[Federal Register Volume 62, Number 249 (Tuesday, December 30, 1997)]
[Rules and Regulations]
[Pages 67696-67708]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-33726]


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DEPARTMENT OF THE TREASURY

Office of Thrift Supervision

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

[No. 97-129]
RIN 1550-AB09


Fiduciary Powers; Community Reinvestment Act

AGENCY: Office of Thrift Supervision, Treasury.

ACTION: Final rule.

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SUMMARY: The Office of Thrift Supervision (``OTS'') is issuing a final 
rule revising its fiduciary powers regulation. The final rule updates, 
clarifies, and streamlines OTS regulations, incorporates significant 
interpretive guidance, and eliminates unnecessary regulatory burden. 
The final rule consolidates all regulations on the fiduciary powers of 
Federal savings associations into a single part. Additionally, this 
part has been revised to incorporate the OTS current policy statement 
on the fiduciary activities of State-chartered savings associations.
    The OTS is also amending its Community Reinvestment Act (``CRA'') 
regulations. The change conforms the scope of the OTS's CRA regulations 
to the regulations of the other Federal banking agencies. It exempts 
certain savings associations that do not perform commercial or retail 
banking services by

[[Page 67697]]

granting credit to the public in the ordinary course of business.

EFFECTIVE DATE: January 1, 1998.

FOR FURTHER INFORMATION CONTACT: Larry Clark, Senior Manager, 
Compliance and Trust Programs, Compliance Policy, (202) 906-5628; 
Timothy Leary, Counsel (Banking and Finance), (202) 906-7170, or Karen 
Osterloh, Assistant Chief Counsel, (202) 906-6639, Regulations and 
Legislation Division, Chief Counsel's Office, Office of Thrift 
Supervision, 1700 G Street, N.W., Washington, D.C. 20552.

SUPPLEMENTARY INFORMATION:

I. Background

    On July 23, 1997, the OTS published a notice of proposed rulemaking 
seeking comment on its regulations governing the fiduciary operations 
of Federal savings associations. 62 FR 39477. The proposal was the 
first comprehensive revision of the fiduciary powers regulations at 12 
CFR part 550 since 1980.
    The proposed rule was intended to update, streamline, and clarify 
these regulations. It also reflected the changes that Federal savings 
associations and their fiduciary operations have undergone since 1980, 
and incorporated significant interpretive opinions. Overall, the 
purpose of the proposed rule was to facilitate the continued 
development of fiduciary business consistent with safe and sound 
practices. Consistent with section 303 of the Community Development and 
Regulatory Improvement Act of 1994 (``CDRIA''), the proposed rule 
conformed OTS's fiduciary powers rules more closely to rules of the 
other agencies, specifically the rules issued by the Office of the 
Comptroller of the Currency at 12 CFR part 9, as revised at 61 FR 68543 
(December 30, 1996).
    The OTS also sought comment on exemptions from the OTS's 
regulations implementing the Community Reinvestment Act (``CRA''). 
Specifically, the OTS proposed to conform its CRA regulations to the 
other Federal banking agencies by exempting certain special purpose 
savings associations. Special purpose savings associations were 
exempted if they do not perform commercial or retail banking services 
by granting credit to the public in the ordinary course of business, 
other than as incident to their specialized operations.

II. Comments Received

    Four commenters responded to the proposal: Two Federal savings 
associations, one State regulatory agency, and one community 
reinvestment organization. Generally, the two Federal savings 
associations supported the proposal, but suggested specific changes. 
The State regulatory agency did not support or oppose the proposal, but 
also made suggestions. The community reinvestment organization opposed 
the proposed CRA exemption for special purpose savings associations.

III. Discussion

A. Fiduciary Powers

1. Structure of Revised Part 550
    The proposed fiduciary powers rule was written in a traditional 
regulation format. The final fiduciary powers rule issued today uses 
the plain language drafting techniques promoted by the Vice President's 
National Performance Review Initiative and new guidance in the Federal 
Register Document Drafting Handbook (January 1997 edition). The primary 
goal of plain language drafting is to make regulations easier to 
understand. Plain language drafting emphasizes informative headings 
(often written as a question), non-technical language (including the 
use of ``you''), and sentences in the active voice.
    Although commenters did not have an opportunity to comment on the 
plain language format prior to this final rule, the OTS believes that 
the benefits of the plain language format justify its use. Even though 
the OTS has substantially reorganized the rule, the substance of the 
proposed regulation did not change as a result of the format. The OTS 
welcomes comments on the format and suggestions on how to improve it.
2. Section-by-Section Discussion
    A discussion of the comments follows. This discussion generally 
does not address provisions on which the OTS received no comments or 
only supporting comments. Unless specifically discussed below, the 
proposed rules are adopted with only plain language format changes.

Section 550.10  What regulations govern the fiduciary operations of 
savings associations?

    Proposed Sec. 550.1 stated that part 550 is issued pursuant to 12 
U.S.C. 1464(n) (section 5(n) of the Home Owners' Loan Act (``HOLA'')). 
Proposed Sec. 550.1 also stated that part 550 sets forth the standards 
that apply to the fiduciary activities of Federal savings associations. 
This section has been incorporated into final Sec. 550.10(a), which 
states that a Federal savings association is required to conduct its 
fiduciary operations in accordance with 12 U.S.C. 1464(n) and the 
provisions of part 550.
    The final rule at Sec. 550.10(b) includes a new paragraph that was 
not included in the proposed rule. This provision incorporates, without 
substantive change, language from the existing policy statement 
regarding the fiduciary activities of State-chartered savings 
associations at 12 CFR 571.15. Final Sec. 550.10(b) states that a 
State-chartered savings association must conduct its fiduciary 
operations in accordance with State law. The rule, however, also 
recognizes the OTS's interest in those operations. As such, the final 
rule requires State-chartered savings associations to exercise 
fiduciary powers in a safe and sound manner, and clarifies that these 
associations and their subsidiaries should follow the standards for the 
exercise of fiduciary powers set out in part 550.<SUP>1</SUP> The final 
rule also states that the OTS will monitor the fiduciary operations of 
State-chartered savings associations and their subsidiaries, and may 
restrict or prohibit activities that threaten the safety and soundness 
of the association.
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    \1\ State-chartered savings associations are particularly 
advised to adhere to Sec. 550.140, which contains the standards for 
the exercise of fiduciary powers. In exercising their fiduciary 
powers, State-chartered savings associations should also observe the 
procedures and policies required by Part 550 in the areas of 
fiduciary personnel and facilities, custody and control of assets, 
investing funds of a fiduciary account, deposit of funds awaiting 
investment or distribution, restrictions on self-dealing, and audit 
requirements.
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Section 550.20  What are fiduciary powers?

    The proposed rule at Sec. 550.2 defined fiduciary powers as the 
authority the OTS permits a Federal savings association to exercise 
pursuant to 12 U.S.C. 1464(n). The definition also stated that the 
scope of a Federal savings association's fiduciary powers depends on 
the powers that the State grants to competing fiduciaries in the State 
in which the Federal savings association is located.
    One commenter argued that the OTS should explicitly state that if 
an activity does not fall into the OTS's definition of fiduciary 
activity, but is an otherwise permissible activity for a Federal 
savings association or its operating subsidiaries, the association or 
subsidiary should be permitted to engage in that activity. The 
commenter maintained that it is irrelevant whether State competitors 
are allowed to engage in that activity and whether that activity is 
considered a fiduciary activity by the State.
    The final rule adopts the language of the proposed rule. By the 
terms of the

[[Page 67698]]

statute, the scope of a Federal savings association's fiduciary powers 
is determined by the authority a particular State grants to competing 
fiduciaries in the State in which the Federal savings association is 
located. The reference in Sec. 550.20 to State law is, thus, compelled 
by the statutory language.
    We decline to adopt a blanket statement in this regulation about 
the applicability of particular State laws to activities that are 
otherwise permissible for a Federal savings association. Federal 
savings associations interested in conducting such activities should 
consult the statutory basis for that activity and the regulations that 
govern its exercise before engaging in the activity. The applicability 
of particular State law to the activity would depend on an analysis of 
each situation as it arises.

Section 550.30  What fiduciary capacities does this regulation cover?

    Under the proposed rule, fiduciary capacity included specified 
fiduciary positions such as acting as a trustee, executor, 
administrator, registrar of stocks and bonds, transfer agent, guardian, 
assignee, receiver, custodian under a uniform gifts to minors act, any 
capacity in which the Federal savings association possesses investment 
discretion on behalf of another, or any other similar capacity that the 
OTS authorizes under 12 U.S.C. 1464(n).<SUP>2</SUP> 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.<SUP>3</SUP> Under the OCC interpretation, the term 
investment advisor generally means that the institution provides advice 
or recommendations concerning the purchase or sale of specific 
securities, such as an institution engaged in portfolio advisory and 
management activities. The term generally excludes those activities in 
which the investment advice is merely incidental to other services.
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    \2\ The proposed rule sought comment on whether the final rule 
should rely on State law to determine the dividing line between 
fiduciary and non-fiduciary activities. One commenter opposed this 
alternative. The OTS believes that the definition of fiduciary 
capacity should foster consistent application of part 550 for all 
Federal savings associations. Accordingly, the OTS will not rely 
exclusively on State law in determining whether a particular 
activity amounts to acting in a fiduciary capacity. We note that the 
OCC also rejected a State law approach in its final rule on 
fiduciary activities of national banks.
    \3\ 62 FR 36746 (July 9, 1997).
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    One commenter argued that fiduciary capacity should not include a 
trustee under a deed of trust, a receiver or assignee under one's own 
security instrument in a default situation, a custodian under a uniform 
gift to minors act account, or a trustee under real estate or land 
trust. While the commenter generally supported the adoption of the OCC 
proposed interpretive ruling on investment advisors receiving a fee, it 
suggested that investment advisory and related activities that do not 
involve investment discretion should not be subject to part 550, even 
if performed for a fee.
    The final rule at Sec. 550.30 addresses the fiduciary capacities 
that are covered by part 550. The final rule continues to cite the 
specific fiduciary capacities in the proposed rule. Some of the 
specific capacities are enumerated under 12 U.S.C. 1464(n)(1). Others, 
such as custodian under a uniform gift to minors act, have long been 
cited under the OTS and OCC fiduciary powers regulations. The final 
rule also includes any capacity in which the association possesses 
investment discretion on behalf of another, and acting as an investment 
advisor for a fee.
    The OTS has not adopted the commenter's proposal to exclude certain 
fiduciary capacities. Initially, we note that the applicability of part 
550 to some of the specifically-listed fiduciary positions will depend 
on what the fiduciary in the relationship actually does. For example, 
``trustee'' is a specifically-listed fiduciary capacity at 
Sec. 550.30(a). The final rule at Sec. 550.580(c), however, excepts a 
Federal savings association from part 550 if the association acts as 
the trustee of a fiduciary account that involves no active fiduciary 
duties and applicable law permits the association to act in that 
capacity. Similarly, an investment adviser that receives a fee for 
advice is a specifically-listed fiduciary capacity at Sec. 550.30(j). 
The OTS, however, has indicated that it will follow the OCC's proposed 
interpretive ruling on investment advisers, which provides numerous 
examples of activities that do not constitute the provision of 
investment advice.<SUP>4</SUP> Finally, we note that the final rule 
generally excludes relationships'--other than those specifically 
listed'--where the Federal savings association does not have investment 
discretion.
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    \4\ These include financial advice and counseling, including 
strategic planning of a financial nature, merger and acquisition 
advisory services, advisory and structuring services related to 
project finance transactions, and providing market economic 
information to customers in general; client-directed investment 
activities where the fee does not depend on the provision of 
investment advice; investment advice incidental to acting as a 
municipal securities dealer; real estate asset management; real 
estate consulting; advice concerning bridge loans; services for 
homeowners' associations; tax planning and structuring advice; and 
investment advice authorized by the OCC under 12 U.S.C. 24 (Seventh) 
as an incidental power necessary to carry on the business of 
banking.
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    As noted, one commenter argues that a Federal savings association 
that gives investment advice for a fee should not be deemed to be 
acting in a fiduciary capacity if it is not making the investment 
decision.
    The OTS disagrees. When a customer pays a Federal savings 
association a fee in return for providing investment advice--whether or 
not that customer follows the advice--the customer has a reasonable 
expectation of receiving advice that is free of conflicts of interest. 
Such an approach is also consistent with other Federal statutes that 
provide enhanced protection to customers of certain investment advisers 
who receive a fee.<SUP>5</SUP> Consistent with the OCC's rules at part 
9, the OTS believes that the distinction between paid and unpaid 
investment advice reflects the reasonable expectation of Federal 
savings association customers.
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    \5\ See, e.g., 29 U.S.C. 1002(21)(A) (fiduciaries of ERISA 
accounts); 15 U.S.C. 80b-2(a)(11) (Investment Advisers Act, which 
generally applies to any person who, for compensation, engages in 
the business of advising others. Although banks are exempt from the 
Investment Advisers Act, Federal savings associations are not, and 
investment advisers employed by Federal savings associations must 
therefore register with the SEC).
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    Even under this approach, the OTS maintains some flexibility in 
determining what is investment advice. As noted, the OCC has issued a 
proposed interpretive ruling on the meaning of this phrase, and the OTS 
intends to follow that interpretation. Such guidance, in combination 
with the exemption in final Sec. 550.580(c), should suffice to ensure 
proper application of the concept of acting in a fiduciary capacity.
    Finally, the preamble to the proposed rule noted that bank 
employees who engage in certain securities transactions for customers 
are subject to various recordkeeping and confirmation requirements 
under the rules of the other Federal banking agencies.<SUP>6</SUP> The 
proposal sought comment on whether the OTS should issue a separate 
proposed rulemaking adopting those rules for employees of Federal 
savings associations.
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    \6\ 12 CFR part 12 (OCC); 12 CFR 208.8(k) (FRB); 12 CFR part 344 
(FDIC).
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    Two commenters noted that the other banking agencies are currently 
revising their rules. The commenters urged the

[[Page 67699]]

OTS to wait and see what revisions are made before engaging in formal 
rulemaking. The OTS agrees and has deferred consideration of this 
issue.

Section 550.60  What other definitions apply to this part?

    The proposed rule at Sec. 550.2 defined applicable law as ``the law 
of a State or other jurisdiction governing a Federal savings 
association's fiduciary relationships, any applicable Federal law 
governing those relationships, the terms of the instrument governing a 
fiduciary relationship, or any court order pertaining to the 
relationship.'' One commenter urged the OTS to specify that State law 
does not apply to the fiduciary activities of Federal savings 
association except to the extent specifically required by section 5(n) 
of the HOLA.
    The final rule does not adopt the commenter's suggestion. Both the 
OTS's Trust Activities Handbook and prior OTS precedent recognize that 
State law may apply to the fiduciary activities of a Federal savings 
association.<SUP>7</SUP> However, by defining applicable law to include 
``the law of a State * * * governing a fiduciary relationship,'' the 
OTS does not intend to affect its precedent in the area of Federal 
preemption. The fiduciary operations of Federal savings associations 
are subject to a complex interplay between Federal and State law.
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    \7\ OTS Trust Activities Handbook, Sec. 130 at 75 (1992); OTS 
Op. Chief Counsel (March 28, 1996) at 9. The example noted in both 
of these authorities is State probate law, which prescribes the 
standards of conduct of an institution acting as an executor.
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    The OTS has noted that although State law may apply, in certain 
circumstances, to the fiduciary operations of a Federal savings 
association, Federal law grants the OTS the plenary authority to 
regulate all aspects of the operations of Federal savings associations, 
including fiduciary operations.<SUP>8</SUP> 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.<SUP>9</SUP>
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    \8\ 12 U.S.C.A. 1464(a) (West Supp. 1995); OTS Op. Chief Counsel 
(March 28, 1996) at 8.
    \9\ OTS Op. Chief Counsel (March 28, 1996) at 8; OTS Trust 
Activities Handbook, Sec. 130 at 75 (1992).
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    Moreover, even though State law applies in limited circumstances, 
the next question is: ``Which State's laws apply?'' A Federal savings 
association is subject only to the laws of the State (or States) in 
which it is located. The OTS has found that a Federal savings 
association is located, for fiduciary purposes, in each State in which 
it operates a fiduciary office.<SUP>10</SUP> The OTS has further found 
that an association is not located in a State in which it only markets 
its fiduciary services <SUP>11</SUP> or performs certain activities 
incidental to serving as a testamentary trustee or a trustee holding 
real estate.<SUP>12</SUP>
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    \10\ 62 FR 39479; OTS Op. Chief Counsel (March 28, 1996).
    \11\ OTS Op. Chief Counsel (June 21, 1996).
    \12\ OTS Op. Chief Counsel (August 8, 1996).
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    The definition of applicable law is not intended to set an order of 
priority among the various authorities. Rather, the intent of the 
definition is to identify the various authorities that may govern a 
Federal savings association's fiduciary activities. Preemption and 
conflicts of law issues in the fiduciary area are highly fact-specific 
and cannot be resolved by reference to a general blanket rule of 
priority. The OTS believes the better practice is to continue to handle 
specific questions about the applicability of particular State laws on 
a case-by-case basis. Accordingly, the final rule adopts the proposed 
definition of applicable law.

Section 550.130  What fiduciary powers may a Federal savings 
association exercise?

    Proposed Sec. 550.4(a) stated that a Federal savings association 
may exercise only those fiduciary powers stated in the OTS's approval 
of a fiduciary application. Moreover, unless otherwise provided in the 
OTS's approval, a Federal savings association may exercise fiduciary 
powers only in those offices listed in the application.
    One commenter argued that the office limitation is restrictive, and 
that there is no valid legal or policy reason for requiring a Federal 
savings association to file a new application when it opens a new 
branch or office. The commenter argued that appropriate information 
about such expanded operations could be provided through a notice or 
approval process.
    The final rule adopts the proposed rule without substantive change. 
Like the proposed rule, Sec. 550.130 states that the location 
restriction only applies ``unless otherwise provided in the approval.'' 
This language gives the OTS the legal authority to specify at the time 
that it approves a fiduciary powers application that the applicant may 
expand the offices out of which it exercises approved fiduciary powers 
by simply filing a notice with the OTS. The willingness of the OTS to 
grant an initial approval that authorizes subsequent expansion through 
such a process will depend on a number of factors, including an 
institution's financial and managerial resources, history of regulatory 
compliance, level of fiduciary expertise, and so forth.
    Thus, a decision whether the OTS will authorize an expanded network 
under a notice process cannot be made until the initial fiduciary 
powers application is submitted and reviewed.<SUP>13</SUP> Since the 
proposed rule would permit the addition of new offices using notice 
process where appropriate, the commenter's revision has not been 
incorporated in the final rule. The proposed language is sufficient to 
alleviate the commenter's concern.
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    \13\ See OTS Op. Chief Counsel (December 24, 1992).
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Section 550.140  Must a Federal savings association adopt and follow 
written policies and procedures in exercising fiduciary powers?

    Proposed Sec. 550.6 set out the general standards that a Federal 
association must follow in exercising its fiduciary powers. The 
proposed rule specifically provided that a Federal savings association 
must exercise its fiduciary powers prudently and in compliance with 
applicable law.
    The proposed rule further provided that a Federal savings 
association must use standards in exercising its fiduciary powers that 
are consistent with safety and soundness, promote sound fiduciary 
administration, and enable the Federal savings association to 
adequately monitor the condition of its fiduciary operations. Unlike 
the OCC's fiduciary powers regulation, the proposed rule did not 
require a Federal savings association to maintain written policies and 
procedures governing the exercise of fiduciary powers. Compare 12 CFR 
9.5.
    Two commenters addressed proposed Sec. 550.6. One, a Federal 
savings association, supported the proposal. The other, a State 
regulatory agency, argued that the OTS should require Federal savings 
associations to develop, maintain, and follow procedures, especially in 
the areas of self-dealing and conflicts of interest. This commenter 
argued that written policies and procedures are necessary to properly 
manage risks in these areas.
    Upon further consideration, the OTS has determined that requiring 
written policies and procedures in this area is appropriate. Since 
1989, the OTS Trust Activities Handbook has ``strongly encouraged'' 
associations to adopt written policies and procedures covering all 
major aspects of their

[[Page 67700]]

fiduciary business, to communicate such policies to all interested 
personnel, to monitor compliance with the policies, and to periodically 
review and update the policies to ensure their current application. 
Comprehensive, well-developed policies and procedures on fiduciary 
activities, if followed, monitored, and enforced, are an effective 
method of preventing exposure to liability, operating loss and the loss 
of public confidence in the association. Such policies and procedures 
promote high-quality fiduciary administration, facilitate compliance 
with applicable laws and regulations, and increase operating 
efficiencies.
    Accordingly, consistent with the OCC's 12 CFR 9.5, the final rule 
adopts the requirement for written policies and procedures. 
Specifically, the OTS final rule requires Federal savings associations 
to adopt and follow written policies and procedures adequate to 
maintain its fiduciary activities in compliance with applicable law. 
The final rule also provides examples of areas that the policies and 
procedures should address, where appropriate. The list includes 
brokerage placement practices, the prevention of misuse of material 
inside information, the prevention of self-dealing and conflicts of 
interest, the selection and retention of legal counsel, and the 
investment of funds (including funds awaiting investment or 
distribution).<SUP>14</SUP> The OTS does not intend the list to be 
exhaustive.
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    \14\ We note that two of the listed areas are derived from 
requirements in current part 550. They are the use of material 
inside information in connection with any decision or recommendation 
to purchase or sell any security (current Sec. 550.5(c)) and the 
selection and retention of available legal counsel (current 
Sec. 550.5(d)).
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Section 550.260  How may a Federal savings association invest funds of 
a fiduciary account?

    Proposed Sec. 550.12(a) provided that, where consistent with 
applicable law, a Federal savings association may invest fiduciary 
assets in certain described collective investment funds. One commenter 
expressed concerns about the scope of this provision, specifically 
whether it authorized fiduciary assets to be invested in collective 
investment funds established under other authority, such as the OCC's 
collective investment funds regulation, 12 CFR 9.18.
    Upon review, the OTS has determined to significantly revise this 
section. A collective investment fund can be exempt from taxation if it 
is administered in accordance with applicable provisions of the 
Internal Revenue Code. Section 584 of the Internal Revenue Code exempts 
certain funds from taxation if they are administered in accordance with 
OCC regulations. This IRC section applies to funds established by 
savings associations as well as banks. As a result, the OTS fiduciary 
powers regulation has always incorporated the requirements of 12 CFR 
9.18 by reference. The OTS proposed rule included some of the OCC 
requirements applicable to collective investment funds and incorporated 
others by reference. By revising the final rule to incorporate all of 
the requirements by reference, the OTS believes it will reduce the 
confusion about the regulation's scope and applicability.
    New Sec. 550.260(b) authorizes a Federal savings association to 
invest fiduciary funds in a collective investment fund and to establish 
and administer such a fund. All such activities must be done in 
accordance with the OCC's detailed regulations governing this area. As 
a Federal savings association must already comply with those 
requirements in order to maintain the tax-exempt status of its 
collective investment fund, this change will help to reduce regulatory 
duplication and overlap, consistent with the objective of section 303 
of CDRIA.
    The final rule eliminates the language in Sec. 550.12(a), which 
caused the commenter's concern that the proposed rule would have 
prohibited a savings association from investing in an otherwise 
permissible collective investment fund maintained by an affiliated or 
unaffiliated State bank or trust company. Under Sec. 550.260(a), which 
replaces Sec. 550.11, a savings association is authorized to invest 
funds of a fiduciary account in a manner consistent with applicable 
law.<SUP>15</SUP>
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    \15\ Moreover, Sec. 9.18(a), which is intended to clarify that 
traditional common law prohibitions against commingling fiduciary 
assets do not affect a national bank's ability to invest in a 
collective investment fund maintained by the bank or an affiliated 
bank, addresses investments in collective investment funds 
maintained by an affiliated State chartered trust company. This 
provision permits a national bank to invest assets that it holds as 
fiduciary in a collective investment fund maintained by one or more 
affiliated ``banks'' exclusively for the collective investment and 
reinvestment of money contributed to the fund by the bank, or by one 
or more affiliated banks. Section 581 of the Internal Revenue Code, 
which the OCC regulation implements, defines ``bank'' to include ``a 
trust company incorporated and doing business under the laws of * * 
* any State, a substantial part of the business of which consists of 
* * * exercising fiduciary powers similar to those permitted to 
national banks under the authority of the [OCC], and which is 
subject by law to supervision and examination by State * * * 
authority having supervision over banking institutions.'' Under this 
definition, we believe that ``bank'' as used in the OCC regulation 
includes an affiliated State chartered trust company.
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Sections 550.290-550.320  Funds Awaiting Investment or Distribution

    Proposed Sec. 550.10(b)(1) and (c) stated that a Federal savings 
association with investment discretion or discretion over distributions 
may deposit funds awaiting investment or distribution in the 
commercial, savings, or other department of the association, or with an 
affiliated insured depository institution, unless the deposit is 
prohibited by applicable law. To the extent that the funds are not 
insured by the FDIC, the association is required to set aside 
acceptable collateral as security. See proposed Sec. 550.10(b)(2). The 
proposed provisions are adopted without substantive change at 
Secs. 550.290 through 550.320.
    Under the proposed rule, acceptable collateral includes surety 
bonds, to the extent that such bonds provide adequate security and are 
not prohibited by applicable law. See proposed Sec. 550.10(b)(2)(iv). 
One commenter urged the OTS to adopt a national standard allowing 
Federal savings associations to use security bonds, without regard to 
State prohibitions.
    Section 550.320(d) of the final rule continues to provide that 
surety bonds may be used to collateralize self-deposits unless 
prohibited by applicable law. This approach grants Federal savings 
associations the ability to collateralize self-deposits with surety 
bonds, while preserving for each State the ability to prohibit this 
practice for all fiduciaries operating in the State.

Sections 550.440-550.480  Audit Requirements

    Proposed Sec. 550.9 prescribed the audit requirements for fiduciary 
activities. The proposed rule required Federal savings associations to 
conduct an annual audit of significant fiduciary activities. 
Alternatively, the proposed rule permitted a continuous audit, which 
allows a Federal savings association to arrange for a discrete audit of 
each significant fiduciary activity at an interval commensurate with 
the nature and risk of the activity.<SUP>16</SUP> Under the proposed 
rule, all audits are conducted under the direction of the fiduciary 
audit committee. This committee may consist of a committee of the 
association's

[[Page 67701]]

directors or an audit committee of an affiliate of the association.
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    \16\ While recognizing that the frequency of discrete audits for 
Federal savings associations that use a continuous audit system will 
vary depending on the nature and risk of the activity being audited, 
the OTS does not intend to allow an association using a continuous 
audit system to avoid discrete audits indefinitely. Although the 
final rule does not specify how often such discrete audits must be 
conducted, they must occur at reasonable time frames.
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    One commenter supported the proposal to allow an audit committee of 
a savings and loan holding company to audit the fiduciary activities of 
its subsidiary Federal savings association. The commenter argued that 
the same option should be available to bank holding companies that own 
Federal savings associations.
    Although the preamble to the proposed rule addressed the audit 
committee of a savings and loan holding company, the language of the 
proposed rule permitted an audit committee of an affiliate to direct 
the audit. Affiliate, as defined in the rule, could include a savings 
and loan holding company and a bank holding company, provided that 
specified ownership, control or other criteria are met.<SUP>17</SUP> 
Accordingly, the proposed rule would permit these arrangements. The 
final rule at Sec. 550.470 is unchanged on this point.
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    \17\ See 12 U.S.C.A. 221a(b)(4) (West 1989).
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    In the preamble to the proposed rule, the OTS invited commenters to 
address the relationship between the audit requirement and the OTS's 
fiduciary examination process. In particular, the OTS sought comment on 
the extent to which examiners should rely on an association's internal 
or external fiduciary audits.
    One commenter, a Federal savings bank, supported an audit report-
based fiduciary examination policy. The commenter suggested that the 
OTS should first review an association's internal or external audit 
reports, and commence an on-site fiduciary examination only when those 
reports and any additional information indicated a basis for further 
examination. The commenter asserted that this approach would provide 
administrative savings and would not compromise safety and soundness or 
consumer protection. The OTS believes that the relationship between the 
audit and examination processes are properly addressed in OTS 
instructions to examiners and in the Handbook, rather than the rule. 
The OTS will consider these comments if it revises the Handbook or its 
examination instructions.

Sections 550.580-550.620  Activities Exempt From This Part

    Proposed Sec. 550.3 identified certain fiduciary activities that 
are not covered by part 550. This section incorporated current 
Sec. 545.102, which permits a Federal savings association to act as a 
trustee or custodian of an Individual Retirement Account or a Keogh 
account, including self-directed accounts. A Federal savings 
association may also act as a trustee with no active fiduciary duties 
so long as authorized by applicable law.
    Under proposed Sec. 550.3(b), however, a Federal savings 
association may invest the funds of the accounts in limited 
investments. The proposed rule also set forth existing requirements 
governing the administration of accounts and compensation. See proposed 
Sec. 550.3(c) and (d). These provisions are adopted in the final rule 
at subpart E, with one clarification. Final Sec. 550.600 has been 
revised to clarify that the limitations on investments apply only to 
Federal savings associations acting in the fiduciary capacities 
described under Sec. 550.580.
    The proposed rule at Sec. 550.3(e) required Federal savings 
associations to make certain disclosures where fiduciary accounts are 
not limited to FDIC-insured deposits. One commenter urged the OTS to 
eliminate this requirement as duplicative and unnecessary. The 
commenter noted that similar disclosures are required under the 
Interagency Statement on Retail Sales of Nondeposit Investment 
Products.
    The OTS disagrees. The Interagency Statement ``generally do[es] not 
apply to the sale of nondeposit investment products to non-retail 
customers, such as sales to fiduciary accounts administered by an 
institution.'' <SUP>18</SUP> To ensure that adequate disclosures are 
made to non-retail customers holding fiduciary accounts with Federal 
savings associations, the final rule adopts the proposed disclosure 
requirement. Final Sec. 550.610 has been slightly revised to clarify 
that the disclosure requirement only applies to Federal savings 
associations acting in the fiduciary capacities described under 
Sec. 550.580.
---------------------------------------------------------------------------

    \18\ Interagency Statement on Retail Sales of Nondeposit 
Investment Products at 3.
---------------------------------------------------------------------------

B. CRA Exemption

    The OTS also proposed to revise its regulations prescribing the 
scope of the CRA regulations to make the CRA's application to savings 
associations consistent with its application to banks. Under the 
current rule at Sec. 563e.11(c), the CRA regulations apply to all 
savings associations. By contrast, the CRA regulations of the other 
banking agencies exempt certain special purpose institutions, including 
fiduciaries, that do not perform commercial or retail banking services 
by extending credit to the public in the ordinary course of business, 
other than incident to their specialized operations.
    This regulatory exemption reflects the banking agencies' long-
standing policy in this area. The OTS's scope provisions differed from 
the other banking agencies' scope provisions because, at the time that 
the current rule at Sec. 563e.11(c) was promulgated, the OTS did not 
regulate any savings associations that could be considered special 
purpose institutions. This is no longer the case. Thus, the proposed 
amendment to the CRA regulations was intended to recognize the 
existence of special purpose savings associations and to provide the 
same regulatory treatment for such institutions as would be afforded 
them if they were regulated by one of the other banking agencies.
    One commenter, a community reinvestment organization, opposed any 
exemption to the CRA regulations. Instead, the commenter argued that 
the CRA should be expanded to include non-bank entities that provide 
bank-like services. The commenter argued that the OTS should refrain 
from adopting the exemption and that all the other agencies should 
eliminate it.
    By contrast, a Federal savings association argued that the proposed 
CRA exemption does not go far enough. It notes that the OCC recently 
approved a bank charter for a company that would provide bill payment 
services, checking, or other deposit accounts. The OCC approved the 
institution's request for designation as a wholesale or limited purpose 
bank.<SUP>19</SUP> The commenter argued that all such companies should 
be added to the list of examples in the proposed rule, even if the 
checking or other deposit accounts are linked to overdraft lines of 
credit or similar products.
---------------------------------------------------------------------------

    \19\ OCC Conditional Approval # 253 (August 20, 1997), 1997 OCC 
Ltr. LEXIS 98.
---------------------------------------------------------------------------

    The OTS has adopted the special purpose savings association 
exemption without change. The OTS believes that the other Federal 
banking agencies' exemption for similar institutions argues strongly 
for a parallel thrift exemption. Some thrifts now meet the definition 
of a special purpose institution. The OTS has, by interpretation, 
exempted these institutions from coverage under the CRA regulations in 
a manner identical to the way in which they would be treated if they 
operated with a bank charter and were regulated by one of the bank 
regulators. The amendment to the CRA regulations merely formalizes the 
OTS's interpretation of the CRA regulations' application to such 
charters. If any special purpose savings association takes deposits or 
extends credit to the public in the ordinary

[[Page 67702]]

course of business other than as incident to its specialized 
operations, so that it no longer falls within the regulatory 
definition, then it immediately becomes subject to CRA regulation and 
examination by the OTS. The OTS will monitor such savings associations' 
activities through its safety and soundness, compliance, and trust 
examinations.
    The OTS believes that any expansion of coverage of the CRA to 
include non-bank entities, as one of the commenters suggested, is a 
legislative issue. The OTS is not today expressing a view on whether 
such expansion would be appropriate or, if so, how it should be 
structured or implemented. The possibility that the CRA may be applied 
more broadly in the future does not convince the OTS that it should 
treat thrifts differently from banks in the interim.
    We also do not believe that the exemption should be unilaterally 
extended to entities that only provide bill payment services and 
checking or other deposit accounts, as one commenter suggested. We note 
that the OCC did not exempt such institutions from the CRA regulations. 
Rather, the OCC granted a request for a limited purpose designation, 
which means that a separate provision of the CRA regulations 
applies.<SUP>20</SUP> 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.
---------------------------------------------------------------------------

    \20\ 12 CFR 25.21(a)(2) and 25.25. The parallel OTS citations 
are 12 CFR 563e.21(a)(2) and 563e.25.
---------------------------------------------------------------------------

IV. Derivation Chart for Revised Part 550

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

----------------------------------------------------------------------------------------------------------------
          Revised provision              Former provision                          Comments                     
----------------------------------------------------------------------------------------------------------------
Sec.  550.10(a).....................  ......................  Added.                                            
Sec.  550.10(b).....................  Sec.  571.15..........  Modified and added.                               
Sec.  550.20........................  Sec.  550.1(k)........  Modified.                                         
Sec.  550.30........................  Sec.  550.1(c) and (h)  Significantly modified.                           
Sec.  550.40........................  Sec.  550.1(f)........  Modified.                                         
Sec.  550.50........................  Sec.  550.1(a)........  Modified.                                         
Sec.  550.60........................  Secs.  550.1(g) and     Significantly modified.                           
                                       (j).                                                                     
Secs.  550.70-120...................  Secs.  550.2(a)-(c)...  Modified.                                         
Sec.  550.130.......................  Sec.  550.2(d)........  Modified.                                         
Sec.  550.140.......................  Sec.  550.5(c) and (d)  Modified and new provisions added.                
Secs.  550.150-190..................  Secs.  550.5(a)(1),     Significantly modified.                           
                                       (b) and (e).                                                             
Secs.  550.200-220..................  Sec.  550.5(a)(2).....  Significantly modified.                           
Secs.  550.230-250..................  Sec.  550.11..........  Modified.                                         
Sec.  550.260.......................  Secs.  550.9 and        Significantly modified.                           
                                       550.13.                                                                  
Secs.  550.290-320..................  Sec.  550.8...........  Significantly modified.                           
Secs.  550.330-370..................  Sec.  550.10..........  Modified.                                         
Secs.  550.380-400..................  Sec.  550.12..........  Modified.                                         
Secs.  550.410-430..................  Secs.  550.5(a)(2) and  Significantly modified.                           
                                       550.6(a).                                                                
Secs.  550.440-480..................  Sec.  550.7...........  Significantly modified.                           
Secs.  550.490-510..................  Sec.  550.4...........  Significantly modified.                           
Sec.  550.520.......................  Sec.  550.15..........  Modified.                                         
Secs.  550.530-550..................  Sec.  550.14..........  Modified.                                         
Secs.  550.560-570..................  Sec.  550.16..........  Modified.                                         
Secs.  550.580-620..................  Sec.  545.102.........  Modified and added.                               
----------------------------------------------------------------------------------------------------------------

    The following provisions from the former part 550 have been removed 
in the final rule: Sec. 550.1(b); Sec. 550.1(d); Sec. 550.1(e); 
Sec. 550.1(h); Sec. 550.1(i); Sec. 550.3; Sec. 550.5(d); and 
Sec. 550.6(b).

V. Effective Date

    Section 553(d) of the Administrative Procedure Act (``APA'') 
requires an agency to publish a substantive rule at least 30 days 
before its effective date. Section 553(d)(1) of the APA, however, 
exempts substantive rules that relieve a restriction from the 30-day 
delayed effective date requirement.
    The final rule relieves regulatory restrictions. For example, the 
final rule eliminates certain requirements of the old regulations, such 
as former Sec. 550.3 (Consolidation or merger of two or more Federal 
savings associations), former Sec. 550.5(d) (Retention of legal 
counsel), and former Sec. 550.6(b) (Record of pending litigation). 
Moreover, the final rule clarifies some existing responsibilities. This 
final rule is therefore exempt from the 30-day delayed effective date 
requirement.

VI. Executive Order 12866

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

VII. Unfunded Mandates Reform Act of 1995

    Section 202 of the Unfunded Mandates Reform Act of 1995, Public Law 
104-4 (Unfunded Mandates Act), requires that an agency prepare a 
budgetary impact statement before promulgating a rule includes a 
Federal mandate that may result in expenditure by State, local, and 
tribal governments, in the aggregate, or by the private sector, of $100 
million or more in any one year. If a budgetary impact statement is 
required, Section 205 of the Unfunded Mandates Act also requires an 
agency to identify and consider a reasonable number of regulatory 
alternatives before promulgating a rule. OTS has determined that the 
final rule will not result in expenditures by State, local, or tribal 
governments or by the private sector of $100 million or more. 
Accordingly, a budgetary impact statement is not required under section 
202 of the Unfunded Mandates Act of 1995.

[[Page 67703]]

VIII. Regulatory Flexibility Act Analysis

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

IX. Reporting and Recordkeeping Requirements

    The collection of information requirements contained in this final 
rule have been submitted to and approved by the Office of Management 
and Budget in accordance with the Paperwork Reduction Act of 1995 (44 
U.S.C. 3507(d)) under OMB control number 1550-0037. Comments on the 
collections of information should be sent to the Office of Management 
and Budget, Paperwork Reduction Project (1550-0037), Washington, D.C. 
20503, with copies to the Office of Thrift Supervision, 1700 G Street, 
N.W., Washington, D.C. 20552.
    The collection of information requirements in this final rule are 
found in 12 CFR 550.70-550.120, 550.260, 550.410-550.430, 550.440-
550.480, and 550.530-550.550. The OTS requires this information for the 
proper supervision of Federal savings associations' fiduciary 
activities. The likely respondents/recordkeepers are Federal savings 
associations.
    Under the Paperwork Reduction Act of 1995, no persons are required 
to respond to a collection of information unless it displays a valid 
OMB control number. The valid OMB control number assigned to the 
collection of information in this final rule is displayed at 12 CFR 
506.1(b).

List of Subjects

12 CFR Part 545

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

12 CFR Part 550

    Accounting, Reporting and recordkeeping requirements, Savings 
associations, Trusts and trustees.

12 CFR Part 563e

    Community development, Credit, Investments, Reporting and 
recordkeeping requirements, Savings associations.

12 CFR Part 571

    Accounting, Conflict of interests, Investments, Reporting and 
Recordkeeping requirements, Savings associations.

Authority and Issuance

    Accordingly, the Office of Thrift Supervision amends Title 12, 
Chapter V, of the Code of Federal Regulations as set forth below:

PART 545--OPERATIONS

    1. The authority citation for part 545 continues to read as 
follows:

    Authority: 12 U.S.C. 1462a, 1463, 1464, 1828.


Sec. 545.102  [Removed]

    2. Section 545.102 is removed.
    3. Part 550 is revised to read as follows:

PART 550--FIDUCIARY POWERS OF SAVINGS ASSOCIATIONS

Sec.
550.10  What regulations govern the fiduciary operations of savings 
associations?
550.20  What are fiduciary powers?
550.30  What fiduciary capacities does this part cover?
550.40  When do I have investment discretion?
550.50  What is a fiduciary account?
550.60  What other definitions apply to this part?

Subpart A--Obtaining Fiduciary Powers

550.70  Must I obtain OTS approval before exercising fiduciary 
powers?
550.80  How do I obtain OTS approval?
550.90  What information must I include in my application?
550.100  What factors may the OTS consider in its review of my 
application?
550.110  Who will act on my application?
550.120  What action will the OTS take on my application?

Subpart B--Exercising Fiduciary Powers

550.130  What fiduciary powers may I exercise?
550.140  Must I adopt and follow written policies and procedures in 
exercising fiduciary powers?

Fiduciary Personnel and Facilities

550.150  Who is responsible for the exercise of fiduciary powers?
550.160  What personnel and facilities may I use to perform 
fiduciary services?
550.170  May my other departments or affiliates use fiduciary 
personnel and facilities to perform other services?
550.180  May I perform fiduciary services for, or purchase fiduciary 
services from, another association or entity?
550.190  Must fiduciary officers and employees be bonded?

Review of a Fiduciary Account

550.200  Must I review a prospective account before I accept it?
550.210  Must I conduct another review of an account after I accept 
it?
550.220  Are any other account reviews required?

Custody and Control of Assets

550.230  Who must maintain custody or control of assets in a 
fiduciary account?
550.240  May I hold investments of a fiduciary account off-premises?
550.250  Must I keep fiduciary assets separate from other assets?

Investing Funds of a Fiduciary Account

550.260  How may I invest funds of a fiduciary account?

Funds Awaiting Investment or Distribution

550.290  What must I do with fiduciary funds awaiting investment or 
distribution?
550.300  Where may I deposit fiduciary funds awaiting investment or 
distribution?
550.310  What if the FDIC does not insure the deposits?
550.320  What is acceptable collateral for uninsured deposits?

Restrictions on Self Dealing

550.330  Are there investments in which I may not invest funds of a 
fiduciary account?
550.340  May I exercise rights to purchase additional stock or 
fractional shares of my stock or obligations or the stock or 
obligations of my affiliates?
550.350  May I lend, sell, or transfer assets of a fiduciary account 
if I have an interest in the transaction?
550.360  May I make a loan to a fiduciary account that is secured by 
an interest in the assets in the account?
550.370  May I sell assets or lend money between fiduciary accounts?

Compensation, Gifts, and Bequests

550.380  May I earn compensation for acting in a fiduciary capacity?
550.390  May my officer or employee retain compensation for acting 
as a co-fiduciary?
550.400  May my fiduciary officer or employee accept a gift or 
bequest?

Recordkeeping Requirements

550.410  What records must I keep?
550.420  How long must I keep these records?
550.430  Must I keep fiduciary records separate and distinct from 
other records?

Audit Requirements

550.440  When do I have to audit my fiduciary activities?
550.450  What standards govern the conduct of the audit?
550.460  Who may conduct an audit?
550.470  Who directs the conduct of the audit?
550.480  How do I report the results of the audit?

[[Page 67704]]

Subpart C--Depositing Securities With State Authorities

550.490  When must I deposit securities with State authorities?
550.500  How much must I deposit if I administer fiduciary assets in 
more than one State?
550.510  What must I do if State authorities refuse my deposit?

Subpart D--Terminating Fiduciary Activities

Receivership or Liquidation

550.520  What happens if I am placed in receivership or voluntary 
liquidation?

Surrender of Fiduciary Powers

550.530  How do I surrender fiduciary powers?
550.540  When will the OTS terminate my fiduciary powers?
550.550  May I recover my deposit from State authorities?

Revocation of Fiduciary Powers

550.560  When may the OTS revoke my fiduciary powers?
550.570  What procedures govern the revocation?

Subpart E--Activities Exempt From This Part

550.580  When may I act in a fiduciary capacity without obtaining 
OTS approval?
550.590  What standards must I observe when acting in exempt 
fiduciary capacities?
550.600  How may I invest funds when acting in exempt fiduciary 
capacities?
550.610  What disclosures must I make when acting in exempt 
fiduciary capacities?
550.620  May I receive compensation for acting in exempt fiduciary 
capacities?

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


Sec. 550.10  What regulations govern the fiduciary operations of 
savings associations?

    (a) Federal savings associations. A Federal savings association 
(``you'') must conduct its fiduciary operations in accordance with 12 
U.S.C. 1464(n) and this part.
    (b) State-chartered savings associations. (1) A State-chartered 
savings association must conduct its fiduciary operations in accordance 
with applicable State law, and must exercise its fiduciary powers in a 
safe and sound manner. To ensure safe and sound operations, State-
chartered savings associations and their subsidiaries should follow the 
standards for the exercise of fiduciary powers in this part.
    (2) The OTS will monitor the fiduciary operations of State-
chartered savings associations and their subsidiaries to ensure that 
those operations are conducted in a safe and sound manner. The OTS may 
object to practices that deviate materially from the practices 
described in this part, and may restrict or prohibit activities that 
threaten the safety and soundness of a State-chartered savings 
association.


Sec. 550.20  What are fiduciary powers?

    Fiduciary powers are the authority that the OTS permits you to 
exercise under 12 U.S.C. 1464(n). The scope of permissible fiduciary 
powers depends on the powers that the State in which you are located 
grants to competing fiduciaries in that State.


Sec. 550.30  What fiduciary capacities does this part cover?

    You are subject to this part if you act in a fiduciary capacity, 
except as described in subpart E of this part. You act in a fiduciary 
capacity when you act in any of the following capacities:
    (a) Trustee.
    (b) Executor.
    (c) Administrator.
    (d) Registrar of stocks and bonds.
    (e) Transfer agent.
    (f) Assignee.
    (g) Receiver.
    (h) Guardian or conservator of the estate of a minor, an 
incompetent person, an absent person, or a person over whose estate a 
court has taken jurisdiction, other than under bankruptcy or insolvency 
laws.
    (i) A fiduciary in a relationship established under a State law 
that is substantially similar to the Uniform Gifts to Minors Act or the 
Uniform Transfers to Minors Act as published by the American Law 
Institute.
    (j) Investment adviser, if you receive a fee for your investment 
advice.
    (k) Any capacity in which you have investment discretion on behalf 
of another.
    (l) Any other similar capacity that the OTS may authorize under 12 
U.S.C. 1464(n).


Sec. 550.40  When do I have investment discretion?

    (a) General. You have investment discretion when you have, with 
respect to a fiduciary account, the sole or shared authority to 
determine what securities or other assets to purchase or sell on behalf 
of that account. It does not matter whether you have exercised this 
authority.
    (b) Delegations. You retain investment discretion if you delegate 
investment discretion to another. You also have investment discretion 
if you receive delegated authority to exercise investment discretion 
from another.


Sec. 550.50  What is a fiduciary account?

    A fiduciary account is an account that you administer acting in a 
fiduciary capacity.


Sec. 550.60  What other definitions apply to this part?

    Affiliate has the same meaning as in 12 U.S.C. 221a(b). For 
purposes of this part, substitute the term ``Federal savings 
association'' for the term ``member bank'' whenever it appears in 12 
U.S.C. 221a(b).
    Applicable law means the law of a State or other jurisdiction 
governing your fiduciary relationships, any Federal law governing those 
relationships, the terms of the instrument governing a fiduciary 
relationship, and any court order pertaining to the relationship.
    Fiduciary officers and employees means the officers and employees 
of a Federal savings association to whom the board of directors or its 
designee has assigned functions involving the exercise of the 
association's fiduciary powers.

Subpart A--Obtaining Fiduciary Powers


Sec. 550.70  Must I obtain OTS approval before exercising fiduciary 
powers?

    Unless you are covered by subpart E of this part, you must obtain 
prior approval from the OTS before exercising fiduciary powers.


Sec. 550.80  How do I obtain OTS approval?

    You must file an application under Sec. 516.1(c) of this chapter.


Sec. 550.90  What information must I include in my application?

    You must describe the fiduciary powers that you or your affiliate 
will exercise. You must also include information necessary to enable 
the OTS to make the determinations described in Sec. 550.100.


Sec. 550.100  What factors may the OTS consider in its review of my 
application?

    The OTS may consider the following factors when reviewing your 
application:
    (a) Your financial condition.
    (b) Your capital and whether that capital is sufficient under the 
circumstances.
    (c) Your overall performance.
    (d) The fiduciary powers you propose to exercise.
    (e) Your proposed supervision of those powers.
    (f) The availability of legal counsel.
    (g) The needs of the community to be served.
    (h) Any other facts or circumstances that the OTS considers proper.


Sec. 550.110  Who will act on my application?

    The Director of OTS may act on any application. The Regional 
Director may

[[Page 67705]]

act on an application if it does not raise any significant issues of 
law or policy on which the OTS has not taken a formal position.


Sec. 550.120  What action will the OTS take on my application?

    The OTS may approve or deny your application. If your application 
is approved, the OTS may impose conditions to ensure that the 
requirements of this part are met.

Subpart B--Exercising Fiduciary Powers


Sec. 550.130  What fiduciary powers may I exercise?

    You may exercise only those fiduciary powers specified in the OTS 
approval under Sec. 550.120. Unless otherwise provided in the approval, 
you may exercise fiduciary powers only from those offices listed in the 
application.


Sec. 550.140  Must I adopt and follow written policies and procedures 
in exercising fiduciary powers?

    You must adopt and follow written policies and procedures adequate 
to maintain your fiduciary activities in compliance with applicable 
law. Among other relevant matters, the policies and procedures should 
address, where appropriate, the following areas:
    (a) Your brokerage placement practices.
    (b) Your methods for ensuring that your fiduciary officers and 
employees do not use material inside information in connection with any 
decision or recommendation to purchase or sell any security.
    (c) Your methods for preventing self-dealing and conflicts of 
interest.
    (d) Your selection and retention of legal counsel who is ready and 
available to advise you and your fiduciary officers and employees on 
fiduciary matters.
    (e) Your investment of funds held as fiduciary, including short-
term investments and the treatment of fiduciary funds awaiting 
investment or distribution.

Fiduciary Personnel and Facilities


Sec. 550.150  Who is responsible for the exercise of fiduciary powers?

    The exercise of your fiduciary powers must be managed by or under 
the direction of your board of directors. In discharging its 
responsibilities, the board may assign any function related to the 
exercise of fiduciary powers to any director, officer, employee, or 
committee of directors, officers, or employees.


Sec. 550.160  What personnel and facilities may I use to perform 
fiduciary services?

    You may use your qualified personnel and facilities or an 
affiliate's qualified personnel and facilities to perform services 
related to the exercise of fiduciary powers.


Sec. 550.170  May my other departments or affiliates use fiduciary 
personnel and facilities to perform other services?

    Your other departments or affiliates may use fiduciary officers, 
employees, and facilities to perform services unrelated to the exercise 
of fiduciary powers, to the extent not prohibited by applicable law.


Sec. 550.180  May I perform fiduciary services for, or purchase 
fiduciary services from, another association or entity?

    You may perform services related to the exercise of fiduciary 
powers for another association or other entity under a written 
agreement. You may also purchase services related to the exercise of 
fiduciary powers from another association or other entity under a 
written agreement.


Sec. 550.190  Must fiduciary officers and employees be bonded?

    You must obtain an adequate bond for all fiduciary officers and 
employees.

Review of a Fiduciary Account


Sec. 550.200  Must I review a prospective account before I accept it?

    Before accepting a prospective fiduciary account, you must review 
it to determine whether you can properly administer the account.


Sec. 550.210  Must I conduct another review of an account after I 
accept it?

    After you accept a fiduciary account for which you have investment 
discretion, you must conduct a prompt review of all assets of the 
account to evaluate whether they are appropriate, individually and 
collectively, for the account.


Sec. 550.220  Are any other account reviews required?

    At least once every calendar year, you must conduct a review of all 
assets of each fiduciary account for which you have investment 
discretion. In this review, you must evaluate whether the assets are 
appropriate, individually and collectively, for the account.

Custody and Control of Assets


Sec. 550.230  Who must maintain custody or control of assets in a 
fiduciary account?

    You must place assets of fiduciary accounts in the joint custody or 
control of not fewer than two fiduciary officers or employees 
designated for that purpose by the board of directors.


Sec. 550.240  May I hold investments of a fiduciary account off-
premises?

    You may hold the investments of a fiduciary account off-premises, 
if this practice is consistent with applicable law, and you maintain 
adequate safeguards and controls.


Sec. 550.250  Must I keep fiduciary assets separate from other assets?

    You must keep the assets of fiduciary accounts separate from your 
other assets. You must also keep the assets of each fiduciary account 
separate from all other accounts, or you must identify the investments 
as the property of a particular account, except as provided in 
Secs. 550.260.

Investing Funds of a Fiduciary Account


Sec. 550.260  How may I invest funds of a fiduciary account?

    (a) General. You must invest funds of a fiduciary account in a 
manner consistent with applicable law.
    (b) Collective investment funds. (1) You may invest funds of a 
fiduciary account in a collective investment fund, including a 
collective investment fund that you have established. In establishing 
and administering such funds, you must comply with 12 CFR 9.18.
    (2) If you must file a document with the Comptroller of the 
Currency under 12 CFR 9.18, you must also file that document with OTS 
under Sec. 516.1(c) of this chapter. The OTS may review such documents 
for compliance with this part and other laws and regulations.
    (3) ``Bank'' and ``national bank'' as used in 12 CFR 9.18 shall be 
deemed to include a Federal savings association.

Funds Awaiting Investment or Distribution


Sec. 550.290  What must I do with fiduciary funds awaiting investment 
or distribution?

    If you have investment discretion or discretion over distributions 
for a fiduciary account which contains funds awaiting investment or 
distribution, you must ensure that those funds do not remain uninvested 
and undistributed any longer than is reasonable for the proper 
management of the account and consistent with applicable law. You also 
must obtain a rate of return for those funds that is consistent with 
applicable law.


Sec. 550.300  Where may I deposit fiduciary funds awaiting investment 
or distribution?

    (a) Self deposits. You may deposit funds of a fiduciary account 
that are awaiting investment or distribution in

[[Page 67706]]

your other departments, unless prohibited by applicable law.
    (b) Affiliate deposits. You may also deposit funds of a fiduciary 
account that are awaiting investment or distribution with an affiliated 
insured depository institution, unless prohibited by applicable law.


Sec. 550.310  What if the FDIC does not insure the deposits?

    If the FDIC does not insure the entire amount of a self deposit or 
an affiliate deposit, you must set aside collateral as security. The 
market value of the collateral must at all times equal or exceed the 
amount of the uninsured fiduciary funds. You must place the collateral 
under the control of appropriate fiduciary officers and employees.


Sec. 550.320  What is acceptable collateral for uninsured deposits?

    Any of the following is acceptable collateral for self deposits or 
affiliate deposits under Sec. 550.310:
    (a) Direct obligations of the United States, or other obligations 
fully guaranteed by the United States as to principal and interest.
    (b) Readily marketable securities of the classes in which State-
chartered corporate fiduciaries are permitted to invest fiduciary funds 
under applicable State law.
    (c) Other readily marketable securities as the OTS may determine.
    (d) Surety bonds, to the extent they provide adequate security, 
unless prohibited by applicable law.
    (e) Any other assets that qualify under applicable State law as 
appropriate security for deposits of fiduciary funds.

Restrictions on Self Dealing


Sec. 550.330  Are there investments in which I may not invest funds of 
a fiduciary account?

    You may not invest funds of a fiduciary account for which you have 
investment discretion in the following assets, unless authorized by 
applicable law:
    (a) The stock or obligations of, or assets acquired from, you or 
any of your directors, officers, or employees.
    (b) The stock or obligations of, or assets acquired from, your 
affiliates or any of their directors, officers, or employees.
    (c) The stock or obligations of, or assets acquired from, other 
individuals or organizations if you have an interest in the individual 
or organization that might affect the exercise of your best judgment.


Sec. 550.340  May I exercise rights to purchase additional stock or 
fractional shares of my stock or obligations or the stock or 
obligations of my affiliates?

    If the retention of investments in your stock or obligations or the 
stock or obligations of an affiliate in fiduciary accounts is 
consistent with applicable law, you may do either of the following:
    (a) Exercise rights to purchase additional stock (or securities 
convertible into additional stock) when these rights are offered pro 
rata to stockholders.
    (b) Purchase fractional shares to complement fractional shares 
acquired through the exercise of rights or through the receipt of a 
stock dividend resulting in fractional share holdings.


Sec. 550.350  May I lend, sell, or transfer assets of a fiduciary 
account if I have an interest in the transaction?

    (a) General restriction. Except as provided in paragraph (b) of 
this section, you may not lend, sell, or otherwise transfer assets of a 
fiduciary account for which you have investment discretion to yourself 
or any of your directors, officers, or employees; to your affiliates or 
any of their directors, officers, or employees; or to other individuals 
or organizations with whom you have an interest that might affect the 
exercise of your best judgment.
    (b) Exceptions.--(1) Funds for which you have investment 
discretion. You may lend, sell or otherwise transfer assets of a 
fiduciary account for which you have investment discretion to yourself 
or any of your directors, officers, or employees; to your affiliates or 
any of their directors, officers, or employees; or to other individuals 
or organizations with whom you have an interest that might affect the 
exercise of your best judgment, if you meet one of the following 
conditions:
    (i) The transaction is authorized by applicable law.
    (ii) Legal counsel advises you in writing that you have incurred, 
in your fiduciary capacity, a contingent or potential liability. Upon 
the sale or transfer of assets, you must reimburse the fiduciary 
account in cash in an amount equal to the greater of book or market 
value of the assets.
    (iii) The transaction is permitted under 12 CFR 9.18(b)(8)(iii) for 
defaulted fixed-income investments.
    (iv) The OTS requires you to do so.
    (2) Funds held as trustee. You may make loans of funds held in 
trust to any of your directors, officers, or employees if the funds are 
held in an employee benefit plan and the loan is made in accordance 
with the exemptions found at section 408 of the Employee Retirement 
Income Security Act of 1974 (29 U.S.C. 1108).


Sec. 550.360  May I make a loan to a fiduciary account that is secured 
by an interest in the assets of the account?

    You may make a loan to a fiduciary account that is secured by an 
interest in the assets of the account, if the transaction is fair to 
the account and is not prohibited by applicable law.


Sec. 550.370  May I sell assets or lend money between fiduciary 
accounts?

    You may sell assets or lend money between fiduciary accounts, if 
the transaction is fair to both accounts and is not prohibited by 
applicable law.

Compensation, Gifts, and Bequests


Sec. 550.380  May I earn compensation for acting in a fiduciary 
capacity?

    If the amount of your compensation for acting in a fiduciary 
capacity is not set or governed by applicable law, you may charge a 
reasonable fee for your services.


Sec. 550.390  May my officer or employee retain compensation for acting 
as a co-fiduciary?

    You may not permit your officers or employees to retain any 
compensation for acting as a co-fiduciary with you in the 
administration of a fiduciary account, except with the specific 
approval of your board of directors.


Sec. 550.400  May my fiduciary officer or employee accept a gift or 
bequest?

    You may not permit any fiduciary officer or employee to accept a 
bequest or gift of fiduciary assets, unless the bequest or gift is 
directed or made by a relative of the officer or employee or is 
specifically approved by your board of directors.

Recordkeeping Requirements


Sec. 550.410  What records must I keep?

    You must keep adequate records for all fiduciary accounts. For 
example, you must keep documents on the establishment and termination 
of each fiduciary account.


Sec. 550.420  How long must I keep these records?

    You must keep fiduciary records for three years after the 
termination of the account or the termination of any litigation 
relating to the account, whichever is later.


Sec. 550.430  Must I keep fiduciary records separate and distinct from 
other records?

    You must keep fiduciary records separate and distinct from your 
other records.

[[Page 67707]]

Audit Requirements


Sec. 550.440  When do I have to audit my fiduciary activities?

    (a) Annual Audit. If you do not use a continuous audit system 
described in paragraph (b) of this section, then you must arrange for a 
suitable audit of all significant fiduciary activities at least once 
during each calendar year.
    (b) Continuous audit. Instead of an annual audit, you may adopt a 
continuous audit system. Under a continuous audit system, you must 
arrange for a discrete audit of each significant fiduciary activity 
(i.e., on an activity-by-activity basis) at an interval commensurate 
with the nature and risk of that activity. Some fiduciary activities 
may receive audits at intervals greater or less than one year, as 
appropriate.


Sec. 550.450  What standards govern the conduct of the audit?

    Auditors must follow generally accepted standards for attestation 
engagements and other standards established by the OTS. An audit must 
ascertain whether your internal control policies and procedures provide 
reasonable assurance of three things:
    (a) You are administering fiduciary activities in accordance with 
applicable law.
    (b) You are properly safeguarding fiduciary assets.
    (c) You are accurately recording transactions in appropriate 
accounts in a timely manner.


Sec. 550.460  Who may conduct an audit?

    Internal auditors, external auditors, or other qualified persons 
who are responsible only to the board of directors, may conduct an 
audit.


Sec. 550.470  Who directs the conduct of the audit?

    Your fiduciary audit committee directs the conduct of the audit. 
Your fiduciary audit committee may consist of a committee of your 
directors or an audit committee of an affiliate. There are two 
restrictions on who may serve on the committee:
    (a) Your officers and officers of an affiliate who participate 
significantly in administering your fiduciary activities may not serve 
on the audit committee.
    (b) A majority of the members of the audit committee may not serve 
on any committee to which the board of directors has delegated power to 
manage and control your fiduciary activities.


Sec. 550.480  How do I report the results of the audit?

    (a) Annual audit. If you conduct an annual audit, you must note the 
results of the audit (including significant actions taken as a result 
of the audit) in the minutes of the board of directors.
    (b) Continuous audit. If you adopt a continuous audit system, you 
must note the results of all discrete audits conducted since the last 
audit report (including significant actions taken as a result of the 
audits) in the minutes of the board of directors at least once during 
each calendar year.

Subpart C--Depositing Securities With State Authorities


Sec. 550.490  When must I deposit securities with State authorities?

    You must deposit securities with a State's authorities or, if 
applicable, a Federal Home Loan Bank under Sec. 550.510, if you meet 
all of the following:
    (a) You are located in the State.
    (b) You act as a private or court-appointed trustee.
    (c) The law of the State requires corporations acting in a 
fiduciary capacity to deposit securities with State authorities for the 
protection of private or court trusts.


Sec. 550.500  How much must I deposit if I administer fiduciary assets 
in more than one State?

    If you administer fiduciary assets in more than one State, you must 
compute the amount of deposit required for each State on the basis of 
fiduciary assets that you administer primarily from offices located in 
that State.


Sec. 550.510  What must I do if State authorities refuse my deposit?

    If State authorities refuse to accept your deposit under 
Sec. 550.490, you must deposit the securities with the Federal Home 
Loan Bank of which you are a member. The Federal Home Loan Bank will 
hold the securities for the protection of private or court trusts to 
the same extent as if the securities had been deposited with State 
authorities.

Subpart D--Terminating Fiduciary Activities

Receivership or Liquidation


Sec. 550.520  What happens if I am placed in receivership or voluntary 
liquidation?

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

Surrender of Fiduciary Powers


Sec. 550.530  How do I surrender fiduciary powers?

    If you want to surrender your fiduciary powers, you must file a 
certified copy of a resolution of your board of directors evidencing 
that intent. You must file the resolution with the OTS under Sec. 516.1 
of this chapter.


Sec. 550.540  When will the OTS terminate my fiduciary powers?

    If, after appropriate investigation, the Regional Director is 
satisfied that you have been discharged from all fiduciary duties, the 
Regional Director will issue a written notice indicating that you are 
no longer authorized to exercise fiduciary powers.


Sec. 550.550  May I recover my deposit from State authorities?

    Upon issuance of the OTS written notice under Sec. 550.540, you may 
recover any securities deposited with State authorities, or a Federal 
Home Loan Bank, under subpart C of this part.

Revocation of Fiduciary Powers


Sec. 550.560  When may the OTS revoke my fiduciary powers?

    The OTS may revoke your fiduciary powers if it determines that you 
have done any of the following:
    (a) Exercised those fiduciary powers unlawfully or unsoundly.
    (b) Failed to exercise those fiduciary powers for five consecutive 
years.
    (c) Otherwise failed to follow the requirements of this part.


Sec. 550.570  What procedures govern the revocation?

    The procedures for revocation of fiduciary powers are set forth in 
12 U.S.C. 1464(n)(10). The OTS will conduct the hearing required under 
12 U.S.C. 1464(n)(10)(B) under part 509 of this chapter.

Subpart E--Activities Exempt From This Part


Sec. 550.580  When may I act in a fiduciary capacity without obtaining 
OTS approval?

    You do not need OTS approval under subpart B if you act in one of 
the following fiduciary capacities:
    (a) Trustee of a trust created or organized in the United States 
and forming part of a stock bonus, pension, or profit-sharing plan 
qualifying for specific tax treatment under section 401(d) of the 
Internal Revenue Code of 1954 (26 U.S.C. 401(d)).
    (b) Trustee or custodian of a Individual Retirement Account within 
the meaning of section 408(a) of the Internal Revenue Code of 1954 (26 
U.S.C. 408(a)).

[[Page 67708]]

    (c) Trustee of a fiduciary account that involves no active 
fiduciary duties provided that the applicable law authorizes the 
savings association to act in this capacity.


Sec. 550.590  What standards must I observe when acting in exempt 
fiduciary capacities?

    You must observe principles of sound fiduciary administration, 
including those related to recordkeeping and segregation of assets.


Sec. 550.600  How may I invest funds when acting in exempt fiduciary 
capacities?

    If you act in an exempt fiduciary capacity under Sec. 550.580, you 
may invest the funds of the fiduciary account in only the following:
    (a) Your accounts, deposits, obligations, or securities.
    (b) Other assets as the customer may direct, provided you do not 
exercise any investment discretion and do not directly or indirectly 
provide any investment advice for the fiduciary account.


Sec. 550.610  What disclosures must I make when acting in exempt 
fiduciary capacities?

    If you act in an exempt fiduciary capacity under Sec. 550.580 and 
fiduciary investments are not limited to accounts or deposits insured 
by the FDIC, you must include the following language in bold type on 
the first page of any contract documents:

    Funds invested pursuant to this agreement are not insured by the 
Federal Deposit Insurance Corporation (``FDIC'') merely because the 
trustee or custodian is a Federal savings association the accounts 
of which are covered by such insurance. Only investments in the 
accounts of a Federal savings association are insured by the FDIC, 
subject to its rules and regulations.


Sec. 550.620  May I receive compensation for acting in exempt fiduciary 
capacities?

    You may receive reasonable compensation.

PART 563e--COMMUNITY REINVESTMENT

    4. The authority citation for part 563e continues to read as 
follows:

    Authority: 12 U.S.C. 1462a, 1463, 1464, 1467a, 1814, 1816, 
1828(c) and 2901 through 2907.

    5. Section 563e.11 is amended by revising paragraph (c) to read as 
follows:


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

* * * * *
    (c) Scope--(1) General. This part applies to all savings 
associations except as provided in paragraph (c)(2) of this section.
    (2) Certain special purpose savings associations. This part does 
not apply to special purpose savings associations that do not perform 
commercial or retail banking services by granting credit to the public 
in the ordinary course of business, other than as incident to their 
specialized operations. These associations include banker's banks, as 
defined in 12 U.S.C. 24 (Seventh), and associations that engage only in 
one or more of the following activities: providing cash management 
controlled disbursement services or serving as correspondent 
associations, trust companies, or clearing agents.

PART 571--STATEMENTS OF POLICY

    6. The authority citation for part 571 continues to read as 
follows:

    Authority: 5 U.S.C. 552, 559; 12 U.S.C. 1462a, 1463, 1464.


Sec. 571.15  [Removed]

    7. Section 571.15 is removed.

    Dated: December 19, 1997.

    By the Office of Thrift Supervision.
Ellen Seidman,
Director.
[FR Doc. 97-33726 Filed 12-29-97; 8:45 am]
BILLING CODE 6720-01-P