 78c-3), the appropriate regulatory agency for banks is the OCC, 
the Board of Governors of the Federal Reserve Board, or the Federal 
Deposit Insurance Corporation.
    The appropriate regulator for Federal savings association transfer 
agents, however, has always been the SEC. Thus, Federal savings 
association transfer agents are already subject to the SEC rules 
adopted under section 17A of the 1934 Act. Consequently, while a 
transfer agent is within the definition of fiduciary capacity for 
Federal savings associations, review of compliance with the SEC's 
registration and associated transfer agent rules and regulations lies 
with the SEC. Accordingly, the proposal does not include a provision 
that corresponds to Sec. 9.20.

IV. Community Reinvestment Act Revisions

    OTS also proposes to revise its regulations implementing the 
Community Reinvestment Act (CRA), located at 12 CFR Part 563e. 
Specifically, OTS proposes to amend Sec. 563e.11(c), which outlines the 
scope of the CRA regulations.
    Existing Sec. 563e.11(c) provides that the CRA regulations apply to 
``all savings associations as defined in * * * this chapter.'' By 
contrast, the CRA regulations of the other banking agencies exempt 
institutions that do not perform commercial or retail banking 
services.24 These institutions, including trust companies, 
are not in the business of providing commercial or retail banking 
services by extending credit to the public in the ordinary course of 
business. Accordingly, they are not subject to CRA requirements.
---------------------------------------------------------------------------

    \24\ See 12 CFR 25.11(c) (OCC); 12 CFR 228.11(c) (FRB); 12 CFR 
345.11(c) (FDIC).
---------------------------------------------------------------------------

    Because there were no such institutions chartered as savings 
associations when Sec. 563e.11(c) was adopted, OTS did not exclude them 
from the scope of the CRA regulations. Recently, however, some savings 
and loan holding companies have acquired or created savings 
associations that operate solely as trust companies, or that otherwise 
do not provide commercial or retail banking services by extending 
credit to the general public in the ordinary course of business. OTS 
anticipates that there may be similar institutions chartered in the 
future.
    Accordingly, OTS proposes to amend Sec. 563e.11(c) to clarify that 
part 563e is not intended to apply to 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. The proposal includes several examples of 
such institutions, such as trust companies, clearing agents, 
correspondent associations, and companies that provide cash management 
controlled disbursement services.

V. Disposition of Existing Regulations

    The following chart gives of an overview of the changes made to 
part 550.

[[Page 39485]]



----------------------------------------------------------------------------------------------------------------
          Revised provision                   Former provision                         Comments                 
----------------------------------------------------------------------------------------------------------------
Sec.  550.1..........................  .............................  Added.                                    
Sec.  550.2..........................                                                                           
Affiliate............................  .............................  Added.                                    
Applicable law.......................  Sec.  550.1(g)...............  Significantly modified.                   
Custodian under a uniform gifts to     Sec.  550.1(b)...............  Modified.                                 
 minors act.                                                                                                    
Fiduciary account....................  Sec.  550.1(a)...............  Modified.                                 
Fiduciary capacity...................  Sec.  550.1(c) and (h).......  Significantly modified.                   
Fiduciary officers and employees.....  Sec.  550.1(j)...............  Modified.                                 
Fiduciary powers.....................  Sec.  550.1(k)...............  Modified.                                 
Guardian.............................  Sec.  550.1(e)...............  Modified.                                 
Sec.  550.3..........................  Sec.  545.102................  Modified and added.                       
Sec.  550.4..........................  Sec.  550.2..................  Modified.                                 
Sec.  550.5..........................  Sec.  550.5(a)(1), (b) and     Significantly modified.                   
                                        (e).                                                                    
Sec.  550.6..........................  .............................  Added.                                    
Sec.  550.7..........................  Sec.  550.5(a)(2)............  Significantly modified.                   
Sec.  550.8..........................  Secs.  550.5(a)(2) and 550.6.  Significantly modified.                   
Sec.  550.9..........................  Sec.  550.7..................  Significantly modified.                   
Sec.  550.10.........................  Sec.  550.8..................  Significantly modified.                   
Sec.  550.11.........................  Sec.  550.9..................  Significantly modified.                   
Sec.  550.12.........................  Sec.  550.13.................  Modified.                                 
Sec.  550.13.........................  Sec.  550.10.................  Modified.                                 
Sec.  550.14.........................  Sec.  550.11.................  Modified.                                 
Sec.  550.15.........................  Sec.  550.4..................  Significantly modified.                   
Sec.  550.16.........................  Sec.  550.12.................  Modified.                                 
Sec.  550.17.........................  Sec.  550.15.................  Modified.                                 
Sec.  550.18.........................  Sec.  550.14.................  Modified.                                 
Sec.  550.19.........................  Sec.  550.16.................  Modified.                                 
----------------------------------------------------------------------------------------------------------------

VI. Reporting and Recordkeeping Requirements

    OTS invites comment on:
    Whether the proposed information collection contained in this 
proposal is necessary for the proper performance of OTS's functions, 
including whether the information has practical utility;
    (1) The accuracy of OTS's estimate of the burden of the proposed 
information collection;
    (2) Ways to enhance the quality, utility, and clarity of the 
information to be collected;
    (3) 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; and
    (4) Estimates of capital and start-up costs of operation, 
maintenance and purchases of services to provide information.
    Respondents/recordkeepers are not required to respond to this 
collection of 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 (1550-0037), Washington, DC 20503, with copies to the 
Regulations and Legislation Division (1550-0037), Chief Counsel's 
Office, Office of Thrift Supervision, 1700 G Street, NW., Washington, 
DC 20552.
    The collection of information requirements in this proposed rule 
are found in 12 CFR 550.2, 550.8, 550.9, 550.12 and 550.18. OTS 
requires this information for the proper supervision of Federal savings 
associations' fiduciary activities. The likely respondents/
recordkeepers are Federal savings associations.

Estimated average annual burden hours per respondent/recordkeeper: 10.5
Estimated number of respondents:
    Applications for fiduciary powers: 13
    Documentation and audit of fiduciary activities: 75
    Surrender of fiduciary powers: 1
Estimated total annual reporting and recordkeeping burden: 155.5
Start up costs to respondents: 0

VII. Executive Order 12866

    The Director of OTS has determined that this proposed rule does not 
constitute a ``significant regulatory action'' for the purposes of 
Executive Order 12866.

VIII. Unfunded Mandates Reform Act of 1995

    Section 202 of the Unfunded Mandates Reform Act of 1995, Pub. L. 
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 
proposed 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.

IX. Regulatory Flexibility Act Analysis

    Pursuant to section 605(b) of the Regulatory Flexibility Act, OTS 
certifies that this proposed rule will not have a significant economic 
impact on a substantial number of small entities. The proposal 
liberalizes requirements and reduces burdens for Federal savings 
associations that exercise fiduciary powers, regardless of size. 
Accordingly, a regulatory flexibility analysis is not required.

List of Subjects

12 CFR Part 545

    Accounting, Consumer Protection, Credit, Electronic funds 
transfers, Investments, Reporting and recordkeeping requirements, 
Savings associations.

[[Page 39486]]

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.

Authority and Issuance

    Accordingly, the Office of Thrift Supervision proposes to amend 
chapter V, title 12, 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 FEDERAL SAVINGS ASSOCIATIONS

Sec.
550.1  Authority and scope.
550.2  Definitions.
550.3  Exempt activities.
550.4  Approval requirements.
550.5  Administration of fiduciary powers.
550.6  General standards for the exercise of fiduciary powers.
550.7  Review of assets of fiduciary accounts.
550.8  Recordkeeping.
550.9  Audit of fiduciary activities.
550.10  Fiduciary funds awaiting investment or distribution.
550.11  Investment of fiduciary funds.
550.12  Collective investment funds.
550.13  Self-dealing and conflict of interest.
550.14  Custody of fiduciary funds.
550.15  Deposit of securities with State authorities.
550.16  Fiduciary compensation.
550.17  Receivership or voluntary liquidation.
550.18  Surrender of fiduciary powers.
550.19  Revocation of fiduciary powers.

    Authority: 12 U.S.C. 1462a, 1463, 1464.


Sec. 550.1  Authority and scope.

    This part is issued pursuant to 12 U.S.C. 1464(n). It sets forth 
the standards that apply to the fiduciary activities of Federal savings 
associations.


Sec. 550.2  Definitions.

    For the purposes of this part:
    Affiliate has the same meaning as in 12 U.S.C. 221a(b).
    Applicable law means 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.
    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 or the Uniform Transfers to Minors 
Act as published by the American Law Institute.
    Fiduciary account means an account administered by a Federal 
savings association acting in a fiduciary capacity.
    Fiduciary capacity means acting as a trustee, executor, 
administrator, registrar of stocks and bonds, transfer agent, guardian, 
assignee, receiver, or custodian under a uniform gifts to minors act; 
investment adviser, if the Federal savings association receives a fee 
for its investment advice; any capacity in which the Federal savings 
association possesses investment discretion on behalf of another; or 
any other similar capacity that OTS authorizes under 12 U.S.C. 1464(n).
    Fiduciary officers and employees means all 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
    Fiduciary powers means the authority that the OTS permits a Federal 
savings association to exercise pursuant to 12 U.S.C. 1464(n). The 
scope of the Federal savings association's fiduciary powers depends 
upon the powers that the State grants to competing fiduciaries in the 
State in which the Federal savings association is located.
    Guardian means the guardian or conservator, by whatever name used 
by State law, 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.
    Investment discretion means, with respect to an account, the sole 
or shared authority (whether or not that authority is exercised) to 
determine what securities or other assets to purchase or sell on behalf 
of that account. A savings association that delegates its authority 
over investments or a savings association that receives delegated 
authority over investments are both deemed to have investment 
discretion.


Sec. 550.3  Exempt activities.

    (a) Activities exempted. A Federal savings association is not 
subject to this part if it acts solely in the following fiduciary 
capacities:
    (1) 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));
    (2) Trustee or custodian of a Individual Retirement Account within 
the meaning of section 408(a) of the Internal Revenue Code (26 U.S.C. 
408(a)); or
    (3) 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.
    (b) Investment authority. A Federal savings association acting in 
the fiduciary capacities listed in paragraph (a) of this section may 
invest the funds of the fiduciary account solely in the following 
instruments:
    (1) The Federal savings association's accounts, deposits, 
obligations or securities; and
    (2) Such other assets as the customer may direct, provided the 
Federal savings association does not exercise any investment discretion 
and does not directly or indirectly provide any investment advice with 
respect to the fiduciary account.
    (c) Administration. A Federal savings association acting in the 
fiduciary capacities described in paragraph (a) of this section must 
observe principles of sound fiduciary administration, including those 
related to recordkeeping and segregation of assets.
    (d) Compensation. A Federal savings association may receive 
reasonable compensation for acting in any fiduciary capacity authorized 
by this section.
    (e) Disclosure. Unless fiduciary investments are limited to 
accounts or deposits insured by the FDIC, a Federal savings association 
acting in the capacities described in paragraph (a) of this section 
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 such a Federal savings association are insured by the 
FDIC, subject to its rules and regulations.


Sec. 550.4  Approval requirements.

    (a) OTS approval required. A Federal savings association may not 
exercise fiduciary powers unless it obtains prior approval from the OTS 
under this

[[Page 39487]]

section. A Federal savings association may exercise only those 
fiduciary powers specified in the OTS approval. Unless otherwise 
provided in the approval, a Federal savings association may exercise 
fiduciary powers only from those offices listed in the application.
    (b) Application requirements. A Federal savings association must 
file an application under Sec. 516.1(c) of this chapter in order to 
exercise fiduciary powers through fiduciary officers and employees or 
through an affiliate. The application must describe the fiduciary 
powers that the Federal savings association or affiliate will exercise 
and include the additional information necessary to enable the OTS to 
make the determinations under paragraph (c) of this section.
    (c) Factors considered. In reviewing an application filed under 
paragraph (b) of this section, the OTS will consider:
    (1) The Federal savings association's financial condition;
    (2) The Federal savings association's capital, and whether that 
capital is sufficient under the circumstances;
    (3) The Federal savings association's overall performance;
    (4) The fiduciary powers the Federal savings association proposes 
to exercise;
    (5) Its proposed supervision of those powers;
    (6) The availability of legal counsel;
    (7) The needs of the community to be served; and
    (8) Any other facts or circumstances that the OTS considers proper.
    (d) OTS action. The Director may approve or disapprove any 
application filed under this section. The Regional Director is 
specifically authorized to approve or disapprove any application filed 
under this section that does not raise any significant issues of law or 
policy on which the OTS has not taken a formal position.
    (e) Conditions of approval. The OTS may impose appropriate 
conditions to its approval of the application to ensure that the 
requirements of this part are met, or it may deny the application.


Sec. 550.5  Administration of fiduciary powers.

    (a) Responsibilities of the board of directors. A Federal savings 
association's fiduciary activities must 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 of directors, officers or employees.
    (b) Use of personnel and facilities. The Federal savings 
association may use any qualified personnel and facilities of the 
association or its affiliates to perform services related to the 
exercise of its fiduciary powers. Any department of the association or 
its 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.
    (c) Agency agreements. Pursuant to a written agreement, a Federal 
savings association exercising fiduciary powers may perform services 
related to the exercise of fiduciary powers for another association or 
other entity, and may purchase services related to the exercise of 
fiduciary powers from another association or other entity.
    (d) Bond requirement. A Federal savings association must ensure 
that all fiduciary officers and employees are adequately bonded.


Sec. 550.6  General standards for the exercise of fiduciary powers.

    Each Federal savings association must exercise its fiduciary powers 
prudently and in compliance with applicable law. Each 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. The 
standards should be appropriate for the size and condition of the 
Federal savings association, the nature and scope of its fiduciary 
operations, and the conditions in the market in which it exercises 
fiduciary powers.


Sec. 550.7  Review of assets of fiduciary accounts.

    (a) Pre-acceptance review. Before accepting a fiduciary account, a 
Federal savings association must review the prospective account to 
determine whether it can properly administer the account.
    (b) Initial post-acceptance review. Upon the acceptance of a 
fiduciary account for which a Federal savings association has 
investment discretion, the association must conduct a prompt review of 
all assets of the account to evaluate whether they are appropriate for 
the account.
    (c) Annual review. At least once during every calendar year, a 
Federal savings association must conduct a review of all assets of each 
fiduciary account for which the association has investment discretion 
to evaluate whether they are appropriate, individually and 
collectively, for the account.


Sec. 550.8  Recordkeeping.

    (a) Documentation of accounts. A Federal savings association must 
maintain adequate records for all fiduciary accounts. Adequate records 
include, but are not limited to, documentation of the establishment and 
termination of each fiduciary account.
    (b) Retention of records. A Federal savings association must retain 
the records described in paragraph (a) of this section 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. A Federal savings association must 
ensure that the records described in paragraph (a) of this section are 
separate and distinct from other records of the association.


Sec. 550.9  Audit of fiduciary activities.

    (a) Annual audit. At least once during each calendar year, a 
Federal savings association must arrange for a suitable audit of all 
significant fiduciary activities, under the direction of its fiduciary 
audit committee, unless the association adopts a continuous audit 
system in accordance with paragraph (b) of this section. The 
association 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. In lieu of performing annual audits under 
paragraph (a) of this section, a Federal savings association may adopt 
a continuous audit system under which the association arranges for a 
discrete audit of each significant fiduciary activity (i.e., on an 
activity-by-activity basis), under the direction of its fiduciary audit 
committee, at an interval commensurate with the nature and risk of that 
activity. Certain fiduciary activities may receive audits at intervals 
greater or less than one year, as appropriate. An association that 
adopts a continuous audit system must note the results of all discrete 
audits performed 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.
    (c) Audit standards. (1) An audit must ascertain whether the 
association's internal control policies and procedures provide 
reasonable assurance that:
    (i) Fiduciary activities are administered in accordance with 
applicable law;
    (ii) Fiduciary assets are properly safeguarded; and
    (iii) Transactions are accurately recorded in appropriate accounts 
in a timely manner.

[[Page 39488]]

    (2) An audit must be conducted in accordance with generally 
accepted standards for attestation engagements and other standards 
established by the OTS.
    (3) An audit may be conducted by internal auditors, external 
auditors or other qualified persons who are responsible only to the 
board of directors.
    (d) Fiduciary audit committee. A Federal savings association's 
fiduciary audit committee must consist of a committee of the 
association's directors or an audit committee of an affiliate of the 
association. The committee:
    (1) May not include any officers of the association or an affiliate 
who participate significantly in the administration of the 
association's fiduciary activities; and
    (2) Must consist of a majority of members who are not members of 
any committee to which the board of directors has delegated power to 
manage and control the fiduciary activities of the association.


Sec. 550.10  Fiduciary funds awaiting investment or distribution.

    (a) In general. With respect to a fiduciary account for which a 
Federal savings association has investment discretion or discretion 
over distributions, the association may not allow funds 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. With respect to a fiduciary account for 
which a Federal savings association has investment discretion, the 
association must obtain for funds awaiting investment or distribution a 
rate of return that is consistent with applicable law.
    (b) Self-deposits--(1) In general. A Federal savings association 
may deposit funds of a fiduciary account that are awaiting investment 
or distribution in the commercial, savings, or another department of 
the association, unless prohibited by applicable law. To the extent 
that the funds are not insured by the FDIC, the association must set 
aside collateral as security, 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 Federal savings association 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 of the classes in which State-
chartered corporate fiduciaries are permitted to invest fiduciary funds 
under applicable state law;
    (iii) Other readily marketable securities as the OTS may determine;
    (iv) Surety bonds, to the extent they provide adequate security, 
unless prohibited by applicable law; and
    (v) Any other assets that qualify under applicable State law as 
appropriate security for deposits of fiduciary funds.
    (c) Affiliate deposits. A Federal savings association, acting in 
its fiduciary capacity, may deposit funds of a fiduciary account that 
are awaiting investment or distribution with an affiliated insured 
depository institution, unless prohibited by applicable law. A Federal 
savings association must set aside collateral consistent with the 
requirements of paragraph (b)(2) of this section, as security for a 
deposit by or with an affiliate of fiduciary funds awaiting investment 
or distribution, unless prohibited by applicable law.


Sec. 550.11  Investment of fiduciary funds.

    A Federal savings association must invest funds of a fiduciary 
account in a manner consistent with applicable law.


Sec. 550.12  Collective investment funds.

    (a) In general. Where consistent with applicable law, a Federal 
savings association may invest assets that it holds as fiduciary in the 
following collective investment funds:1
---------------------------------------------------------------------------

    \1\ In determining whether investing fiduciary assets in a 
collective investment fund is proper, the Federal savings 
association may consider the fund as a whole and, for example, shall 
not be prohibited from making that investment because any particular 
asset is non-income producing.
---------------------------------------------------------------------------

    (1) A fund maintained by the association, or by one or more 
affiliated depository institutions 2 exclusively for the 
collective investment and reinvestment of money contributed to the fund 
by the association, or by one or more affiliated depository 
institutions, in its capacity as trustee, executor, administrator, 
guardian, or custodian under a uniform gifts to minors act.
---------------------------------------------------------------------------

    \2\ A fund established pursuant to this paragraph (a)(1) that 
includes money contributed by entities that are affiliates as 
defined in Sec. 550.2, 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.
---------------------------------------------------------------------------

    (2) A fund consisting solely of assets of retirement, pension, 
profit sharing, stock bonus, or other trusts that are exempt from 
Federal income tax.
    (i) A Federal savings association may invest assets of retirement, 
pension, profit sharing, stock bonus or other trusts that are exempt 
from Federal income tax and that the association holds in its capacity 
as trustee in a collective investment fund established under paragraph 
(a)(1) or (a)(2) of this section.
    (ii) A Federal savings association may invest assets of retirement, 
pension, profit sharing, stock bonus, or other employee benefit trusts 
that are exempt from Federal income tax and that the association holds 
in any capacity (including agent), in a collective investment fund 
established under this paragraph (a)(2) if the fund itself qualifies 
for exemption from Federal income tax.
    (3) Other collective investments authorized for national banks 
under 12 CFR 9.18.
    (b) Requirements. Collective investment funds held by a Federal 
savings association under paragraph (a) of this section must be 
administered in accordance with 12 CFR 9.18. Any document required to 
be filed with the Comptroller of the Currency under 12 CFR 9.18 must 
also be filed with the OTS in accordance with the filing instructions 
in Sec. 516.1(c) of this chapter. The OTS may review such documents for 
compliance with this part and other laws and regulations.


Sec. 550.13  Self-dealing and conflict of interest.

    (a) Investments for fiduciary accounts--(1) In general. Unless 
authorized by applicable law, a Federal savings association may not 
invest funds of a fiduciary account for which an association has 
investment discretion in the stock or obligations of, or in assets 
acquired from the association or any of its directors, officers, or 
employees; affiliates of the association 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 association.
    (2) Additional securities investments. If retention of stock or 
obligations of the association or its affiliates is consistent with 
applicable law, the association 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.

[[Page 39489]]

    (b) Loans, sales, or other transfers from fiduciary accounts--(1) 
In general. A Federal savings association may not lend, sell, or 
otherwise transfer assets of a fiduciary account for which the 
association has investment discretion to the association or any of its 
directors, officers, or employees, or to affiliates of the association 
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 association, unless:
    (i) The transaction is authorized by applicable law;
    (ii) Legal counsel advises the association in writing that the 
association has incurred, in its fiduciary capacity, a contingent or 
potential liability, in which case the association, upon the sale or 
transfer of assets, must reimburse the fiduciary account in cash at the 
greater of book or market value of the assets;
    (iii) As provided in 12 CFR 9.18 for defaulted fixed-income 
investments; or
    (iv) Required in writing by the OTS.
    (2) Loans of funds held in trust. Notwithstanding paragraph (b)(1) 
of this section, a Federal savings association may not lend to any of 
its directors, officers, or employees any funds held in trust, except 
with respect to employee benefit plans in accordance with the 
exemptions found at section 408 of the Employee Retirement Income 
Security Act of 1974 (29 U.S.C. 1108).
    (c) Loans to fiduciary accounts. A Federal savings association 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 Federal savings association 
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 Federal savings association 
may make a loan between any of its fiduciary accounts if the 
transaction is fair to both accounts and is not prohibited by 
applicable law.


Sec. 550.14  Custody of fiduciary funds.

    (a) Control of fiduciary assets. A Federal savings association must 
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 Federal savings 
association may maintain the investments of a fiduciary account off-
premises, if consistent with applicable law and if the association 
maintains adequate safeguards and controls.
    (b) Separation of fiduciary assets. A Federal savings association 
must keep the assets of fiduciary accounts separate from the assets of 
the association. A Federal savings association must keep the assets of 
each fiduciary account separate from all other accounts or must 
identify the investments as the property of a particular account, 
except as provided in Sec. 550.12.


Sec. 550.15  Deposit of securities with State authorities.

    (a) In general. If the law of the State in which the Federal 
savings association is located requires corporations acting in a 
fiduciary capacity to deposit securities with State authorities for the 
protection of private or court trusts, then a Federal savings 
association that acts as a private or court-appointed trustee must make 
such a deposit with that State. If the State authorities refuse to 
accept the deposit, the association must deposit the securities with 
the Federal Home Loan Bank of which the Federal savings association is 
a member, 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 Federal savings 
association administers trust assets in more than one State, the 
association may compute the amount of deposit required for each State 
on the basis of trust assets that the association administers primarily 
from offices located in that State.


Sec. 550.16  Fiduciary compensation.

    (a) Compensation of association. If the amount of a Federal savings 
association's compensation for acting in a fiduciary capacity is not 
set or governed by applicable law, the association may charge a 
reasonable fee for its services.
    (b) Compensation of co-fiduciary officers and employees. A Federal 
savings association may not permit any officer or employee to retain 
any compensation for acting as a co-fiduciary with the association in 
the administration of a fiduciary account, except with the specific 
approval of the association's board of directors.
    (c) Bequests or gifts to trust officers and employees. A Federal 
savings association 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 the association's board of directors.


Sec. 550.17  Receivership or voluntary liquidation.

    If the OTS appoints a conservator or receiver for a Federal savings 
association under part 558 of this chapter, or if a Federal savings 
association places itself in voluntary liquidation, the receiver, 
conservator, or liquidating agent must promptly close or transfer to a 
substitute fiduciary, all fiduciary accounts, in accordance with OTS 
instructions and the orders of the court having jurisdiction.


Sec. 550.18  Surrender of fiduciary powers.

    (a) Filing of board resolution. A Federal savings association 
seeking to surrender its fiduciary powers must file with the OTS a 
certified copy of the resolution of its board of directors evidencing 
that intent. The resolution must be filed in accordance with Sec. 516.1 
of this chapter.
    (b) Issuance of OTS notice. If, after appropriate investigation, 
the Regional Director is satisfied that the Federal savings association 
has been discharged from all fiduciary duties, the Regional Director 
will issue a written notice to the association indicating that the 
association is no longer authorized to exercise fiduciary powers.
    (c) Recovery of securities deposited with State authorities. Upon 
issuance of the OTS written notice, the Federal savings association may 
recover any securities deposited under Sec. 550.15.


Sec. 550.19  Revocation of fiduciary powers.

    (a) Revocation standards. The OTS may revoke a Federal savings 
association's authority to exercise fiduciary powers under this part, 
if the OTS determines that the association:
    (1) Has unlawfully or unsoundly exercised those fiduciary powers;
    (2) Has failed to exercise those fiduciary powers for five 
consecutive years; or
    (3) Has otherwise failed to comply with the requirements of this 
part.
    (b) Revocation procedures. Revocation procedures are set forth in 
12 U.S.C. 1464(n)(10). The hearing required under 12 U.S.C. 
1464(n)(10)(B) will be conducted in accordance with part 509 of this 
chapter.

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:

[[Page 39490]]

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.

    Dated: July 14, 1997.

    By the Office of Thrift Supervision.
Nicolas P. Retsinas,
Director.
[FR Doc. 97-19157 Filed 7-22-97; 8:45 am]
BILLING CODE 6720-01-P