67696 Federal Register / Vol. 62, No. 249 / Tuesday, December 30, 1997 / Rules and Regulations

producers have been defined by the

Small Business Administration (13 CFR

121.601) as those having annual receipts

less than $500,000 and small

agricultural service firms are defined as

those whose annual receipts are less

than $5,000,000. The majority of South

Texas onion producers and handlers

may be classified as small entities.

This rule decreases the assessment

rate established for the Committee and

collected from handlers for the 1997–98

and subsequent fiscal periods from

$0.07 to $0.05 per 50-pound container

or equivalent. The Committee

unanimously recommended 1997–98

expenditures of $245,000 and an

assessment rate of $0.05 per 50-pound

container or equivalent of onions. In

comparison, last year’s budgeted

expenditures were $448,000. The

assessment rate of $0.05 is $0.02 less

than the rate currently in effect. At the

rate of $0.07 per 50-pound container or

equivalent and an estimated 1998 onion

production of 4 million 50-pound

equivalents, the projected reserve on

July 31, 1998, would exceed the level

the Committee believes to be adequate

to administer the program. The

Committee decided that an assessment

rate of less than $0.05 would not

generate the income necessary to

administer the program with an

adequate reserve.

Major expenses recommended by the

Committee for the 1997–98 fiscal period

include $80,912 for personnel and

administrative expenses, $45,000 for

compliance, $33,088 for promotion, and

$86,000 for onion breeding research.

Budgeted expenses for these items in

1996–97 were $80,000, $120,000,

$150,000, and $98,000, respectively.

Onion shipments for the year are

estimated at 4 million 50-pound

equivalents, which should provide

$200,000 in assessment income. Income

derived from handler assessments, along

with interest income and funds from the

Committee’s authorized reserve, will be

adequate to cover budgeted expenses.

Funds in the reserve (currently

$185,000) will be kept within the

maximum permitted by the order

(approximately two fiscal periods’

expenses; § 959.43).

Recent price information indicates

that the grower price for the 1997–98

marketing season will range between

$7.00 and $12.00 per 50-pound

container or equivalent of onions.

Therefore, the estimated assessment

revenue for the 1997–98 fiscal period as

a percentage of total grower revenue

will range between .714 and .417

percent.

This action reduces the assessment

obligation imposed on handlers. While

this rule imposes some additional costs

on handlers, the costs are minimal and

in the form of uniform assessments on

all handlers. Some of the additional

costs may be passed on to producers.

However, these costs will be offset by

the benefits derived by the operation of

the marketing order. In addition, the

Committee’s meeting was widely

publicized throughout the South Texas

onion industry and all interested

persons were invited to attend the

meeting and participate in Committee

deliberations on all issues. Like all

Committee meetings, the November 6,

1997, meeting was a public meeting and

all entities, both large and small, were

able to express views on this issue.

Finally, interested persons are invited to

submit information on the regulatory

and informational impacts of this action

on small businesses.

This action will not impose any

additional reporting or recordkeeping

requirements on either small or large

South Texas onion handlers. As with all

Federal marketing order programs,

reports and forms are periodically

reviewed to reduce information

requirements and duplication by

industry and public sector agencies.

The Department has not identified

any relevant Federal rules that

duplicate, overlap, or conflict with this

rule. After consideration of all relevant

matter presented, including the

information and recommendation

submitted by the Committee and other

available information, it is hereby found

that this rule, as hereinafter set forth,

will tend to effectuate the declared

policy of the Act.

Pursuant to 5 U.S.C. 553, it is also

found and determined upon good cause

that it is impracticable, unnecessary,

and contrary to the public interest to

give preliminary notice prior to putting

this rule into effect, and that good cause

exists for not postponing the effective

date of this rule until 30 days after

publication in the Federal Register

because: (1) This action reduces the

current assessment rate for South Texas

onions; (2) the 1997–98 fiscal period

began on August 1, 1997, and the

marketing order requires that the rate of

assessment for each fiscal period apply

to all assessable onions handled during

such fiscal period; (3) handlers are

aware of this action which was

unanimously recommended by the

Committee at a public meeting and is

similar to other assessment rate actions

issued in past years; and (4) this interim

final rule provides a 60-day comment

period, and all comments timely

received will be considered prior to

finalization of this rule.

List of Subjects in 7 CFR Part 959

Marketing agreements, Onions,

Reporting and recordkeeping

requirements.

For the reasons set forth in the

preamble, 7 CFR part 959 is amended as

follows:

PART 959—ONIONS GROWN IN

SOUTH TEXAS

1. The authority citation for 7 CFR

part 959 continues to read as follows:

Authority: 7 U.S.C. 601–674.

§ 959.237 [Amended]

2. Section 959.237 is amended by

removing the words ‘‘August 1, 1996,’’

and adding in their place the words

‘‘August 1, 1997,’’ and by removing

‘‘$0.07’’ and adding in its place ‘‘$0.05.’’

Dated: December 22, 1997.

Sharon Bomer Lauritsen,

Acting Deputy Administrator, Fruit and

Vegetable Programs.

[FR Doc. 97–33907 Filed 12–29–97; 8:45 am]

BILLING CODE 3410–02–P

DEPARTMENT OF THE TREASURY

Office of Thrift Supervision

12 CFR Parts 545, 550, 563e, and 571

[No. 97–129]

RIN 1550–AB09

Fiduciary Powers; Community

Reinvestment Act

AGENCY: Office of Thrift Supervision,

Treasury.

ACTION: Final rule.

SUMMARY: The Office of Thrift

Supervision (‘‘OTS’’) is issuing a final

rule revising its fiduciary powers

regulation. The final rule updates,

clarifies, and streamlines OTS

regulations, incorporates significant

interpretive guidance, and eliminates

unnecessary regulatory burden. The

final rule consolidates all regulations on

the fiduciary powers of Federal savings

associations into a single part.

Additionally, this part has been revised

to incorporate the OTS current policy

statement on the fiduciary activities of

State-chartered savings associations.

The OTS is also amending its

Community Reinvestment Act (‘‘CRA’’)

regulations. The change conforms the

scope of the OTS’s CRA regulations to

the regulations of the other Federal

banking agencies. It exempts certain

savings associations that do not perform

commercial or retail banking services by
Federal Register / Vol. 62, No. 249 / Tuesday, December 30, 1997 / Rules and Regulations 67697

1State-chartered savings associations are

particularly advised to adhere to § 550.140, which

contains the standards for the exercise of fiduciary

powers. In exercising their fiduciary powers, Statechartered savings associations should also observe

the procedures and policies required by Part 550 in

the areas of fiduciary personnel and facilities,

custody and control of assets, investing funds of a

fiduciary account, deposit of funds awaiting

investment or distribution, restrictions on selfdealing, and audit requirements.

granting credit to the public in the

ordinary course of business.

EFFECTIVE DATE: January 1, 1998.

FOR FURTHER INFORMATION CONTACT:

Larry Clark, Senior Manager,

Compliance and Trust Programs,

Compliance Policy, (202) 906–5628;

Timothy Leary, Counsel (Banking and

Finance), (202) 906–7170, or Karen

Osterloh, Assistant Chief Counsel, (202)

906–6639, Regulations and Legislation

Division, Chief Counsel’s Office, Office

of Thrift Supervision, 1700 G Street,

N.W., Washington, D.C. 20552.

SUPPLEMENTARY INFORMATION:

I. Background

On July 23, 1997, the OTS published

a notice of proposed rulemaking seeking

comment on its regulations governing

the fiduciary operations of Federal

savings associations. 62 FR 39477. The

proposal was the first comprehensive

revision of the fiduciary powers

regulations at 12 CFR part 550 since

1980.

The proposed rule was intended to

update, streamline, and clarify these

regulations. It also reflected the changes

that Federal savings associations and

their fiduciary operations have

undergone since 1980, and incorporated

significant interpretive opinions.

Overall, the purpose of the proposed

rule was to facilitate the continued

development of fiduciary business

consistent with safe and sound

practices. Consistent with section 303 of

the Community Development and

Regulatory Improvement Act of 1994

(‘‘CDRIA’’), the proposed rule

conformed OTS’s fiduciary powers rules

more closely to rules of the other

agencies, specifically the rules issued by

the Office of the Comptroller of the

Currency at 12 CFR part 9, as revised at

61 FR 68543 (December 30, 1996).

The OTS also sought comment on

exemptions from the OTS’s regulations

implementing the Community

Reinvestment Act (‘‘CRA’’). Specifically,

the OTS proposed to conform its CRA

regulations to the other Federal banking

agencies by exempting certain special

purpose savings associations. Special

purpose savings associations were

exempted if they do not perform

commercial or retail banking services by

granting credit to the public in the

ordinary course of business, other than

as incident to their specialized

operations.

II. Comments Received

Four commenters responded to the

proposal: Two Federal savings

associations, one State regulatory

agency, and one community

reinvestment organization. Generally,

the two Federal savings associations

supported the proposal, but suggested

specific changes. The State regulatory

agency did not support or oppose the

proposal, but also made suggestions.

The community reinvestment

organization opposed the proposed CRA

exemption for special purpose savings

associations.

III. Discussion

A. Fiduciary Powers

1. Structure of Revised Part 550

The proposed fiduciary powers rule

was written in a traditional regulation

format. The final fiduciary powers rule

issued today uses the plain language

drafting techniques promoted by the

Vice President’s National Performance

Review Initiative and new guidance in

the Federal Register Document Drafting

Handbook (January 1997 edition). The

primary goal of plain language drafting

is to make regulations easier to

understand. Plain language drafting

emphasizes informative headings (often

written as a question), non-technical

language (including the use of ‘‘you’’),

and sentences in the active voice.

Although commenters did not have an

opportunity to comment on the plain

language format prior to this final rule,

the OTS believes that the benefits of the

plain language format justify its use.

Even though the OTS has substantially

reorganized the rule, the substance of

the proposed regulation did not change

as a result of the format. The OTS

welcomes comments on the format and

suggestions on how to improve it.

2. Section-by-Section Discussion

A discussion of the comments

follows. This discussion generally does

not address provisions on which the

OTS received no comments or only

supporting comments. Unless

specifically discussed below, the

proposed rules are adopted with only

plain language format changes.

Section 550.10 What regulations

govern the fiduciary operations of

savings associations?

Proposed § 550.1 stated that part 550

is issued pursuant to 12 U.S.C. 1464(n)

(section 5(n) of the Home Owners’ Loan

Act (‘‘HOLA’’)). Proposed § 550.1 also

stated that part 550 sets forth the

standards that apply to the fiduciary

activities of Federal savings

associations. This section has been

incorporated into final § 550.10(a),

which states that a Federal savings

association is required to conduct its

fiduciary operations in accordance with

12 U.S.C. 1464(n) and the provisions of

part 550.

The final rule at § 550.10(b) includes

a new paragraph that was not included

in the proposed rule. This provision

incorporates, without substantive

change, language from the existing

policy statement regarding the fiduciary

activities of State-chartered savings

associations at 12 CFR 571.15. Final

§ 550.10(b) states that a State-chartered

savings association must conduct its

fiduciary operations in accordance with

State law. The rule, however, also

recognizes the OTS’s interest in those

operations. As such, the final rule

requires State-chartered savings

associations to exercise fiduciary

powers in a safe and sound manner, and

clarifies that these associations and their

subsidiaries should follow the standards

for the exercise of fiduciary powers set

out in part 550.1 The final rule also

states that the OTS will monitor the

fiduciary operations of State-chartered

savings associations and their

subsidiaries, and may restrict or

prohibit activities that threaten the

safety and soundness of the association.

Section 550.20 What are fiduciary

powers?

The proposed rule at § 550.2 defined

fiduciary powers as the authority the

OTS permits a Federal savings

association to exercise pursuant to 12

U.S.C. 1464(n). The definition also

stated that the scope of a Federal

savings association’s fiduciary powers

depends on the powers that the State

grants to competing fiduciaries in the

State in which the Federal savings

association is located.

One commenter argued that the OTS

should explicitly state that if an activity

does not fall into the OTS’s definition

of fiduciary activity, but is an otherwise

permissible activity for a Federal

savings association or its operating

subsidiaries, the association or

subsidiary should be permitted to

engage in that activity. The commenter

maintained that it is irrelevant whether

State competitors are allowed to engage

in that activity and whether that activity

is considered a fiduciary activity by the

State.

The final rule adopts the language of

the proposed rule. By the terms of the
67698 Federal Register / Vol. 62, No. 249 / Tuesday, December 30, 1997 / Rules and Regulations

2The proposed rule sought comment on whether

the final rule should rely on State law to determine

the dividing line between fiduciary and nonfiduciary activities. One commenter opposed this

alternative. The OTS believes that the definition of

fiduciary capacity should foster consistent

application of part 550 for all Federal savings

associations. Accordingly, the OTS will not rely

exclusively on State law in determining whether a

particular activity amounts to acting in a fiduciary

capacity. We note that the OCC also rejected a State

law approach in its final rule on fiduciary activities

of national banks.

3 62 FR 36746 (July 9, 1997).

4These include financial advice and counseling,

including strategic planning of a financial nature,

merger and acquisition advisory services, advisory

and structuring services related to project finance

transactions, and providing market economic

information to customers in general; client-directed

investment activities where the fee does not depend

on the provision of investment advice; investment

advice incidental to acting as a municipal securities

dealer; real estate asset management; real estate

consulting; advice concerning bridge loans; services

for homeowners’ associations; tax planning and

structuring advice; and investment advice

authorized by the OCC under 12 U.S.C. 24

(Seventh) as an incidental power necessary to carry

on the business of banking.

5See, 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).

6 12 CFR part 12 (OCC); 12 CFR 208.8(k) (FRB);

12 CFR part 344 (FDIC).

statute, the scope of a Federal savings

association’s fiduciary powers is

determined by the authority a particular

State grants to competing fiduciaries in

the State in which the Federal savings

association is located. The reference in

§ 550.20 to State law is, thus, compelled

by the statutory language.

We decline to adopt a blanket

statement in this regulation about the

applicability of particular State laws to

activities that are otherwise permissible

for a Federal savings association.

Federal savings associations interested

in conducting such activities should

consult the statutory basis for that

activity and the regulations that govern

its exercise before engaging in the

activity. The applicability of particular

State law to the activity would depend

on an analysis of each situation as it

arises.

Section 550.30 What fiduciary

capacities does this regulation cover?

Under the proposed rule, fiduciary

capacity included specified fiduciary

positions such as acting as a trustee,

executor, administrator, registrar of

stocks and bonds, transfer agent,

guardian, assignee, receiver, custodian

under a uniform gifts to minors act, any

capacity in which the Federal savings

association possesses investment

discretion on behalf of another, or any

other similar capacity that the OTS

authorizes under 12 U.S.C. 1464(n).2

The proposed definition also included

acting as an investment adviser, if the

Federal savings association receives a

fee for its investment advice. In

interpreting this provision, the OTS

stated that it intended to follow a

proposed OCC interpretive ruling on the

meaning of investment advisor for a

fee.3 Under the OCC interpretation, the

term investment advisor generally

means that the institution provides

advice or recommendations concerning

the purchase or sale of specific

securities, such as an institution

engaged in portfolio advisory and

management activities. The term

generally excludes those activities in

which the investment advice is merely

incidental to other services.

One commenter argued that fiduciary

capacity should not include a trustee

under a deed of trust, a receiver or

assignee under one’s own security

instrument in a default situation, a

custodian under a uniform gift to

minors act account, or a trustee under

real estate or land trust. While the

commenter generally supported the

adoption of the OCC proposed

interpretive ruling on investment

advisors receiving a fee, it suggested

that investment advisory and related

activities that do not involve investment

discretion should not be subject to part

550, even if performed for a fee.

The final rule at § 550.30 addresses

the fiduciary capacities that are covered

by part 550. The final rule continues to

cite the specific fiduciary capacities in

the proposed rule. Some of the specific

capacities are enumerated under 12

U.S.C. 1464(n)(1). Others, such as

custodian under a uniform gift to

minors act, have long been cited under

the OTS and OCC fiduciary powers

regulations. The final rule also includes

any capacity in which the association

possesses investment discretion on

behalf of another, and acting as an

investment advisor for a fee.

The OTS has not adopted the

commenter’s proposal to exclude certain

fiduciary capacities. Initially, we note

that the applicability of part 550 to some

of the specifically-listed fiduciary

positions will depend on what the

fiduciary in the relationship actually

does. For example, ‘‘trustee’’ is a

specifically-listed fiduciary capacity at

§ 550.30(a). The final rule at

§ 550.580(c), however, excepts a Federal

savings association from part 550 if the

association acts as the trustee of a

fiduciary account that involves no

active fiduciary duties and applicable

law permits the association to act in that

capacity. Similarly, an investment

adviser that receives a fee for advice is

a specifically-listed fiduciary capacity at

§ 550.30(j). The OTS, however, has

indicated that it will follow the OCC’s

proposed interpretive ruling on

investment advisers, which provides

numerous examples of activities that do

not constitute the provision of

investment advice.4 Finally, we note

that the final rule generally excludes

relationships’—other than those

specifically listed’—where the Federal

savings association does not have

investment discretion.

As noted, one commenter argues that

a Federal savings association that gives

investment advice for a fee should not

be deemed to be acting in a fiduciary

capacity if it is not making the

investment decision.

The OTS disagrees. When a customer

pays a Federal savings association a fee

in return for providing investment

advice—whether or not that customer

follows the advice—the customer has a

reasonable expectation of receiving

advice that is free of conflicts of interest.

Such an approach is also consistent

with other Federal statutes that provide

enhanced protection to customers of

certain investment advisers who receive

a fee.5 Consistent with the OCC’s rules

at part 9, the OTS believes that the

distinction between paid and unpaid

investment advice reflects the

reasonable expectation of Federal

savings association customers.

Even under this approach, the OTS

maintains some flexibility in

determining what is investment advice.

As noted, the OCC has issued a

proposed interpretive ruling on the

meaning of this phrase, and the OTS

intends to follow that interpretation.

Such guidance, in combination with the

exemption in final § 550.580(c), should

suffice to ensure proper application of

the concept of acting in a fiduciary

capacity.

Finally, the preamble to the proposed

rule noted that bank employees who

engage in certain securities transactions

for customers are subject to various

recordkeeping and confirmation

requirements under the rules of the

other Federal banking agencies.6 The

proposal sought comment on whether

the OTS should issue a separate

proposed rulemaking adopting those

rules for employees of Federal savings

associations.

Two commenters noted that the other

banking agencies are currently revising

their rules. The commenters urged the
Federal Register / Vol. 62, No. 249 / Tuesday, December 30, 1997 / Rules and Regulations 67699

7OTS Trust Activities Handbook, § 130 at 75

(1992); OTS Op. Chief Counsel (March 28, 1996) at

9. The example noted in both of these authorities

is State probate law, which prescribes the standards

of conduct of an institution acting as an executor.

8 12 U.S.C.A. 1464(a) (West Supp. 1995); OTS Op.

Chief Counsel (March 28, 1996) at 8.

9OTS Op. Chief Counsel (March 28, 1996) at 8;

OTS Trust Activities Handbook, § 130 at 75 (1992).

10 62 FR 39479; OTS Op. Chief Counsel (March

28, 1996).

11OTS Op. Chief Counsel (June 21, 1996).

12OTS Op. Chief Counsel (August 8, 1996).

13See OTS Op. Chief Counsel (December 24,

1992).

OTS to wait and see what revisions are

made before engaging in formal

rulemaking. The OTS agrees and has

deferred consideration of this issue.

Section 550.60 What other definitions

apply to this part?

The proposed rule at § 550.2 defined

applicable law as ‘‘the law of a State or

other jurisdiction governing a Federal

savings association’s fiduciary

relationships, any applicable Federal

law governing those relationships, the

terms of the instrument governing a

fiduciary relationship, or any court

order pertaining to the relationship.’’

One commenter urged the OTS to

specify that State law does not apply to

the fiduciary activities of Federal

savings association except to the extent

specifically required by section 5(n) of

the HOLA.

The final rule does not adopt the

commenter’s suggestion. Both the OTS’s

Trust Activities Handbook and prior

OTS precedent recognize that State law

may apply to the fiduciary activities of

a Federal savings association.7 However,

by defining applicable law to include

‘‘the law of a State * * * governing a

fiduciary relationship,’’ the OTS does

not intend to affect its precedent in the

area of Federal preemption. The

fiduciary operations of Federal savings

associations are subject to a complex

interplay between Federal and State

law.

The OTS has noted that although

State law may apply, in certain

circumstances, to the fiduciary

operations of a Federal savings

association, Federal law grants the OTS

the plenary authority to regulate all

aspects of the operations of Federal

savings associations, including fiduciary

operations.8 Consistent with this role,

the OTS has promulgated these detailed

regulations to govern the fiduciary

operations of Federal savings

associations. Any State law that

conflicts with any of these regulations

or section 5(n) of the HOLA is

preempted.9

Moreover, even though State law

applies in limited circumstances, the

next question is: ‘‘Which State’s laws

apply?’’ A Federal savings association is

subject only to the laws of the State (or

States) in which it is located. The OTS

has found that a Federal savings

association is located, for fiduciary

purposes, in each State in which it

operates a fiduciary office.10 The OTS

has further found that an association is

not located in a State in which it only

markets its fiduciary services 11 or

performs certain activities incidental to

serving as a testamentary trustee or a

trustee holding real estate.12

The definition of applicable law is not

intended to set an order of priority

among the various authorities. Rather,

the intent of the definition is to identify

the various authorities that may govern

a Federal savings association’s fiduciary

activities. Preemption and conflicts of

law issues in the fiduciary area are

highly fact-specific and cannot be

resolved by reference to a general

blanket rule of priority. The OTS

believes the better practice is to

continue to handle specific questions

about the applicability of particular

State laws on a case-by-case basis.

Accordingly, the final rule adopts the

proposed definition of applicable law.

Section 550.130 What fiduciary

powers may a Federal savings

association exercise?

Proposed § 550.4(a) stated that a

Federal savings association may

exercise only those fiduciary powers

stated in the OTS’s approval of a

fiduciary application. Moreover, unless

otherwise provided in the OTS’s

approval, a Federal savings association

may exercise fiduciary powers only in

those offices listed in the application.

One commenter argued that the office

limitation is restrictive, and that there is

no valid legal or policy reason for

requiring a Federal savings association

to file a new application when it opens

a new branch or office. The commenter

argued that appropriate information

about such expanded operations could

be provided through a notice or

approval process.

The final rule adopts the proposed

rule without substantive change. Like

the proposed rule, § 550.130 states that

the location restriction only applies

‘‘unless otherwise provided in the

approval.’’ This language gives the OTS

the legal authority to specify at the time

that it approves a fiduciary powers

application that the applicant may

expand the offices out of which it

exercises approved fiduciary powers by

simply filing a notice with the OTS. The

willingness of the OTS to grant an

initial approval that authorizes

subsequent expansion through such a

process will depend on a number of

factors, including an institution’s

financial and managerial resources,

history of regulatory compliance, level

of fiduciary expertise, and so forth.

Thus, a decision whether the OTS

will authorize an expanded network

under a notice process cannot be made

until the initial fiduciary powers

application is submitted and

reviewed.13 Since the proposed rule

would permit the addition of new

offices using notice process where

appropriate, the commenter’s revision

has not been incorporated in the final

rule. The proposed language is

sufficient to alleviate the commenter’s

concern.

Section 550.140 Must a Federal

savings association adopt and follow

written policies and procedures in

exercising fiduciary powers?

Proposed § 550.6 set out the general

standards that a Federal association

must follow in exercising its fiduciary

powers. The proposed rule specifically

provided that a Federal savings

association must exercise its fiduciary

powers prudently and in compliance

with applicable law.

The proposed rule further provided

that a Federal savings association must

use standards in exercising its fiduciary

powers that are consistent with safety

and soundness, promote sound

fiduciary administration, and enable the

Federal savings association to

adequately monitor the condition of its

fiduciary operations. Unlike the OCC’s

fiduciary powers regulation, the

proposed rule did not require a Federal

savings association to maintain written

policies and procedures governing the

exercise of fiduciary powers. Compare

12 CFR 9.5.

Two commenters addressed proposed

§ 550.6. One, a Federal savings

association, supported the proposal. The

other, a State regulatory agency, argued

that the OTS should require Federal

savings associations to develop,

maintain, and follow procedures,

especially in the areas of self-dealing

and conflicts of interest. This

commenter argued that written policies

and procedures are necessary to

properly manage risks in these areas.

Upon further consideration, the OTS

has determined that requiring written

policies and procedures in this area is

appropriate. Since 1989, the OTS Trust

Activities Handbook has ‘‘strongly

encouraged’’ associations to adopt

written policies and procedures

covering all major aspects of their
67700 Federal Register / Vol. 62, No. 249 / Tuesday, December 30, 1997 / Rules and Regulations

14We note that two of the listed areas are derived

from requirements in current part 550. They are the

use of material inside information in connection

with any decision or recommendation to purchase

or sell any security (current § 550.5(c)) and the

selection and retention of available legal counsel

(current § 550.5(d)).

15Moreover, § 9.18(a), which is intended to clarify

that traditional common law prohibitions against

commingling fiduciary assets do not affect a

national bank’s ability to invest in a collective

investment fund maintained by the bank or an

affiliated bank, addresses investments in collective

investment funds maintained by an affiliated State

chartered trust company. This provision permits a

national bank to invest assets that it holds as

fiduciary in a collective investment fund

maintained by one or more affiliated ‘‘banks’’

exclusively for the collective investment and

reinvestment of money contributed to the fund by

the bank, or by one or more affiliated banks. Section

581 of the Internal Revenue Code, which the OCC

regulation implements, defines ‘‘bank’’ to include

‘‘a trust company incorporated and doing business

under the laws of * * * any State, a substantial part

of the business of which consists of * * *

exercising fiduciary powers similar to those

permitted to national banks under the authority of

the [OCC], and which is subject by law to

supervision and examination by State * * *

authority having supervision over banking

institutions.’’ Under this definition, we believe that

‘‘bank’’ as used in the OCC regulation includes an

affiliated State chartered trust company.

16While recognizing that the frequency of discrete

audits for Federal savings associations that use a

continuous audit system will vary depending on the

nature and risk of the activity being audited, the

OTS does not intend to allow an association using

a continuous audit system to avoid discrete audits

indefinitely. Although the final rule does not

specify how often such discrete audits must be

conducted, they must occur at reasonable time

frames.

fiduciary business, to communicate

such policies to all interested personnel,

to monitor compliance with the

policies, and to periodically review and

update the policies to ensure their

current application. Comprehensive,

well-developed policies and procedures

on fiduciary activities, if followed,

monitored, and enforced, are an

effective method of preventing exposure

to liability, operating loss and the loss

of public confidence in the association.

Such policies and procedures promote

high-quality fiduciary administration,

facilitate compliance with applicable

laws and regulations, and increase

operating efficiencies.

Accordingly, consistent with the

OCC’s 12 CFR 9.5, the final rule adopts

the requirement for written policies and

procedures. Specifically, the OTS final

rule requires Federal savings

associations to adopt and follow written

policies and procedures adequate to

maintain its fiduciary activities in

compliance with applicable law. The

final rule also provides examples of

areas that the policies and procedures

should address, where appropriate. The

list includes brokerage placement

practices, the prevention of misuse of

material inside information, the

prevention of self-dealing and conflicts

of interest, the selection and retention of

legal counsel, and the investment of

funds (including funds awaiting

investment or distribution).14 The OTS

does not intend the list to be exhaustive.

Section 550.260 How may a Federal

savings association invest funds of a

fiduciary account?

Proposed § 550.12(a) provided that,

where consistent with applicable law, a

Federal savings association may invest

fiduciary assets in certain described

collective investment funds. One

commenter expressed concerns about

the scope of this provision, specifically

whether it authorized fiduciary assets to

be invested in collective investment

funds established under other authority,

such as the OCC’s collective investment

funds regulation, 12 CFR 9.18.

Upon review, the OTS has determined

to significantly revise this section. A

collective investment fund can be

exempt from taxation if it is

administered in accordance with

applicable provisions of the Internal

Revenue Code. Section 584 of the

Internal Revenue Code exempts certain

funds from taxation if they are

administered in accordance with OCC

regulations. This IRC section applies to

funds established by savings

associations as well as banks. As a

result, the OTS fiduciary powers

regulation has always incorporated the

requirements of 12 CFR 9.18 by

reference. The OTS proposed rule

included some of the OCC requirements

applicable to collective investment

funds and incorporated others by

reference. By revising the final rule to

incorporate all of the requirements by

reference, the OTS believes it will

reduce the confusion about the

regulation’s scope and applicability.

New § 550.260(b) authorizes a Federal

savings association to invest fiduciary

funds in a collective investment fund

and to establish and administer such a

fund. All such activities must be done

in accordance with the OCC’s detailed

regulations governing this area. As a

Federal savings association must

already comply with those requirements

in order to maintain the tax-exempt

status of its collective investment fund,

this change will help to reduce

regulatory duplication and overlap,

consistent with the objective of section

303 of CDRIA.

The final rule eliminates the language

in § 550.12(a), which caused the

commenter’s concern that the proposed

rule would have prohibited a savings

association from investing in an

otherwise permissible collective

investment fund maintained by an

affiliated or unaffiliated State bank or

trust company. Under § 550.260(a),

which replaces § 550.11, a savings

association is authorized to invest funds

of a fiduciary account in a manner

consistent with applicable law.15

Sections 550.290–550.320 Funds

Awaiting Investment or Distribution

Proposed § 550.10(b)(1) and (c) stated

that a Federal savings association with

investment discretion or discretion over

distributions may deposit funds

awaiting investment or distribution in

the commercial, savings, or other

department of the association, or with

an affiliated insured depository

institution, unless the deposit is

prohibited by applicable law. To the

extent that the funds are not insured by

the FDIC, the association is required to

set aside acceptable collateral as

security. See proposed § 550.10(b)(2).

The proposed provisions are adopted

without substantive change at

§§ 550.290 through 550.320.

Under the proposed rule, acceptable

collateral includes surety bonds, to the

extent that such bonds provide adequate

security and are not prohibited by

applicable law. See proposed

§ 550.10(b)(2)(iv). One commenter urged

the OTS to adopt a national standard

allowing Federal savings associations to

use security bonds, without regard to

State prohibitions.

Section 550.320(d) of the final rule

continues to provide that surety bonds

may be used to collateralize selfdeposits unless prohibited by applicable

law. This approach grants Federal

savings associations the ability to

collateralize self-deposits with surety

bonds, while preserving for each State

the ability to prohibit this practice for

all fiduciaries operating in the State.

Sections 550.440–550.480 Audit

Requirements

Proposed § 550.9 prescribed the audit

requirements for fiduciary activities.

The proposed rule required Federal

savings associations to conduct an

annual audit of significant fiduciary

activities. Alternatively, the proposed

rule permitted a continuous audit,

which allows a Federal savings

association to arrange for a discrete

audit of each significant fiduciary

activity at an interval commensurate

with the nature and risk of the

activity.16 Under the proposed rule, all

audits are conducted under the

direction of the fiduciary audit

committee. This committee may consist

of a committee of the association’s
Federal Register / Vol. 62, No. 249 / Tuesday, December 30, 1997 / Rules and Regulations 67701

17See 12 U.S.C.A. 221a(b)(4) (West 1989).

18 Interagency Statement on Retail Sales of

Nondeposit Investment Products at 3.

19OCC Conditional Approval # 253 (August 20,

1997), 1997 OCC Ltr. LEXIS 98.

directors or an audit committee of an

affiliate of the association.

One commenter supported the

proposal to allow an audit committee of

a savings and loan holding company to

audit the fiduciary activities of its

subsidiary Federal savings association.

The commenter argued that the same

option should be available to bank

holding companies that own Federal

savings associations.

Although the preamble to the

proposed rule addressed the audit

committee of a savings and loan holding

company, the language of the proposed

rule permitted an audit committee of an

affiliate to direct the audit. Affiliate, as

defined in the rule, could include a

savings and loan holding company and

a bank holding company, provided that

specified ownership, control or other

criteria are met.17 Accordingly, the

proposed rule would permit these

arrangements. The final rule at

§ 550.470 is unchanged on this point.

In the preamble to the proposed rule,

the OTS invited commenters to address

the relationship between the audit

requirement and the OTS’s fiduciary

examination process. In particular, the

OTS sought comment on the extent to

which examiners should rely on an

association’s internal or external

fiduciary audits.

One commenter, a Federal savings

bank, supported an audit report-based

fiduciary examination policy. The

commenter suggested that the OTS

should first review an association’s

internal or external audit reports, and

commence an on-site fiduciary

examination only when those reports

and any additional information

indicated a basis for further

examination. The commenter asserted

that this approach would provide

administrative savings and would not

compromise safety and soundness or

consumer protection. The OTS believes

that the relationship between the audit

and examination processes are properly

addressed in OTS instructions to

examiners and in the Handbook, rather

than the rule. The OTS will consider

these comments if it revises the

Handbook or its examination

instructions.

Sections 550.580–550.620 Activities

Exempt From This Part

Proposed § 550.3 identified certain

fiduciary activities that are not covered

by part 550. This section incorporated

current § 545.102, which permits a

Federal savings association to act as a

trustee or custodian of an Individual

Retirement Account or a Keogh account,

including self-directed accounts. A

Federal savings association may also act

as a trustee with no active fiduciary

duties so long as authorized by

applicable law.

Under proposed § 550.3(b), however,

a Federal savings association may invest

the funds of the accounts in limited

investments. The proposed rule also set

forth existing requirements governing

the administration of accounts and

compensation. See proposed § 550.3(c)

and (d). These provisions are adopted in

the final rule at subpart E, with one

clarification. Final § 550.600 has been

revised to clarify that the limitations on

investments apply only to Federal

savings associations acting in the

fiduciary capacities described under

§ 550.580.

The proposed rule at § 550.3(e)

required Federal savings associations to

make certain disclosures where

fiduciary accounts are not limited to

FDIC-insured deposits. One commenter

urged the OTS to eliminate this

requirement as duplicative and

unnecessary. The commenter noted that

similar disclosures are required under

the Interagency Statement on Retail

Sales of Nondeposit Investment

Products.

The OTS disagrees. The Interagency

Statement ‘‘generally do[es] not apply to

the sale of nondeposit investment

products to non-retail customers, such

as sales to fiduciary accounts

administered by an institution.’’ 18 To

ensure that adequate disclosures are

made to non-retail customers holding

fiduciary accounts with Federal savings

associations, the final rule adopts the

proposed disclosure requirement. Final

§ 550.610 has been slightly revised to

clarify that the disclosure requirement

only applies to Federal savings

associations acting in the fiduciary

capacities described under § 550.580.

B. CRA Exemption

The OTS also proposed to revise its

regulations prescribing the scope of the

CRA regulations to make the CRA’s

application to savings associations

consistent with its application to banks.

Under the current rule at § 563e.11(c),

the CRA regulations apply to all savings

associations. By contrast, the CRA

regulations of the other banking

agencies exempt certain special purpose

institutions, including fiduciaries, that

do not perform commercial or retail

banking services by extending credit to

the public in the ordinary course of

business, other than incident to their

specialized operations.

This regulatory exemption reflects the

banking agencies’ long-standing policy

in this area. The OTS’s scope provisions

differed from the other banking

agencies’ scope provisions because, at

the time that the current rule at

§ 563e.11(c) was promulgated, the OTS

did not regulate any savings

associations that could be considered

special purpose institutions. This is no

longer the case. Thus, the proposed

amendment to the CRA regulations was

intended to recognize the existence of

special purpose savings associations

and to provide the same regulatory

treatment for such institutions as would

be afforded them if they were regulated

by one of the other banking agencies.

One commenter, a community

reinvestment organization, opposed any

exemption to the CRA regulations.

Instead, the commenter argued that the

CRA should be expanded to include

non-bank entities that provide bank-like

services. The commenter argued that the

OTS should refrain from adopting the

exemption and that all the other

agencies should eliminate it.

By contrast, a Federal savings

association argued that the proposed

CRA exemption does not go far enough.

It notes that the OCC recently approved

a bank charter for a company that would

provide bill payment services, checking,

or other deposit accounts. The OCC

approved the institution’s request for

designation as a wholesale or limited

purpose bank.19 The commenter argued

that all such companies should be

added to the list of examples in the

proposed rule, even if the checking or

other deposit accounts are linked to

overdraft lines of credit or similar

products.

The OTS has adopted the special

purpose savings association exemption

without change. The OTS believes that

the other Federal banking agencies’

exemption for similar institutions

argues strongly for a parallel thrift

exemption. Some thrifts now meet the

definition of a special purpose

institution. The OTS has, by

interpretation, exempted these

institutions from coverage under the

CRA regulations in a manner identical

to the way in which they would be

treated if they operated with a bank

charter and were regulated by one of the

bank regulators. The amendment to the

CRA regulations merely formalizes the

OTS’s interpretation of the CRA

regulations’ application to such

charters. If any special purpose savings

association takes deposits or extends

credit to the public in the ordinary
67702 Federal Register / Vol. 62, No. 249 / Tuesday, December 30, 1997 / Rules and Regulations

20 12 CFR 25.21(a)(2) and 25.25. The parallel OTS

citations are 12 CFR 563e.21(a)(2) and 563e.25.

course of business other than as

incident to its specialized operations, so

that it no longer falls within the

regulatory definition, then it

immediately becomes subject to CRA

regulation and examination by the OTS.

The OTS will monitor such savings

associations’ activities through its safety

and soundness, compliance, and trust

examinations.

The OTS believes that any expansion

of coverage of the CRA to include nonbank entities, as one of the commenters

suggested, is a legislative issue. The

OTS is not today expressing a view on

whether such expansion would be

appropriate or, if so, how it should be

structured or implemented. The

possibility that the CRA may be applied

more broadly in the future does not

convince the OTS that it should treat

thrifts differently from banks in the

interim.

We also do not believe that the

exemption should be unilaterally

extended to entities that only provide

bill payment services and checking or

other deposit accounts, as one

commenter suggested. We note that the

OCC did not exempt such institutions

from the CRA regulations. Rather, the

OCC granted a request for a limited

purpose designation, which means that

a separate provision of the CRA

regulations applies.20 A limited purpose

designation subjects the institution to

the Community Development Test,

which is specially tailored to measure

the performance of wholesale or limited

purpose institutions. A limited purpose

designation, however, is not an

exemption from the CRA regulations.

The OCC’s approval of such a limited

purpose designation does not affect

whether the same institution is subject

to the banking agencies’ current, and the

OTS’s new, exemption for special

purpose institutions.

IV. Derivation Chart for Revised Part

550

The following chart gives of an

overview of the changes made to part

550.

Revised provision Former provision Comments

§ 550.10(a) ................................................................. ................................................................................... Added.

§ 550.10(b) ................................................................. § 571.15 .................................................................... Modified and added.

§ 550.20 ...................................................................... § 550.1(k) .................................................................. Modified.

§ 550.30 ...................................................................... § 550.1(c) and (h) ..................................................... Significantly modified.

§ 550.40 ...................................................................... § 550.1(f) ................................................................... Modified.

§ 550.50 ...................................................................... § 550.1(a) .................................................................. Modified.

§ 550.60 ...................................................................... §§ 550.1(g) and (j) .................................................... Significantly modified.

§§ 550.70–120 ............................................................ §§ 550.2(a)–(c) .......................................................... Modified.

§ 550.130 .................................................................... § 550.2(d) .................................................................. Modified.

§ 550.140 .................................................................... § 550.5(c) and (d) ..................................................... Modified and new provisions added.

§§ 550.150–190 .......................................................... §§ 550.5(a)(1), (b) and (e) ........................................ Significantly modified.

§§ 550.200–220 .......................................................... § 550.5(a)(2) .............................................................. Significantly modified.

§§ 550.230–250 .......................................................... § 550.11 .................................................................... Modified.

§ 550.260 .................................................................... §§ 550.9 and 550.13 ................................................. Significantly modified.

§§ 550.290–320 .......................................................... § 550.8 ...................................................................... Significantly modified.

§§ 550.330–370 .......................................................... § 550.10 .................................................................... Modified.

§§ 550.380–400 .......................................................... § 550.12 .................................................................... Modified.

§§ 550.410–430 .......................................................... §§ 550.5(a)(2) and 550.6(a) ...................................... Significantly modified.

§§ 550.440–480 .......................................................... § 550.7 ...................................................................... Significantly modified.

§§ 550.490–510 .......................................................... § 550.4 ...................................................................... Significantly modified.

§ 550.520 .................................................................... § 550.15 .................................................................... Modified.

§§ 550.530–550 .......................................................... § 550.14 .................................................................... Modified.

§§ 550.560–570 .......................................................... § 550.16 .................................................................... Modified.

§§ 550.580–620 .......................................................... § 545.102 .................................................................. Modified and added.

The following provisions from the

former part 550 have been removed in

the final rule: § 550.1(b); § 550.1(d);

§ 550.1(e); § 550.1(h); § 550.1(i); § 550.3;

§ 550.5(d); and § 550.6(b).

V. Effective Date

Section 553(d) of the Administrative

Procedure Act (‘‘APA’’) requires an

agency to publish a substantive rule at

least 30 days before its effective date.

Section 553(d)(1) of the APA, however,

exempts substantive rules that relieve a

restriction from the 30-day delayed

effective date requirement.

The final rule relieves regulatory

restrictions. For example, the final rule

eliminates certain requirements of the

old regulations, such as former § 550.3

(Consolidation or merger of two or more

Federal savings associations), former

§ 550.5(d) (Retention of legal counsel),

and former § 550.6(b) (Record of

pending litigation). Moreover, the final

rule clarifies some existing

responsibilities. This final rule is

therefore exempt from the 30-day

delayed effective date requirement.

VI. Executive Order 12866

The Director of OTS has determined

that this final rule does not constitute a

‘‘significant regulatory action’’ for the

purposes of Executive Order 12866.

VII. Unfunded Mandates Reform Act of

1995

Section 202 of the Unfunded

Mandates Reform Act of 1995, Public

Law 104–4 (Unfunded Mandates Act),

requires that an agency prepare a

budgetary impact statement before

promulgating a rule includes a Federal

mandate that may result in expenditure

by State, local, and tribal governments,

in the aggregate, or by the private sector,

of $100 million or more in any one year.

If a budgetary impact statement is

required, Section 205 of the Unfunded

Mandates Act also requires an agency to

identify and consider a reasonable

number of regulatory alternatives before

promulgating a rule. OTS has

determined that the final rule will not

result in expenditures by State, local, or

tribal governments or by the private

sector of $100 million or more.

Accordingly, a budgetary impact

statement is not required under section

202 of the Unfunded Mandates Act of

1995.
Federal Register / Vol. 62, No. 249 / Tuesday, December 30, 1997 / Rules and Regulations 67703

VIII. Regulatory Flexibility Act

Analysis

Pursuant to section 605(b) of the

Regulatory Flexibility Act, OTS certifies

that this final rule will not have a

significant economic impact on a

substantial number of small entities.

The final rule liberalizes requirements

and reduces burdens for Federal savings

associations that exercise fiduciary

powers, regardless of size. Accordingly,

a regulatory flexibility analysis is not

required.

IX. Reporting and Recordkeeping

Requirements

The collection of information

requirements contained in this final rule

have been submitted to and approved by

the Office of Management and Budget in

accordance with the Paperwork

Reduction Act of 1995 (44 U.S.C.

3507(d)) under OMB control number

1550–0037. Comments on the

collections of information should be

sent to the Office of Management and

Budget, Paperwork Reduction Project

(1550–0037), Washington, D.C. 20503,

with copies to the Office of Thrift

Supervision, 1700 G Street, N.W.,

Washington, D.C. 20552.

The collection of information

requirements in this final rule are found

in 12 CFR 550.70–550.120, 550.260,

550.410–550.430, 550.440–550.480, and

550.530–550.550. The OTS requires this

information for the proper supervision

of Federal savings associations’

fiduciary activities. The likely

respondents/recordkeepers are Federal

savings associations.

Under the Paperwork Reduction Act

of 1995, no persons are required to

respond to a collection of information

unless it displays a valid OMB control

number. The valid OMB control number

assigned to the collection of information

in this final rule is displayed at 12 CFR

506.1(b).

List of Subjects

12 CFR Part 545

Accounting, Consumer protection,

Credit, Electronic funds transfers,

Investments, Reporting and

recordkeeping requirements, Savings

associations.

12 CFR Part 550

Accounting, Reporting and

recordkeeping requirements, Savings

associations, Trusts and trustees.

12 CFR Part 563e

Community development, Credit,

Investments, Reporting and

recordkeeping requirements, Savings

associations.

12 CFR Part 571

Accounting, Conflict of interests,

Investments, Reporting and

Recordkeeping requirements, Savings

associations.

Authority and Issuance

Accordingly, the Office of Thrift

Supervision amends Title 12, Chapter V,

of the Code of Federal Regulations as set

forth below:

PART 545—OPERATIONS

1. The authority citation for part 545

continues to read as follows:

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

1828.

§ 545.102 [Removed]

2. Section 545.102 is removed.

3. Part 550 is revised to read as

follows:

PART 550—FIDUCIARY POWERS OF

SAVINGS ASSOCIATIONS

Sec.

550.10 What regulations govern the

fiduciary operations of savings

associations?

550.20 What are fiduciary powers?

550.30 What fiduciary capacities does this

part cover?

550.40 When do I have investment

discretion?

550.50 What is a fiduciary account?

550.60 What other definitions apply to this

part?

Subpart A—Obtaining Fiduciary Powers

550.70 Must I obtain OTS approval before

exercising fiduciary powers?

550.80 How do I obtain OTS approval?

550.90 What information must I include in

my application?

550.100 What factors may the OTS consider

in its review of my application?

550.110 Who will act on my application?

550.120 What action will the OTS take on

my application?

Subpart B—Exercising Fiduciary Powers

550.130 What fiduciary powers may I

exercise?

550.140 Must I adopt and follow written

policies and procedures in exercising

fiduciary powers?

Fiduciary Personnel and Facilities

550.150 Who is responsible for the exercise

of fiduciary powers?

550.160 What personnel and facilities may

I use to perform fiduciary services?

550.170 May my other departments or

affiliates use fiduciary personnel and

facilities to perform other services?

550.180 May I perform fiduciary services

for, or purchase fiduciary services from,

another association or entity?

550.190 Must fiduciary officers and

employees be bonded?

Review of a Fiduciary Account

550.200 Must I review a prospective

account before I accept it?

550.210 Must I conduct another review of

an account after I accept it?

550.220 Are any other account reviews

required?

Custody and Control of Assets

550.230 Who must maintain custody or

control of assets in a fiduciary account?

550.240 May I hold investments of a

fiduciary account off-premises?

550.250 Must I keep fiduciary assets

separate from other assets?

Investing Funds of a Fiduciary Account

550.260 How may I invest funds of a

fiduciary account?

Funds Awaiting Investment or Distribution

550.290 What must I do with fiduciary

funds awaiting investment or

distribution?

550.300 Where may I deposit fiduciary

funds awaiting investment or

distribution?

550.310 What if the FDIC does not insure

the deposits?

550.320 What is acceptable collateral for

uninsured deposits?

Restrictions on Self Dealing

550.330 Are there investments in which I

may not invest funds of a fiduciary

account?

550.340 May I exercise rights to purchase

additional stock or fractional shares of

my stock or obligations or the stock or

obligations of my affiliates?

550.350 May I lend, sell, or transfer assets

of a fiduciary account if I have an

interest in the transaction?

550.360 May I make a loan to a fiduciary

account that is secured by an interest in

the assets in the account?

550.370 May I sell assets or lend money

between fiduciary accounts?

Compensation, Gifts, and Bequests

550.380 May I earn compensation for acting

in a fiduciary capacity?

550.390 May my officer or employee retain

compensation for acting as a cofiduciary?

550.400 May my fiduciary officer or

employee accept a gift or bequest?

Recordkeeping Requirements

550.410 What records must I keep?

550.420 How long must I keep these

records?

550.430 Must I keep fiduciary records

separate and distinct from other records?

Audit Requirements

550.440 When do I have to audit my

fiduciary activities?

550.450 What standards govern the conduct

of the audit?

550.460 Who may conduct an audit?

550.470 Who directs the conduct of the

audit?

550.480 How do I report the results of the

audit?
67704 Federal Register / Vol. 62, No. 249 / Tuesday, December 30, 1997 / Rules and Regulations

Subpart C—Depositing Securities With

State Authorities

550.490 When must I deposit securities

with State authorities?

550.500 How much must I deposit if I

administer fiduciary assets in more than

one State?

550.510 What must I do if State authorities

refuse my deposit?

Subpart D—Terminating Fiduciary Activities

Receivership or Liquidation

550.520 What happens if I am placed in

receivership or voluntary liquidation?

Surrender of Fiduciary Powers

550.530 How do I surrender fiduciary

powers?

550.540 When will the OTS terminate my

fiduciary powers?

550.550 May I recover my deposit from

State authorities?

Revocation of Fiduciary Powers

550.560 When may the OTS revoke my

fiduciary powers?

550.570 What procedures govern the

revocation?

Subpart E—Activities Exempt From This

Part

550.580 When may I act in a fiduciary

capacity without obtaining OTS

approval?

550.590 What standards must I observe

when acting in exempt fiduciary

capacities?

550.600 How may I invest funds when

acting in exempt fiduciary capacities?

550.610 What disclosures must I make

when acting in exempt fiduciary

capacities?

550.620 May I receive compensation for

acting in exempt fiduciary capacities?

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

§ 550.10 What regulations govern the

fiduciary operations of savings

associations?

(a) Federal savings associations. A

Federal savings association (‘‘you’’)

must conduct its fiduciary operations in

accordance with 12 U.S.C. 1464(n) and

this part.

(b) State-chartered savings

associations. (1) A State-chartered

savings association must conduct its

fiduciary operations in accordance with

applicable State law, and must exercise

its fiduciary powers in a safe and sound

manner. To ensure safe and sound

operations, State-chartered savings

associations and their subsidiaries

should follow the standards for the

exercise of fiduciary powers in this part.

(2) The OTS will monitor the

fiduciary operations of State-chartered

savings associations and their

subsidiaries to ensure that those

operations are conducted in a safe and

sound manner. The OTS may object to

practices that deviate materially from

the practices described in this part, and

may restrict or prohibit activities that

threaten the safety and soundness of a

State-chartered savings association.

§ 550.20 What are fiduciary powers?

Fiduciary powers are the authority

that the OTS permits you to exercise

under 12 U.S.C. 1464(n). The scope of

permissible fiduciary powers depends

on the powers that the State in which

you are located grants to competing

fiduciaries in that State.

§ 550.30 What fiduciary capacities does

this part cover?

You are subject to this part if you act

in a fiduciary capacity, except as

described in subpart E of this part. You

act in a fiduciary capacity when you act

in any of the following capacities:

(a) Trustee.

(b) Executor.

(c) Administrator.

(d) Registrar of stocks and bonds.

(e) Transfer agent.

(f) Assignee.

(g) Receiver.

(h) Guardian or conservator of the

estate of a minor, an incompetent

person, an absent person, or a person

over whose estate a court has taken

jurisdiction, other than under

bankruptcy or insolvency laws.

(i) A fiduciary in a relationship

established under a State law that is

substantially similar to the Uniform

Gifts to Minors Act or the Uniform

Transfers to Minors Act as published by

the American Law Institute.

(j) Investment adviser, if you receive

a fee for your investment advice.

(k) Any capacity in which you have

investment discretion on behalf of

another.

(l) Any other similar capacity that the

OTS may authorize under 12 U.S.C.

1464(n).

§ 550.40 When do I have investment

discretion?

(a) General. You have investment

discretion when you have, with respect

to a fiduciary account, the sole or shared

authority to determine what securities

or other assets to purchase or sell on

behalf of that account. It does not matter

whether you have exercised this

authority.

(b) Delegations. You retain investment

discretion if you delegate investment

discretion to another. You also have

investment discretion if you receive

delegated authority to exercise

investment discretion from another.

§ 550.50 What is a fiduciary account?

A fiduciary account is an account that

you administer acting in a fiduciary

capacity.

§ 550.60 What other definitions apply to

this part?

Affiliate has the same meaning as in

12 U.S.C. 221a(b). For purposes of this

part, substitute the term ‘‘Federal

savings association’’ for the term

‘‘member bank’’ whenever it appears in

12 U.S.C. 221a(b).

Applicable law means the law of a

State or other jurisdiction governing

your fiduciary relationships, any

Federal law governing those

relationships, the terms of the

instrument governing a fiduciary

relationship, and any court order

pertaining to the relationship.

Fiduciary officers and employees

means the officers and employees of a

Federal savings association to whom the

board of directors or its designee has

assigned functions involving the

exercise of the association’s fiduciary

powers.

Subpart A—Obtaining Fiduciary

Powers

§ 550.70 Must I obtain OTS approval

before exercising fiduciary powers?

Unless you are covered by subpart E

of this part, you must obtain prior

approval from the OTS before exercising

fiduciary powers.

§ 550.80 How do I obtain OTS approval?

You must file an application under

§ 516.1(c) of this chapter.

§ 550.90 What information must I include

in my application?

You must describe the fiduciary

powers that you or your affiliate will

exercise. You must also include

information necessary to enable the OTS

to make the determinations described in

§ 550.100.

§ 550.100 What factors may the OTS

consider in its review of my application?

The OTS may consider the following

factors when reviewing your

application:

(a) Your financial condition.

(b) Your capital and whether that

capital is sufficient under the

circumstances.

(c) Your overall performance.

(d) The fiduciary powers you propose

to exercise.

(e) Your proposed supervision of

those powers.

(f) The availability of legal counsel.

(g) The needs of the community to be

served.

(h) Any other facts or circumstances

that the OTS considers proper.

§ 550.110 Who will act on my application?

The Director of OTS may act on any

application. The Regional Director may
Federal Register / Vol. 62, No. 249 / Tuesday, December 30, 1997 / Rules and Regulations 67705

act on an application if it does not raise

any significant issues of law or policy

on which the OTS has not taken a

formal position.

§ 550.120 What action will the OTS take on

my application?

The OTS may approve or deny your

application. If your application is

approved, the OTS may impose

conditions to ensure that the

requirements of this part are met.

Subpart B—Exercising Fiduciary

Powers

§ 550.130 What fiduciary powers may I

exercise?

You may exercise only those fiduciary

powers specified in the OTS approval

under § 550.120. Unless otherwise

provided in the approval, you may

exercise fiduciary powers only from

those offices listed in the application.

§ 550.140 Must I adopt and follow written

policies and procedures in exercising

fiduciary powers?

You must adopt and follow written

policies and procedures adequate to

maintain your fiduciary activities in

compliance with applicable law. Among

other relevant matters, the policies and

procedures should address, where

appropriate, the following areas:

(a) Your brokerage placement

practices.

(b) Your methods for ensuring that

your fiduciary officers and employees

do not use material inside information

in connection with any decision or

recommendation to purchase or sell any

security.

(c) Your methods for preventing selfdealing and conflicts of interest.

(d) Your selection and retention of

legal counsel who is ready and available

to advise you and your fiduciary officers

and employees on fiduciary matters.

(e) Your investment of funds held as

fiduciary, including short-term

investments and the treatment of

fiduciary funds awaiting investment or

distribution.

Fiduciary Personnel and Facilities

§ 550.150 Who is responsible for the

exercise of fiduciary powers?

The exercise of your fiduciary powers

must be managed by or under the

direction of your board of directors. In

discharging its responsibilities, the

board may assign any function related to

the exercise of fiduciary powers to any

director, officer, employee, or

committee of directors, officers, or

employees.

§ 550.160 What personnel and facilities

may I use to perform fiduciary services?

You may use your qualified personnel

and facilities or an affiliate’s qualified

personnel and facilities to perform

services related to the exercise of

fiduciary powers.

§ 550.170 May my other departments or

affiliates use fiduciary personnel and

facilities to perform other services?

Your other departments or affiliates

may use fiduciary officers, employees,

and facilities to perform services

unrelated to the exercise of fiduciary

powers, to the extent not prohibited by

applicable law.

§ 550.180 May I perform fiduciary services

for, or purchase fiduciary services from,

another association or entity?

You may perform services related to

the exercise of fiduciary powers for

another association or other entity

under a written agreement. You may

also purchase services related to the

exercise of fiduciary powers from

another association or other entity

under a written agreement.

§ 550.190 Must fiduciary officers and

employees be bonded?

You must obtain an adequate bond for

all fiduciary officers and employees.

Review of a Fiduciary Account

§ 550.200 Must I review a prospective

account before I accept it?

Before accepting a prospective

fiduciary account, you must review it to

determine whether you can properly

administer the account.

§ 550.210 Must I conduct another review of

an account after I accept it?

After you accept a fiduciary account

for which you have investment

discretion, you must conduct a prompt

review of all assets of the account to

evaluate whether they are appropriate,

individually and collectively, for the

account.

§ 550.220 Are any other account reviews

required?

At least once every calendar year, you

must conduct a review of all assets of

each fiduciary account for which you

have investment discretion. In this

review, you must evaluate whether the

assets are appropriate, individually and

collectively, for the account.

Custody and Control of Assets

§ 550.230 Who must maintain custody or

control of assets in a fiduciary account?

You must place assets of fiduciary

accounts in the joint custody or control

of not fewer than two fiduciary officers

or employees designated for that

purpose by the board of directors.

§ 550.240 May I hold investments of a

fiduciary account off-premises?

You may hold the investments of a

fiduciary account off-premises, if this

practice is consistent with applicable

law, and you maintain adequate

safeguards and controls.

§ 550.250 Must I keep fiduciary assets

separate from other assets?

You must keep the assets of fiduciary

accounts separate from your other

assets. You must also keep the assets of

each fiduciary account separate from all

other accounts, or you must identify the

investments as the property of a

particular account, except as provided

in §§ 550.260.

Investing Funds of a Fiduciary Account

§ 550.260 How may I invest funds of a

fiduciary account?

(a) General. You must invest funds of

a fiduciary account in a manner

consistent with applicable law.

(b) Collective investment funds. (1)

You may invest funds of a fiduciary

account in a collective investment fund,

including a collective investment fund

that you have established. In

establishing and administering such

funds, you must comply with 12 CFR

9.18.

(2) If you must file a document with

the Comptroller of the Currency under

12 CFR 9.18, you must also file that

document with OTS under § 516.1(c) of

this chapter. The OTS may review such

documents for compliance with this

part and other laws and regulations.

(3) ‘‘Bank’’ and ‘‘national bank’’ as

used in 12 CFR 9.18 shall be deemed to

include a Federal savings association.

Funds Awaiting Investment or

Distribution

§ 550.290 What must I do with fiduciary

funds awaiting investment or distribution?

If you have investment discretion or

discretion over distributions for a

fiduciary account which contains funds

awaiting investment or distribution, you

must ensure that those funds do not

remain uninvested and undistributed

any longer than is reasonable for the

proper management of the account and

consistent with applicable law. You also

must obtain a rate of return for those

funds that is consistent with applicable

law.

§ 550.300 Where may I deposit fiduciary

funds awaiting investment or distribution?

(a) Self deposits. You may deposit

funds of a fiduciary account that are

awaiting investment or distribution in
67706 Federal Register / Vol. 62, No. 249 / Tuesday, December 30, 1997 / Rules and Regulations

your other departments, unless

prohibited by applicable law.

(b) Affiliate deposits. You may also

deposit funds of a fiduciary account that

are awaiting investment or distribution

with an affiliated insured depository

institution, unless prohibited by

applicable law.

§ 550.310 What if the FDIC does not insure

the deposits?

If the FDIC does not insure the entire

amount of a self deposit or an affiliate

deposit, you must set aside collateral as

security. The market value of the

collateral must at all times equal or

exceed the amount of the uninsured

fiduciary funds. You must place the

collateral under the control of

appropriate fiduciary officers and

employees.

§ 550.320 What is acceptable collateral for

uninsured deposits?

Any of the following is acceptable

collateral for self deposits or affiliate

deposits under § 550.310:

(a) Direct obligations of the United

States, or other obligations fully

guaranteed by the United States as to

principal and interest.

(b) Readily marketable securities of

the classes in which State-chartered

corporate fiduciaries are permitted to

invest fiduciary funds under applicable

State law.

(c) Other readily marketable securities

as the OTS may determine.

(d) Surety bonds, to the extent they

provide adequate security, unless

prohibited by applicable law.

(e) Any other assets that qualify under

applicable State law as appropriate

security for deposits of fiduciary funds.

Restrictions on Self Dealing

§ 550.330 Are there investments in which I

may not invest funds of a fiduciary

account?

You may not invest funds of a

fiduciary account for which you have

investment discretion in the following

assets, unless authorized by applicable

law:

(a) The stock or obligations of, or

assets acquired from, you or any of your

directors, officers, or employees.

(b) The stock or obligations of, or

assets acquired from, your affiliates or

any of their directors, officers, or

employees.

(c) The stock or obligations of, or

assets acquired from, other individuals

or organizations if you have an interest

in the individual or organization that

might affect the exercise of your best

judgment.

§ 550.340 May I exercise rights to

purchase additional stock or fractional

shares of my stock or obligations or the

stock or obligations of my affiliates?

If the retention of investments in your

stock or obligations or the stock or

obligations of an affiliate in fiduciary

accounts is consistent with applicable

law, you may do either of the following:

(a) Exercise rights to purchase

additional stock (or securities

convertible into additional stock) when

these rights are offered pro rata to

stockholders.

(b) Purchase fractional shares to

complement fractional shares acquired

through the exercise of rights or through

the receipt of a stock dividend resulting

in fractional share holdings.

§ 550.350 May I lend, sell, or transfer

assets of a fiduciary account if I have an

interest in the transaction?

(a) General restriction. Except as

provided in paragraph (b) of this

section, you may not lend, sell, or

otherwise transfer assets of a fiduciary

account for which you have investment

discretion to yourself or any of your

directors, officers, or employees; to your

affiliates or any of their directors,

officers, or employees; or to other

individuals or organizations with whom

you have an interest that might affect

the exercise of your best judgment.

(b) Exceptions.—(1) Funds for which

you have investment discretion. You

may lend, sell or otherwise transfer

assets of a fiduciary account for which

you have investment discretion to

yourself or any of your directors,

officers, or employees; to your affiliates

or any of their directors, officers, or

employees; or to other individuals or

organizations with whom you have an

interest that might affect the exercise of

your best judgment, if you meet one of

the following conditions:

(i) The transaction is authorized by

applicable law.

(ii) Legal counsel advises you in

writing that you have incurred, in your

fiduciary capacity, a contingent or

potential liability. Upon the sale or

transfer of assets, you must reimburse

the fiduciary account in cash in an

amount equal to the greater of book or

market value of the assets.

(iii) The transaction is permitted

under 12 CFR 9.18(b)(8)(iii) for

defaulted fixed-income investments.

(iv) The OTS requires you to do so.

(2) Funds held as trustee. You may

make loans of funds held in trust to any

of your directors, officers, or employees

if the funds are held in an employee

benefit plan and the loan is made in

accordance with the exemptions found

at section 408 of the Employee

Retirement Income Security Act of 1974

(29 U.S.C. 1108).

§ 550.360 May I make a loan to a fiduciary

account that is secured by an interest in the

assets of the account?

You may make a loan to a fiduciary

account that is secured by an interest in

the assets of the account, if the

transaction is fair to the account and is

not prohibited by applicable law.

§ 550.370 May I sell assets or lend money

between fiduciary accounts?

You may sell assets or lend money

between fiduciary accounts, if the

transaction is fair to both accounts and

is not prohibited by applicable law.

Compensation, Gifts, and Bequests

§ 550.380 May I earn compensation for

acting in a fiduciary capacity?

If the amount of your compensation

for acting in a fiduciary capacity is not

set or governed by applicable law, you

may charge a reasonable fee for your

services.

§ 550.390 May my officer or employee

retain compensation for acting as a cofiduciary?

You may not permit your officers or

employees to retain any compensation

for acting as a co-fiduciary with you in

the administration of a fiduciary

account, except with the specific

approval of your board of directors.

§ 550.400 May my fiduciary officer or

employee accept a gift or bequest?

You may not permit any fiduciary

officer or employee to accept a bequest

or gift of fiduciary assets, unless the

bequest or gift is directed or made by a

relative of the officer or employee or is

specifically approved by your board of

directors.

Recordkeeping Requirements

§ 550.410 What records must I keep?

You must keep adequate records for

all fiduciary accounts. For example, you

must keep documents on the

establishment and termination of each

fiduciary account.

§ 550.420 How long must I keep these

records?

You must keep fiduciary records for

three years after the termination of the

account or the termination of any

litigation relating to the account,

whichever is later.

§ 550.430 Must I keep fiduciary records

separate and distinct from other records?

You must keep fiduciary records

separate and distinct from your other

records.
Federal Register / Vol. 62, No. 249 / Tuesday, December 30, 1997 / Rules and Regulations 67707

Audit Requirements

§ 550.440 When do I have to audit my

fiduciary activities?

(a) Annual Audit. If you do not use a

continuous audit system described in

paragraph (b) of this section, then you

must arrange for a suitable audit of all

significant fiduciary activities at least

once during each calendar year.

(b) Continuous audit. Instead of an

annual audit, you may adopt a

continuous audit system. Under a

continuous audit system, you must

arrange for a discrete audit of each

significant fiduciary activity (i.e., on an

activity-by-activity basis) at an interval

commensurate with the nature and risk

of that activity. Some fiduciary activities

may receive audits at intervals greater or

less than one year, as appropriate.

§ 550.450 What standards govern the

conduct of the audit?

Auditors must follow generally

accepted standards for attestation

engagements and other standards

established by the OTS. An audit must

ascertain whether your internal control

policies and procedures provide

reasonable assurance of three things:

(a) You are administering fiduciary

activities in accordance with applicable

law.

(b) You are properly safeguarding

fiduciary assets.

(c) You are accurately recording

transactions in appropriate accounts in

a timely manner.

§ 550.460 Who may conduct an audit?

Internal auditors, external auditors, or

other qualified persons who are

responsible only to the board of

directors, may conduct an audit.

§ 550.470 Who directs the conduct of the

audit?

Your fiduciary audit committee

directs the conduct of the audit. Your

fiduciary audit committee may consist

of a committee of your directors or an

audit committee of an affiliate. There

are two restrictions on who may serve

on the committee:

(a) Your officers and officers of an

affiliate who participate significantly in

administering your fiduciary activities

may not serve on the audit committee.

(b) A majority of the members of the

audit committee may not serve on any

committee to which the board of

directors has delegated power to manage

and control your fiduciary activities.

§ 550.480 How do I report the results of the

audit?

(a) Annual audit. If you conduct an

annual audit, you must note the results

of the audit (including significant

actions taken as a result of the audit) in

the minutes of the board of directors.

(b) Continuous audit. If you adopt a

continuous audit system, you must note

the results of all discrete audits

conducted since the last audit report

(including significant actions taken as a

result of the audits) in the minutes of

the board of directors at least once

during each calendar year.

Subpart C—Depositing Securities With

State Authorities

§ 550.490 When must I deposit securities

with State authorities?

You must deposit securities with a

State’s authorities or, if applicable, a

Federal Home Loan Bank under

§ 550.510, if you meet all of the

following:

(a) You are located in the State.

(b) You act as a private or courtappointed trustee.

(c) The law of the State requires

corporations acting in a fiduciary

capacity to deposit securities with State

authorities for the protection of private

or court trusts.

§ 550.500 How much must I deposit if I

administer fiduciary assets in more than

one State?

If you administer fiduciary assets in

more than one State, you must compute

the amount of deposit required for each

State on the basis of fiduciary assets that

you administer primarily from offices

located in that State.

§ 550.510 What must I do if State

authorities refuse my deposit?

If State authorities refuse to accept

your deposit under § 550.490, you must

deposit the securities with the Federal

Home Loan Bank of which you are a

member. The Federal Home Loan Bank

will hold the securities for the

protection of private or court trusts to

the same extent as if the securities had

been deposited with State authorities.

Subpart D—Terminating Fiduciary

Activities

Receivership or Liquidation

§ 550.520 What happens if I am placed in

receivership or voluntary liquidation?

If the OTS appoints a conservator or

receiver for you under part 558 of this

chapter, or if you place yourself in

voluntary liquidation, the receiver,

conservator, or liquidating agent must

promptly close or transfer all fiduciary

accounts to a substitute fiduciary, in

accordance with OTS instructions and

the orders of the court having

jurisdiction.

Surrender of Fiduciary Powers

§ 550.530 How do I surrender fiduciary

powers?

If you want to surrender your

fiduciary powers, you must file a

certified copy of a resolution of your

board of directors evidencing that

intent. You must file the resolution with

the OTS under § 516.1 of this chapter.

§ 550.540 When will the OTS terminate my

fiduciary powers?

If, after appropriate investigation, the

Regional Director is satisfied that you

have been discharged from all fiduciary

duties, the Regional Director will issue

a written notice indicating that you are

no longer authorized to exercise

fiduciary powers.

§ 550.550 May I recover my deposit from

State authorities?

Upon issuance of the OTS written

notice under § 550.540, you may recover

any securities deposited with State

authorities, or a Federal Home Loan

Bank, under subpart C of this part.

Revocation of Fiduciary Powers

§ 550.560 When may the OTS revoke my

fiduciary powers?

The OTS may revoke your fiduciary

powers if it determines that you have

done any of the following:

(a) Exercised those fiduciary powers

unlawfully or unsoundly.

(b) Failed to exercise those fiduciary

powers for five consecutive years.

(c) Otherwise failed to follow the

requirements of this part.

§ 550.570 What procedures govern the

revocation?

The procedures for revocation of

fiduciary powers are set forth in 12

U.S.C. 1464(n)(10). The OTS will

conduct the hearing required under 12

U.S.C. 1464(n)(10)(B) under part 509 of

this chapter.

Subpart E—Activities Exempt From

This Part

§ 550.580 When may I act in a fiduciary

capacity without obtaining OTS approval?

You do not need OTS approval under

subpart B if you act in one of the

following fiduciary capacities:

(a) Trustee of a trust created or

organized in the United States and

forming part of a stock bonus, pension,

or profit-sharing plan qualifying for

specific tax treatment under section

401(d) of the Internal Revenue Code of

1954 (26 U.S.C. 401(d)).

(b) Trustee or custodian of a

Individual Retirement Account within

the meaning of section 408(a) of the

Internal Revenue Code of 1954 (26

U.S.C. 408(a)).
67708 Federal Register / Vol. 62, No. 249 / Tuesday, December 30, 1997 / Rules and Regulations

(c) Trustee of a fiduciary account that

involves no active fiduciary duties

provided that the applicable law

authorizes the savings association to act

in this capacity.

§ 550.590 What standards must I observe

when acting in exempt fiduciary capacities?

You must observe principles of sound

fiduciary administration, including

those related to recordkeeping and

segregation of assets.

§ 550.600 How may I invest funds when

acting in exempt fiduciary capacities?

If you act in an exempt fiduciary

capacity under § 550.580, you may

invest the funds of the fiduciary account

in only the following:

(a) Your accounts, deposits,

obligations, or securities.

(b) Other assets as the customer may

direct, provided you do not exercise any

investment discretion and do not

directly or indirectly provide any

investment advice for the fiduciary

account.

§ 550.610 What disclosures must I make

when acting in exempt fiduciary capacities?

If you act in an exempt fiduciary

capacity under § 550.580 and fiduciary

investments are not limited to accounts

or deposits insured by the FDIC, you

must include the following language in

bold type on the first page of any

contract documents:

Funds invested pursuant to this agreement

are not insured by the Federal Deposit

Insurance Corporation (‘‘FDIC’’) merely

because the trustee or custodian is a Federal

savings association the accounts of which are

covered by such insurance. Only investments

in the accounts of a Federal savings

association are insured by the FDIC, subject

to its rules and regulations.

§ 550.620 May I receive compensation for

acting in exempt fiduciary capacities?

You may receive reasonable

compensation.

PART 563e—COMMUNITY

REINVESTMENT

4. The authority citation for part 563e

continues to read as follows:

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

1467a, 1814, 1816, 1828(c) and 2901 through

2907.

5. Section 563e.11 is amended by

revising paragraph (c) to read as follows:

§ 563e.11 Authority, purposes, and scope.

* * * * *

(c) Scope—(1) General. This part

applies to all savings associations

except as provided in paragraph (c)(2) of

this section.

(2) Certain special purpose savings

associations. This part does not apply to

special purpose savings associations

that do not perform commercial or retail

banking services by granting credit to

the public in the ordinary course of

business, other than as incident to their

specialized operations. These

associations include banker’s banks, as

defined in 12 U.S.C. 24 (Seventh), and

associations that engage only in one or

more of the following activities:

providing cash management controlled

disbursement services or serving as

correspondent associations, trust

companies, or clearing agents.

PART 571—STATEMENTS OF POLICY

6. The authority citation for part 571

continues to read as follows:

Authority: 5 U.S.C. 552, 559; 12 U.S.C.

1462a, 1463, 1464.

§ 571.15 [Removed]

7. Section 571.15 is removed.

Dated: December 19, 1997.

By the Office of Thrift Supervision.

Ellen Seidman,

Director.

[FR Doc. 97–33726 Filed 12–29–97; 8:45 am]

BILLING CODE 6720–01–P

DEPARTMENT OF TRANSPORTATION

Federal Aviation Administration

14 CFR Part 39

[Docket No. 97–CE–17–AD; Amendment 39–

10263; AD 97–26–20]

RIN 2120–AA64

Airworthiness Directives; Aviat Aircraft

Inc. Models S–2A, S–2B, and S–2S

Airplanes (formerly Pitts Models S–2A,

S–2B, and S–2S airplanes)

AGENCY: Federal Aviation

Administration, DOT.

ACTION: Final rule.

SUMMARY: This amendment supersedes

Airworthiness Directive AD 96–09–08

R1, which applies to Aviat Aircraft Inc.

(Aviat) Models S–2A, S–2B, and S–2S

airplanes (formerly Pitts Models S–2A,

S–2B, and S–2S), and currently requires

repetitively inspecting the upper

longerons just aft of the rear cabane

struts for cracks and repairing any

cracks. This action retains the same

actions as the current AD; lengthens the

time interval between repetitive

inspections; requires either installing a

marked accelerometer in order to

continue to perform acrobatic

maneuvers and installing a placard that

specifies gravity (‘‘g’’) force limitations,

or installing a placard prohibiting

acrobatic maneuvers; and, requires

inserting revisions into the Airplane

Flight Manual (AFM). This action is the

result of reports of cracking in the upper

longerons caused by operating the

airplane outside of the certificated

design limits and the availability of a

design modification that, when

incorporated, repairs the damaged

upper longeron area. The actions

specified by this AD are intended to

prevent cracking and subsequent failure

of the longerons with consequent loss of

control of the airplane.

DATES: Effective January 22, 1998.

The incorporation by reference of

certain publications listed in the

regulations is approved by the Director

of the Federal Register as of January 22,

1998.

ADDRESSES: Service information that

applies to this AD may be obtained from

Aviat Aircraft Inc., P. O. Box 1240, 672

South Washington Street, Afton,

Wyoming, 83110; telephone (307) 886–

3151; facsimile (307) 886–9674. This

information may also be examined at

the Federal Aviation Administration

(FAA), Central Region, Office of the

Regional Counsel, Attention: Rules

Docket 97–CE–17–AD, Room 1558, 601

E. 12th Street, Kansas City, Missouri

64106; or at the Office of the Federal

Register, 800 North Capitol Street, NW.,

suite 700, Washington, DC.

FOR FURTHER INFORMATION CONTACT:

Roger Caldwell, Project Engineer, FAA,

Denver Aircraft Certification Office,

26805 East 68th Ave., Room 214,

Denver, Colorado 80216; telephone

(303) 342–1086; facsimile (303) 342–

1088.

SUPPLEMENTARY INFORMATION:

Events Leading to the Issuance of This

AD

A proposal to amend part 39 of the

Federal Aviation Regulations (14 CFR

part 39) to supersede AD 96–09–08 R1,

Amendment 39–9690 (61 FR 35936, No.

132, July 9, 1996), that applies to Aviat

Models S–2A, S–2B, and S–2S airplanes

(formerly Pitts Models S–2A, S–2B, and

S–2S), was published in the Federal

Register on May 30, 1997 (62 FR 29309).

AD 96–09–08 R1 currently requires

repetitively inspecting the longerons

around the rear cabane struts for cracks

on Aviat Models S–2A (all serial

numbers (S/N)), S–2B (S/N 5000

through 5350), and S–2S (all S/N), and

repairing and reinforcing any crack

found during the inspections. The

proposed AD would supersede AD 96–

09–08 R1 with a new AD that would

require:

(1) Repetitively inspecting the upper

longerons aft of the rear cabane struts