[Federal Register Volume 66, Number 127 (Monday, July 2, 2001)]
[Rules and Regulations]
[Pages 34792-34798]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-16329]


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DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

12 CFR Parts 5 and 9

[Docket No. 01-14]
RIN 1557-AB79


Fiduciary Activities of National Banks

AGENCY: Office of the Comptroller of the Currency, Treasury.

ACTION: Final rule.

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SUMMARY: The Office of the Comptroller of the Currency (OCC) is 
publishing its final rule regarding the authority and standards for 
national banks to conduct multi-state trust operations. The purpose of 
these changes is to provide enhanced guidance to national banks 
engaging in fiduciary activities.

EFFECTIVE DATE: August 1, 2001.

FOR FURTHER INFORMATION CONTACT: Lisa Lintecum, Director, or Joel 
Miller, Senior Advisor, Asset Management, (202) 874-4447; Richard 
Cleva, Senior Counsel, Bank Activities and Structure Division, (202) 
874-5300; Andra Shuster, Counsel, Legislative and Regulatory Activities 
Division, (202) 874-5090; or William Dehnke, Assistant Director, 
Securities and Corporate Practices Division, (202) 874-5210.

SUPPLEMENTARY INFORMATION: On December 5, 2000, the OCC published a 
notice of proposed rulemaking (NPRM) in the Federal Register (65 FR 
75872) to amend 12 CFR part 9 to add provisions addressing the 
application of 12 U.S.C. 92a in the context of a national bank engaging 
in fiduciary activities in more than one state. The purpose of the 
rulemaking was to provide clarity and certainty for national banks' 
multi-state fiduciary activities. The standards contained in the NPRM 
reflected positions taken in three earlier OCC Interpretive Letters.\1\ 
Interpretive Letter No. 695 found that a national bank authorized to 
engage in fiduciary activities may act in a fiduciary capacity in any 
state that permits its own in-state fiduciaries to act in that 
capacity, including at trust offices. Interpretive Letters Nos. 866 and 
872 clarified that a national bank that acts in a fiduciary capacity in 
one state may market its fiduciary services to customers in other 
states, solicit business from them, and act as fiduciary for customers 
located in other states. The NPRM and the final rule are based upon the 
detailed analysis contained in these Interpretive Letters.
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    \1\ OCC Interpretive Letter No. 872 (Oct. 28, 1999) reprinted in 
[1999-2000 Transfer Binder] Fed. Banking L. Rep. (CCH) para.81-366 
(IL 872); OCC Interpretive Letter No. 866 (Oct. 8, 1999) reprinted 
in (1999-2000 Transfer Binder] Fed. Banking L. Rep. (CCH) para.81-
360 (IL 866); and OCC Interpretive Letter No. 695 (Dec. 8, 1995), 
reprinted in [1995-1996 Transfer Binder] Fed. Banking L. Rep. (CCH) 
para. 81-010 (IL 695).
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    Along with the NPRM, we also published an advance notice of 
proposed rulemaking (ANPR) inviting comments on whether the OCC should 
establish uniform national standards for the conduct of fiduciary 
activities by national banks. The ANPR invited comments on whether 
uniform standards of care generally applicable to national bank 
trustees' administration of private trusts and investment of private 
trust property should be established.
    We received comments on both the NPRM and the ANPR. As discussed 
further below, comments on the NPRM predominantly were favorable. 
Comments on the ANPR were more mixed, raising a significant number of 
issues that will require additional analysis before any determination 
is made concerning how to proceed. Rather than delay addressing the 
issues covered by the OCC interpretations, we are issuing this final 
rule, which covers only the matters included in the NPRM, and are 
reserving a decision whether to proceed with a proposal to establish 
uniform fiduciary standards pending completion of our analysis of the 
issues raised by the commenters.
    The OCC received 25 comments on the NPRM. These comments included 4 
from state bank supervisors' offices, 1 from a state bank supervisors' 
organization, 6 from banking trade associations, 13 from banks and bank 
holding companies, and 1 from a law firm. Most of the commenters 
supported the proposed changes, although several offered additional 
suggestions for changes. The state bank supervisors disagreed with the 
proposal and expressed concern about the effect the rule would have on 
the application of state laws to national banks engaged in fiduciary 
activities.
    For the reasons discussed below, we have adopted the provisions of 
the NPRM substantially as proposed, but have made a number of changes 
in response to the comments received to clarify certain provisions.

Description of Proposal, Comments Received, and Final Rule

Definitions (Revised Sec. 9.2)

    Proposed Sec. 9.2 defined ``trust office'' and ``trust 
representative office'' in Secs. 9.2(j) and (k), respectively. A 
``trust office'' was defined as an office of a national bank, other 
than a main office or a branch, at which the bank acts in a fiduciary 
capacity. A ``trust representative office'' was defined as an office of 
a national bank, other than a main office, branch, or trust office, at 
which the bank performs activities ancillary to its fiduciary business, 
but does not act in a fiduciary capacity.
    The final rule modifies the definition of trust office to clarify 
that it includes all offices where the bank engages in one or more of 
the key fiduciary activities specified in Sec. 9.7(d)--i.e., accepting 
the fiduciary appointment, executing the documents that create the 
fiduciary relationship, or making discretionary decisions regarding the 
investment or distribution of fiduciary assets. The definition in the 
proposal focused on where the bank acted in a fiduciary capacity (where 
the key fiduciary activities were performed) and implicitly assumed 
that all of the key fiduciary activities would be performed in one 
state for each fiduciary relationship (so that ``acting in a fiduciary 
capacity'' and performing the key activities were the same). However, 
as discussed in detail below in connection with Sec. 9.7(d), in some 
instances, the key activities may be performed at offices in different 
states for some fiduciary relationships. In those instances, as 
provided in Sec. 9.7(d)

[[Page 34793]]

a bank must determine one state in which it acts in a fiduciary 
capacity for purposes of 12 U.S.C. 92a. That means that there will 
remain other offices in other states in which the bank performs key 
fiduciary activities that, under the definition in the proposal, would 
not have been considered to be trust offices. However, our intention 
was that because each of these key activities is significant standing 
alone, all offices in which a bank engages in any of the key fiduciary 
activities should be considered to be trust offices. Therefore, the 
final rule clarifies the definition of ``trust office'' to be an office 
of a national bank, other than a main office or a branch, at which the 
national bank engages in one or more of the activities specified in 
Sec. 9.7(d). A corresponding change has been made to Sec. 9.2(k). A 
``trust representative office'' is defined as an office of a national 
bank, other than a main office, branch, or trust office, at which the 
bank performs activities ancillary to its fiduciary business, but does 
not engage in any of the activities specified in Sec. 9.7(d).
    Section 9.2(k) of the proposal listed the following examples of 
ancillary activities: advertising, marketing, and soliciting for 
fiduciary business; contacting existing or potential customers, 
answering questions, and providing information about matters related to 
their accounts; acting as a liaison between the trust office and the 
customer (e.g., forwarding requests for distribution or changes in 
investment objectives, or forwarding forms and funds received from the 
customer); or simply inspecting or maintaining custody of fiduciary 
assets.
    A number of commenters suggested that various activities be added 
to the list of examples of ancillary activities. The list of ancillary 
activities set forth in Sec. 9.2(k) is illustrative only, however, and 
not all-inclusive. While the OCC considers many of the suggested 
activities to be ancillary activities, we have not included most of 
them in the text of the final rule because the list set out in the 
definition is not intended to be comprehensive. A national bank may 
therefore identify additional activities as ancillary without seeking 
the express concurrence of the OCC. To make this clear, we have added 
to the text of the final rule an express statement that the items on 
the list are illustrative and that other activities may also be 
``ancillary'' for the purposes of the definition.\2\
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    \2\ Classifying activities as ``ancillary'' in Secs. 9.2(j) and 
(k) is meant only to assist in the determination of the state in 
which the bank is acting in a fiduciary capacity for section 92a 
purposes. Only the key fiduciary activities in Sec. 9.7(d) are 
relevant for determining that state: all other activities are 
``ancillary'' for this purpose. This classification does not affect 
the importance of such activities or change in any way a bank's 
fiduciary duty with respect to such activities.
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    Two commenters urged that holding title to real property in any 
state be added to the list of ancillary activities in Sec. 9.2(k), 
because some state laws attempt to prohibit out-of-state entities from 
taking title to real property without a state license or other 
authorization. Because this appears to be a specific issue warranting 
clarification, we have added holding title to real estate to the list 
of ancillary activities in Sec. 9.2(k). The statutory authority for 
national banks to exercise fiduciary powers, 12 U.S.C. 92a, does not 
subject the exercise of a national bank's fiduciary powers to 
restrictions or preconditions, such as licensing requirements, under 
state law. State laws prohibiting out-of-state national banks from 
taking title to real property have such an effect. For these reasons, 
and because we believe that this activity is consistent with national 
banks' exercise of their fiduciary powers, we have added holding title 
to real property to the list of ancillary activities in the final 
rule.\3\ Consistent with this change, we also have added language to 
Sec. 9.7(b) to clarify that while acting in a fiduciary capacity in one 
state, a bank may act as fiduciary for relationships that include 
property located in other states.
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    \3\ This is consistent with the Office of Thrift Supervision's 
(OTS) position under its parallel statute. See OTS Chief Counsel 
Opinion (August 8, 1996), reprinted in [1996-1997 Transfer Binder] 
Fed. Banking L. Rep. (CCH) para.83-102 (OTS August 1996 Opinion) 
(holding title to real property as trustee in a state would not 
cause a federal savings association to be located in that state 
because the activity is incidental and not discretionary).
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    As we stated in the NPRM, neither a trust office nor a trust 
representative office is a branch for purposes of the McFadden Act, 12 
U.S.C. 36, which governs the location of national bank branches. In 
order to be considered a branch under the McFadden Act, a bank facility 
must perform at least one of the core branching functions of receiving 
deposits, paying checks, or lending money. 12 U.S.C. 36(j). The 
locational limitations of 12 U.S.C. 36 are not intended to reach all 
activities in which national banks are authorized to engage, but only 
core branching functions. See Clarke v. Securities Industry 
Association, 479 U.S. 388 (1987) (considering securities brokerage 
powers) (Clarke). Proposed Secs. 9.2(j) and (k) therefore stated that a 
trust office or a trust representative office is not a branch unless it 
is also an office at which deposits are received, or checks paid, or 
money lent.\4\
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    \4\ This final rule is consistent with the limitation, found in 
12 U.S.C. 93a, which states that the general rulemaking authority 
vested in the OCC by that section ``does not apply to section 36 of 
[Title 12 of the United States Code].'' This limitation simply makes 
clear that section 93a does not expand whatever authority the OCC 
has pursuant to other statutes to adopt regulations affecting 
national bank branching. Congress clearly contemplated that the OCC 
would implement section 36, as is evidenced by the repeated 
references to obtaining the OCC's approval throughout that section 
(see, e.g., paragraphs (b)(1), (b)(2), (c), (g), and (i) of section 
36). It would be illogical to conclude that the OCC, in implementing 
the provisions requiring national banks to obtain the OCC's prior 
approval under the sections cited, cannot interpret what the terms 
of the statute mean or that the interpretation must be made on a 
case-by-case basis. This rulemaking simply clarifies a situation 
that falls outside the branching restrictions imposed by section 36.
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    Several state bank supervisors disagreed with the OCC's conclusion 
that fiduciary activities are not core branching functions and stated 
their belief that trust offices should be considered to be branches. 
They assert that the Clarke case held only that discount brokerage 
activities are not core branching functions and should not be read to 
conclude that any other activities are not core branching functions.
    The OCC has carefully considered these comments, but remains of the 
view that fiduciary activities under section 92a do not constitute core 
branching functions and that a national bank office that provides only 
fiduciary services would not be subject to the McFadden Act. In Clarke, 
the Supreme Court held that the McFadden Act's locational limits do not 
reach all activities in which national banks engage. This conclusion in 
the Clarke case is reinforced by the recent decision in First National 
Bank of McCook, Nebraska v. Fulkerson, et al., Civil Action No. 98-D-
1024, slip op. (D.C. Co. March 7, 2000), where the court held that the 
combination of a deposit production office, a loan production office, 
and an ATM do not constitute a branch because no core branching 
functions are performed.\5\
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    \5\ See also Bank One, Utah v. Guttau, 190 F. 3d 844 (8th Cir. 
1999) (ATMs are excluded from the definition of ``branch'').
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    Finally, the second sentence in current Sec. 9.2(g) provides that 
the extent of fiduciary powers is the same for out-of-state national 
banks as in-state national banks. We proposed to remove this sentence 
as unnecessary in light of new Sec. 9.7, which sets forth the rules 
concerning multi-state fiduciary operations. We received no comments on 
this proposed change, and have adopted it as proposed.

[[Page 34794]]

Approval Requirements (revised Sec. 9.3)

    Current Sec. 9.3(a) provides that ``[a] national bank may not 
exercise fiduciary powers unless it obtains prior approval from the OCC 
to the extent required under 12 CFR 5.26.'' Section 5.26(e)(5) 
currently provides that a national bank that has obtained the OCC's 
approval to exercise fiduciary powers does not need to obtain further 
approval to ``commence fiduciary activities'' in a state in addition to 
the state(s) described in the application for which it received OCC 
approval to exercise fiduciary powers. Instead, the bank is required 
only to provide written notice to the OCC within ten days after 
commencing fiduciary activities in a new state.
    Under the proposal, a bank that has received OCC approval to 
exercise fiduciary powers does not need prior OCC approval each time it 
seeks to act in a fiduciary capacity in a new state or to conduct 
activities in a new state that are ancillary to its fiduciary business. 
Proposed paragraph (b) also directs the bank to follow the notice 
procedures in Sec. 5.26(e)(5) (discussed below) in order to emphasize 
that revised Sec. 9.3(b) is consistent with Sec. 5.26(e)(5) and is not 
intended to impose any additional or different procedures on national 
banks. Current paragraph (b), which addresses the procedures for 
organizing a limited purpose trust bank, would be redesignated as 
paragraph (c).
    We received one comment on this proposed change, suggesting that we 
clarify in Sec. 9.3(b) that marketing and soliciting fiduciary business 
are included in ancillary activities. Because this is made clear in 
Sec. 9.2(k), it is unnecessary to repeat it in this provision. The 
final rule has, however, been changed to reflect the modified 
definition of ``trust office'' in Sec. 9.2(j). Consistent with 
Sec. 5.26(e)(5) of the final rule, this provision now states that a 
national bank granted fiduciary powers by the OCC is not required to 
obtain the OCC's prior approval to engage in any of the activities 
specified in Sec. 9.7(d) in a new state or to conduct ancillary 
fiduciary activities in a new state.

Multi-State Fiduciary Operations (New Sec. 9.7)

    The statutory authority for national banks to exercise fiduciary 
powers is contained in 12 U.S.C. 92a(a) and (b). In IL 872, IL 866, and 
IL 695, the OCC considered how the language of section 92a would be 
applied in an interstate context.
    Under section 92a, national banks may exercise fiduciary powers 
with OCC approval. Section 92a(a) states:

    The Comptroller of the Currency shall be authorized and 
empowered to grant by special permit to national banks applying 
therefor, when not in contravention of State or local law, the right 
to act as trustee, executor, administrator, registrar of stocks and 
bonds, guardian of estates, assignee, receiver, committee of estates 
of lunatics, or in any other fiduciary capacity in which State 
banks, trust companies, or other corporations which come into 
competition with national banks are permitted to act under the laws 
of the State in which the national bank is located. (Emphasis 
added).

    Section 92a(b) clarifies that, whenever state law permits state 
banks, trust companies, or other corporations that compete with 
national banks (State Fiduciaries) to exercise any of the fiduciary 
powers in section 92a(a), a national bank's exercise of those powers is 
deemed not to be in contravention of State or local law under section 
92a.
    Thus, ``when not in contravention of State or local law'' (the 
Contravention Clause), a national bank may act in any of the fiduciary 
capacities specified in section 92a(a). This statutory grant of 
authority does not limit where a national bank may act in a fiduciary 
capacity. Nor does it require that the customers for whom the bank may 
act or the property involved in the fiduciary relationship be located 
in the same state as the bank. A bank is free to act in a fiduciary 
capacity in more than one state.
    The Contravention Clause in section 92a(a) requires that a national 
bank look to the laws of the state in which it acts, or proposes to 
act, in a fiduciary capacity to determine what fiduciary capacities are 
permissible.\6\ The state in which the bank acts in a fiduciary 
capacity for each existing or proposed fiduciary relationship is the 
state in which the bank performs the key fiduciary activities of 
accepting fiduciary appointments, executing documents that create the 
fiduciary relationship, or making decisions regarding the investment or 
distribution of fiduciary assets. This state is also the state referred 
to in other provisions in section 92a that refer to state law 
(subsections 92a(b), (c), (f), (g) and (i)) (the Section 92a State).
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    \6\ The last phrase in paragraph (a) of section 92a refers to 
the state in which the national bank is ``located.'' The primary 
reference to a state is in the Contravention Clause regarding the 
right to act in fiduciary capacities (the language emphasized 
above). That language was in the statute originally, before the 
phrase using the term ``located'' was added. Thus, we believe that 
the reference to the state in which a bank is located refers to the 
state in which the bank is acting in a fiduciary capacity. We note 
that the OTS construes its parallel statute in a similar way. The 
OTS concludes that a federal savings association may exercise 
fiduciary powers permitted for state fiduciaries in the states in 
which it is located, but it is ``located'' for this purpose in the 
state in which it performs key fiduciary functions. See, e.g., OTS 
August 1996 Opinion.
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    Section 9.7 of the proposed rule reflected this interpretation of 
section 92a. In paragraph (a) of proposed Sec. 9.7, we stated that a 
national bank may act in a fiduciary capacity in any state. Proposed 
Sec. 9.7(a) went on to state that if a national bank acts, or proposes 
to act, in a fiduciary capacity in a particular state, the bank may act 
in any of the eight fiduciary capacities expressly listed in section 
92a(a) unless the state affirmatively prohibits that capacity for its 
own State Fiduciaries as well as any other capacity a state permits for 
its own State Fiduciaries. This authority exists even if the state 
purports to restrict it for national banks. If state law is silent with 
respect to one (or more) of the eight capacities listed in section 
92a(a), then that capacity is not in contravention of state law and a 
national bank may act in that capacity.
    These conclusions, along with a more complete explanation of their 
underlying reasons, were stated in IL 695 and IL 872. As previously 
noted, the proposal intended to reflect the conclusions reached in 
those letters and is based on the reasoning stated therein.
    Most of the comments on proposed Sec. 9.7(a) supported its 
adoption. Of these, several requested that we clarify that the question 
of where a national bank is located for purposes of section 92a is a 
question of federal law. Comments from several state bank supervisors 
objected to proposed Sec. 9.7(a), on the grounds that it would permit 
national banks a competitive advantage by being able to expand their 
fiduciary activities into states notwithstanding state limits on who 
may act as fiduciary. These commenters maintained that section 92a 
preserves for each state the right to establish such limits. They also 
suggested that the determination of which state's laws govern the 
permissible capacities should be resolved by whether a national bank 
has its main office or a branch located in that state.
    As set out above, we believe that section 92a imposes no 
limitations on where a bank may act in a fiduciary capacity. Under the 
Contravention Clause, a state may not prohibit or restrict national 
banks (including out-of-state national banks) from acting in a 
fiduciary capacity in the state in any manner, unless it also limits 
its own State Fiduciaries.
    Moreover, we disagree that ``location'' for purposes of section 92a 
is appropriately determined by the presence of a main office or bank 
branch. As previously discussed, the Contravention Clause of section 
92a

[[Page 34795]]

requires that a bank look to the laws of the state in which it acts in 
one or more fiduciary capacities in order to determine the limits on 
those capacities.
    For the reasons discussed above, we have adopted proposed 
Sec. 9.7(a) as proposed, making only stylistic changes to improve the 
readability of this provision.
    Once the state in which a national bank is acting in a fiduciary 
capacity is identified, the fiduciary services may be offered 
regardless of where the fiduciary customers reside or where property 
that is being administered is located. This point was incorporated in 
proposed Sec. 9.7(b), which provided that a national bank may market 
its services to customers in other states and solicit business from 
them. It also may establish and use a trust representative office for 
these purposes. Accordingly, a state may not prohibit or restrict out-
of-state national banks from marketing to, or performing fiduciary 
functions for, customers in that state. Such state laws are not within 
the powers reserved to the states by section 92a, and so they cannot 
prohibit or restrict a national bank's exercise of its federally 
granted powers.\7\ These conclusions are consistent with the 
conclusions set out in IL 866 and IL 872.\8\
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    \7\ See, e.g., Barnett Bank of Marion County v. Nelson, 517 U.S. 
25 (1996).
    \8\ The OTS has reached the same conclusions under its parallel 
statute. See, e.g., OTS August 1996 Opinion (federal savings 
association will not be deemed located in a state where its only 
trust-related activities are marketing its trust services and 
performing incidental duties pursuant to its appointment as 
testamentary trustee or trustee holding real estate; and federal law 
would preempt state laws that prohibit or restrict an out-of-state 
federal thrift from engaging in these activities in the state); OTS 
Chief Counsel Opinion No. 94/CC-13 (June 13, 1994), reprinted in 
[1994 Transfer Binder] Fed. Banking L. Rep. (CCH) para. 82,814 
(trust marketing and referral activities at affiliate's offices does 
not make federal savings association located at those offices; state 
laws that prohibit or restrict an out-of-state federal thrift from 
engaging in these activities in the state are preempted).
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    A few commenters asked that we clarify that Sec. 9.7(b) does not 
require a national bank to establish a trust representative office in 
order to market its fiduciary services to, or act as a fiduciary for, 
customers in any state. We agree that a bank need not establish a trust 
representative office; the reference to trust representative offices 
was intended solely to illustrate one option available to national 
banks who seek to market their fiduciary services. The final rule, like 
the proposal, states that a national bank ``may'' use a trust 
representative office to market its fiduciary services to and act as a 
fiduciary for customers in any state, indicating that use of a trust 
representative office is discretionary. As noted earlier, we also have 
added language to Sec. 9.7(b) to clarify that while acting in a 
fiduciary capacity in one state, a bank may act as fiduciary for 
relationships that include property located in other states.
    As previously discussed, section 92a imposes no geographic limit on 
where a bank may act in a fiduciary capacity. Similarly, there is no 
geographic limit on where a bank may offer services that are incidental 
to acting in a fiduciary capacity. Accordingly, proposed Sec. 9.7(c) 
reflected the conclusions stated in the Interpretive Letters that a 
national bank with fiduciary powers may establish a trust office or 
trust representative office in any state. We received no comments on 
proposed Sec. 9.7(c) as such, and we have adopted it as proposed.
    Proposed Sec. 9.7(d) clarified how national banks may determine the 
state in which they are acting in a fiduciary capacity. In IL 866 and 
IL 872, we concluded that a national bank is deemed to be ``acting in a 
fiduciary capacity'' for purposes of section 92a in the state in which 
the bank performs the key fiduciary functions of executing the 
documents that create the fiduciary relationship, accepting the 
fiduciary appointment, and making decisions regarding the investment or 
distribution of fiduciary assets. As proposed, Sec. 9.7(d) incorporated 
this position and further provided that, if with respect to a 
particular fiduciary relationship these key fiduciary activities take 
place in more than one state, then the state in which the bank acts in 
a fiduciary capacity will be the state that the bank and customer 
designate from among those states. We specifically invited comment on 
ways to simplify the determination of where a bank with multi-state 
operations is acting in a fiduciary capacity.
    We received several comments relating to the determination of where 
a bank acts in a fiduciary capacity when the key fiduciary activities 
take place in more than one state. One commenter asked us to clarify 
whether it was our intent to have the choice of law clause in the 
trust's governing instrument be used to designate where the bank acted 
in a fiduciary capacity. Similarly, two commenters suggested that we 
look to the governing instrument to make the determination. A few 
commenters suggested that, where the designation could not be made by 
the governing instrument or the customer has not or cannot otherwise 
make the designation, the bank be permitted to do so alone. A few 
commenters also noted the importance of the meaning of the term 
``customer,'' noting that if defined too broadly, it could be quite 
burdensome for a bank to consult with customers to make the 
designation.
    We agree with those commenters who pointed out the potential 
problems, in situations where a bank performs the key fiduciary 
activities in more than one state, of requiring a bank to obtain 
customer agreement concerning the state in which the bank will be 
deemed to be acting in a fiduciary capacity. For instance, a bank could 
be forced to obtain the agreement of many different people residing in 
several different locations. To avoid these problems, we have revised 
Sec. 9.7(d) to provide that a bank performing the key fiduciary 
activities in more than one state for any particular fiduciary 
relationship may designate from among these states which state's laws 
are made applicable by operation of section 92a for that relationship. 
We have also made some minor changes intended to improve the 
readability of Sec. 9.7(d), including a change in its heading.
    Many of the commenters indicated some confusion over the 
significance of the determination of the Section 92a State. Section 92a 
directs the application of state law for purposes of determining a 
national bank's permissible fiduciary capacities (referred to in 
sections 92a(a) and (b)); for purposes of setting certain operational 
requirements for national banks as corporate fiduciaries (referred to 
in sections 92a(f), (g) & (i)); and for purposes of granting state 
banking authorities limited access to OCC examination reports relating 
to national bank trust departments (referred to in section 92a(c)). 
Proposed Sec. 9.7(d) provided a means to identify which state's laws 
apply for purposes of section 92a when a bank is conducting multi-state 
fiduciary activities. As discussed more fully below, this determination 
is separate from the selection of the substantive law that governs 
matters affecting the exercise of the fiduciary appointment, such as 
standards of care.
    Proposed Sec. 9.7(e) provided a direct statement of how state law 
applies to a national bank engaging in fiduciary activities. As set out 
in the proposal, the state laws that apply to a national bank's 
fiduciary activities by operation of section 92a are the laws of the 
state in which the bank acts in a fiduciary capacity.
    Two commenters suggested that we clarify that state laws may not 
impose operational requirements on national banks that engage only in 
limited trust operations. In both IL 866 and IL 872 we stated that 
section 92a does not ``condition the exercise of fiduciary

[[Page 34796]]

powers on compliance with state laws that purport to impose licensing 
or operating requirements on national banks.'' \9\ This point is 
incorporated in Sec. 9.7(e)(2) of the final rule, which provides that, 
with the exception of those state laws specifically referenced in 
section 92a, national banks' exercise of fiduciary powers is not 
subject to restrictions or preconditions under state law. Such 
restrictions and preconditions include, but are not limited to, state 
licensing requirements. This principle applies to the fiduciary 
activities of full service national banks as well as national banks 
that engage only in limited trust operations.
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    \9\ See IL 866 p. 9; IL 872 p. 10.
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    Section 9.7(e) does not affect the applicability of state 
substantive laws that govern the fiduciary relationship, such as the 
standard of care to be exercised by the fiduciary, or ability of a 
grantor to designate which state's laws govern the trust itself. A 
grantor is free to designate which state laws apply for all other 
purposes or to have the applicable law determined by choice-of-law 
rules. For example, if the bank acting in a fiduciary capacity in State 
A is trustee for a trust whose grantor and beneficiaries are located in 
State B and the trust, by its terms, is governed by the laws of State 
C, then the laws of State C will govern the administration of the 
trust. The choice of law clause in a trust instrument does not, 
however, determine where a bank is acting in a fiduciary capacity or 
the laws that apply by operation of section 92a. That determination is 
a matter of federal law pursuant to section 92a. It cannot be altered 
by agreement of the parties.
    Several state bank supervisors objected to the conclusion that a 
national bank is not subject to state laws that restrict the activities 
of out-of-state fiduciaries. However, as discussed above, the 
Contravention Clause in section 92a only serves to limit national banks 
from engaging in fiduciary capacities that are not permitted for State 
Fiduciaries but does not otherwise limit a national bank's ability to 
exercise its federal authority in any state. State laws that are 
outside the ambit of the Contravention Clause, and so not authorized by 
Congress to apply to national banks, may not restrict or interfere with 
the exercise of permissible federal power. See, e.g., Barnett Bank, 
supra.
    The state supervisors also pointed to discussion in earlier OCC 
interpretive letters, in particular IL 525, that suggested that all 
aspects of state law governing state fiduciary institutions applied to 
national banks. However, IL 525 was concerned primarily with the 
substantive fiduciary standards that would apply to national banks in 
certain trust contexts. As noted above, the substantive law governing a 
trust is a different matter than the law made applicable to national 
banks by operation of section 92a. Moreover, the discussion of state 
law in IL 525 did not involve an interstate situation and was focused 
on the issue of the substantive fiduciary law governing the fiduciary 
appointment. The OCC's analysis of the application of section 92a in 
the interstate context, including the manner in which it incorporates 
state law, is clearly set forth in ILs 872, 866, and 695, the NPRM, and 
this final rule. Any contrary implications in IL 525 do not represent 
the position of the agency.

Deposit of Securities with State Authorities (Revised Sec. 9.14)

    Under section 92a(f) and current Sec. 9.14 of our regulations, a 
national bank must comply with state laws that require corporations 
that act in a fiduciary capacity to deposit securities with state 
authorities for the protection of private or court trusts. The proposal 
made a technical amendment to Sec. 9.14 to conform to the terminology 
used in proposed Sec. 9.7. The proposal replaced the phrase 
``administers trust assets'' in paragraph (b) of that section with the 
phrase ``acts in a fiduciary capacity.'' No substantive change was 
intended by this amendment.
    The proposal also added a second sentence to Sec. 9.14(b) to 
clarify how a bank that conducts fiduciary operations on a multi-state 
basis pursuant to proposed Sec. 9.7 should compute the amount of 
deposit required by a state law that requires a deposit of securities 
on a basis other than assets (such as an amount equal to a percentage 
of capital). Pursuant to the proposal, in such a state, the bank may 
compute the amount of deposit required on a pro-rated basis, according 
to the proportion of fiduciary assets for which the bank is acting in a 
fiduciary capacity at offices located in that state.
    A few commenters requested clarification of how the rule would 
apply to them, suggesting that sample calculations be included in the 
regulation. We believe that specific questions are better addressed by 
consultation with agency staff or in interpretive letters. Accordingly, 
we are adopting the proposal for this section without change.

Fiduciary Powers (Revised Sec. 5.26)

    Consistent with the proposed changes discussed above, we also 
proposed an amendment to 12 CFR 5.26(e) to clarify that a national bank 
that plans to act in a fiduciary capacity in a state in addition to the 
state described in the application for fiduciary powers that the OCC 
has approved need only give notice of commencing to act in a fiduciary 
capacity in a new state. The proposal would revise current 
Sec. 5.26(e)(5) so that it reflects the distinction between acting in a 
fiduciary capacity and conducting activities ancillary to the bank's 
fiduciary business. The ten-day, after-the-fact notice requirement 
would apply only to acting in a fiduciary capacity.
    The final rule has been changed to reflect the modified definition 
of ``trust office'' in Sec. 9.2(j). This provision now states that no 
application is required when a national bank with fiduciary powers 
plans to engage in any of the fiduciary activities specified in 
Sec. 9.7(d) or conduct ancillary activities in a new state. The final 
rule provides that, instead, the ten-day, after-the-fact notice to the 
OCC is required when a bank begins to engage in any of the key 
fiduciary activities specified in Sec. 9.7(d) in a new state.
    We received six comments requesting that we clarify that there is 
no need for prior approval or subsequent notice for establishing trust 
representative offices. As discussed above, a national bank that has 
received OCC approval to exercise fiduciary powers does not need to 
make any further application to the OCC when it plans to engage in any 
of the fiduciary activities specified in Sec. 9.7(d) or conduct 
ancillary activities in a new state, but does need to provide notice to 
OCC within 10 days after it begins to engage in any of the fiduciary 
activities specified in Sec. 9.7(d) in a new state. Since engaging in 
ancillary activities does not constitute engaging in any of the key 
fiduciary activities specified in Sec. 9.7(d), and since only ancillary 
activities are undertaken at a trust representative office, a national 
bank is not required to get prior approval or give subsequent notice in 
order to establish a trust representative office. We have added a new 
sentence to clarify this point in the final rule.

Regulatory Flexibility Act

    Pursuant to section 605(b) of the Regulatory Flexibility Act, 5 
U.S.C. 605(b) (RFA), the regulatory flexibility analysis otherwise 
required under section 604 of the RFA is not required if the agency 
certifies that the rule will not have a significant economic impact on 
a substantial number of small entities and publishes its certification 
and a short, explanatory statement in the Federal Register along with 
its rule.
    Pursuant to section 605(b) of the RFA, the OCC hereby certifies 
that this

[[Page 34797]]

rulemaking will not have a significant economic impact on a substantial 
number of small entities. The final rule codifies case law and OCC 
interpretations, but adds no new requirements. Accordingly, a 
regulatory flexibility analysis is not needed.

Executive Order 12866

    The OCC has determined that this final rulemaking is not a 
significant regulatory action under Executive Order 12866.

Unfunded Mandates Act of 1995

    Section 202 of the Unfunded Mandates Reform Act of 1995, 2 U.S.C. 
1532 (Unfunded Mandates Act), requires that the agency prepare a 
budgetary impact statement before promulgating any rule likely to 
result in a Federal mandate that may result in the 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 the agency to identify and consider a reasonable number 
of regulatory alternatives before promulgating the rule. For the 
reasons outlined above, the OCC has determined that this final rule 
will not result in expenditures by State, local, and tribal 
governments, or by the private sector, of $100 million or more in any 
one year. Accordingly, the OCC has not prepared a budgetary impact 
statement or specifically addressed any regulatory alternatives.

Executive Order 13132

    Executive Order 13132 requires Federal agencies, including the OCC, 
to certify their compliance with that Order when they transmit to the 
Office of Management and Budget any draft final regulation that has 
Federalism implications. Under the Order, a regulation has Federalism 
implications if it has ``substantial direct effects on the States, on 
the relationship between the national government and the States, or on 
the distribution of power and responsibilities among the various levels 
of government.'' In the case of a regulation that has Federalism 
implications and that preempts State law, the Order imposes certain 
consultation requirements with State and local officials; requires 
publication in the preamble of a Federalism summary impact statement; 
and requires the OCC to make available to the Director of the Office of 
Management and Budget any written communications submitted to us by 
State and local officials. By the terms of the Order, these 
requirements apply to the extent that they are practicable and 
permitted by law and, to that extent, must be satisfied before the OCC 
promulgates a final regulation.
    In our proposal relating to this final rule, we noted that certain 
provisions in the proposal may have Federalism implications, as that 
term is used in the Order, or may be found by a Federal court to 
preempt State law. The concern regarding Federalism was primarily 
directed to the advance notice, according to which the OCC proposed to 
establish uniform federal standards governing fiduciary activities that 
would be generally applicable to national bank trustees' administration 
of private trusts and investment of private trust property. A 
discussion of the Federalism issues arising from any uniform federal 
standard of fiduciary activities will be provided in any subsequent 
rulemaking document on that issue.
    This final rule contains provisions that determine which States' 
laws apply to a national bank for purposes of 12 U.S.C. 92a, a Federal 
law. The determination of which State's rules apply for purposes of 
section 92a is governed, for the reasons set out above, by a 
determination of the State in which a national bank is acting in a 
fiduciary capacity. Once that determination is made, then, by operation 
of section 92a, other States' laws governing the operation of a 
national bank's fiduciary activities do not apply.
    We note that there has been consultation with State officials on 
the issues addressed herein, both through this rulemaking and through 
other documents published in the Federal Register on which comment was 
invited. See 60 FR 66163 (December 21, 1995), 61 FR 68543 (December 30, 
1996), 62 FR 19172 (April 18, 1997), and 62 FR 19173 (April 18, 1997). 
As discussed in this preamble, we received and considered a number of 
comments from states, and will make them available to the Director of 
the OMB.

List of Subjects

12 CFR Part 5

    Administrative practice and procedure, National banks, Reporting 
and recordkeeping requirements, Securities.

12 CFR Part 9

    Estates, Investments, National banks, Reporting and recordkeeping 
requirements, Trusts and trustees.

Authority and Issuance

    For the reasons set forth in the preamble, parts 5 and 9 of chapter 
I of title 12 of the Code of Federal Regulations are amended as 
follows:

PART 5--RULES, POLICIES, AND PROCEDURES FOR CORPORATE ACTIVITIES

    1. The authority citation for part 5 continues to read as follows:

    Authority: 12 U.S.C. 1 et seq., 93a; and section 5136A of the 
Revised Statutes (12 U.S.C. 24a).

Subpart B--Initial Activities

    2. Paragraph (e)(5) of Sec. 5.26 is revised to read as follows:


Sec. 5.26  Fiduciary powers.

* * * * *
    (e) * * *
    (5) Notice of fiduciary activities in additional states. No further 
application under this section is required when a national bank with 
existing OCC approval to exercise fiduciary powers plans to engage in 
any of the activities specified in Sec. 9.7(d) of this chapter or to 
conduct activities ancillary to its fiduciary business, in a state in 
addition to the state described in the application for fiduciary powers 
that the OCC has approved. Instead, unless the bank provides notice 
through other means (such as a merger application), the bank shall 
provide written notice to the OCC no later than ten days after it 
begins to engage in any of the activities specified in Sec. 9.7(d) of 
this chapter in the new state. The written notice must identify the new 
state or states involved, identify the fiduciary activities to be 
conducted, and describe the extent to which the activities differ 
materially from the fiduciary activities that the bank was previously 
authorized to conduct. No notice is required if the bank is conducting 
only activities ancillary to its fiduciary business through a trust 
representative office or otherwise.
* * * * *

PART 9--FIDUCIARY ACTIVITIES OF NATIONAL BANKS

    1. The authority citation for part 9 continues to read as follows:

    Authority: 12 U.S.C. 24 (Seventh), 92a, and 93a; 15 U.S.C. 78q, 
78q-1, and 78w.

    2. Sec. 9.2 is amended by removing the second sentence in paragraph 
(g) and adding new paragraphs (j) and (k) as follows:


Sec. 9.2  Definitions.

* * * * *
    (j) Trust office means an office of a national bank, other than a 
main office or a branch, at which the bank engages in one or more of 
the activities specified

[[Page 34798]]

in Sec. 9.7(d). Pursuant to 12 U.S.C. 36(j), a trust office is not a 
``branch'' for purposes of 12 U.S.C. 36, unless it is also an office at 
which deposits are received, or checks paid, or money lent.
    (k) Trust representative office means an office of a national bank, 
other than a main office, branch, or trust office, at which the bank 
performs activities ancillary to its fiduciary business, but does not 
engage in any of the activities specified in Sec. 9.7(d). Examples of 
ancillary activities include advertising, marketing, and soliciting for 
fiduciary business; contacting existing or potential customers, 
answering questions, and providing information about matters related to 
their accounts; acting as a liaison between the trust office and the 
customer (e.g., forwarding requests for distribution or changes in 
investment objectives, or forwarding forms and funds received from the 
customer); inspecting or maintaining custody of fiduciary assets or 
holding title to real property. This list is illustrative and not 
comprehensive. Other activities may also be ``ancillary activities'' 
for the purposes of this definition. Pursuant to 12 U.S.C. 36(j), a 
trust representative office is not a ``branch'' for purposes of 12 
U.S.C. 36, unless it is also an office at which deposits are received, 
or checks paid, or money lent.

    3. Sec. 9.3 is amended by revising paragraph (b) and adding 
paragraph (c) to read as follows:


Sec. 9.3  Approval requirements.

* * * * *
    (b) A national bank that has obtained the OCC s approval to 
exercise fiduciary powers is not required to obtain the OCC s prior 
approval to engage in any of the activities specified in Sec. 9.7(d) in 
a new state or to conduct, in a new state, activities that are 
ancillary to its fiduciary business. Instead, the national bank must 
follow the notice procedures prescribed by 12 CFR 5.26(e).
    (c) A person seeking approval to organize a special-purpose 
national bank limited to fiduciary powers shall file an application 
with the OCC pursuant to 12 CFR 5.20.

    4. A new Sec. 9.7 is added to read as follows:


Sec. 9.7  Multi-state fiduciary operations.

    (a) Acting in a fiduciary capacity in more than one state. Pursuant 
to 12 U.S.C. 92a and this section, a national bank may act in a 
fiduciary capacity in any state. If a national bank acts, or proposes 
to act, in a fiduciary capacity in a particular state, the bank may act 
in the following specific capacities:
    (1) Any of the eight fiduciary capacities expressly listed in 12 
U.S.C. 92a(a), unless the state prohibits its own state banks, trust 
companies, and other corporations that compete with national banks in 
that state from acting in that capacity; and
    (2) Any other fiduciary capacity the state permits for its own 
state banks, trust companies, or other corporations that compete with 
national banks in that state.
    (b) Serving customers in other states. While acting in a fiduciary 
capacity in one state, a national bank may market its fiduciary 
services to, and act as fiduciary for, customers located in any state, 
and it may act as fiduciary for relationships that include property 
located in other states. The bank may use a trust representative office 
for this purpose.
    (c) Offices in more than one state. A national bank with fiduciary 
powers may establish trust offices or trust representative offices in 
any state.
    (d) Determination of the state referred to in 12 U.S.C. 92a. For 
each fiduciary relationship, the state referred to in section 92a is 
the state in which the bank acts in a fiduciary capacity for that 
relationship. A national bank acts in a fiduciary capacity in the state 
in which it accepts the fiduciary appointment, executes the documents 
that create the fiduciary relationship, and makes discretionary 
decisions regarding the investment or distribution of fiduciary assets. 
If these activities take place in more than one state, then the state 
in which the bank acts in a fiduciary capacity for section 92a purposes 
is the state that the bank designates from among those states.
    (e) Application of state law. (1) State laws used in section 92a. 
The state laws that apply to a national bank's fiduciary activities by 
virtue of 12 U.S.C. 92a are the laws of the state in which the bank 
acts in a fiduciary capacity.
    (2) Other state laws. Except for the state laws made applicable to 
national banks by virtue of 12 U.S.C. 92a, state laws limiting or 
establishing preconditions on the exercise of fiduciary powers are not 
applicable to national banks.

    5. Section 9.14(b) is revised to read as follows:


Sec. 9.14  Deposit of securities with state authorities

* * * * *
    (b) Acting in a fiduciary capacity in more than one state. If a 
national bank acts in a fiduciary capacity in more than one state, the 
bank may compute the amount of securities that are required to be 
deposited for each state on the basis of the amount of assets for which 
the bank is acting in a fiduciary capacity at offices located in that 
state. If state law requires a deposit of securities on a basis other 
than assets (e.g., a requirement to deposit a fixed amount or an amount 
equal to a percentage of capital), the bank may compute the amount of 
deposit required in that state on a pro-rated basis, according to the 
proportion of fiduciary assets for which the bank is acting in a 
fiduciary capacity at offices located in that state.

    Dated: June 21, 2001.
John D. Hawke, Jr.,
Comptroller of the Currency.
[FR Doc. 01-16329 Filed 6-29-01; 8:45 am]
BILLING CODE 4810-33-P