[Federal Register Volume 60, Number 245 (Thursday, December 21, 1995)]
[Proposed Rules]
[Pages 66163-66179]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-30971]



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DEPARTMENT OF THE TREASURY
12 CFR Parts 9 and 19

[Docket No. 95-32]
RIN 1557-AB12


Fiduciary Activities of National Banks; Rules of Practice and 
Procedure

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

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Office of the Comptroller of the Currency (OCC) proposes 
to revise its rules that govern the fiduciary activities of national 
banks. The OCC also proposes to relocate provisions concerning 
disciplinary sanctions imposed by clearing agencies to its rules of 
practice and procedure. This proposal is another component of the OCC's 
Regulation Review Program, which is intended to update and streamline 
OCC regulations and to reduce unnecessary regulatory costs and other 
burdens.

DATES: Comments must be received by February 20, 1996.

ADDRESSES: Comments should be directed to: Communications Division, 
Office of the Comptroller of the Currency, 250 E Street, SW, 
Washington, DC 20219, Attention: Docket No. 95-32. Comments will be 
available for public inspection and photocopying at the same location. 
In addition, comments may be sent by facsimile transmission to FAX 
number (202) 874-5274 or by electronic mail to 
<a href="/cdn-cgi/l/email-protection" class="__cf_email__" data-cfemail="8cdec9cba2cfc3c1c1c9c2d8dfccc3cfcfa2d8dec9cddfa2cbc3daa2">[email protected]</a>

FOR FURTHER INFORMATION CONTACT: Andrew T. Gutierrez, Attorney, 
Legislative and Regulatory Activities Division, (202) 874-5090; Donald 
N. Lamson, Assistant Director, Securities and Corporate Practices 
Division, (202) 874-5210; Lisa Lintecum, Director, Fiduciary 
Activities, (202) 874-5419; Dean Miller, Special Advisor, Fiduciary 
Activities, (202) 874-4852; Aida M. Plaza, Director for Compliance, 
Multinational Banking, (202) 874-4610.

SUPPLEMENTARY INFORMATION:

Background

    The OCC proposes to revise 12 CFR part 9, which governs the 
fiduciary activities of national banks, as a component of its 
Regulation Review Program. One goal of the Regulation Review Program is 
to review all of the OCC's rules with a view toward eliminating 
provisions that do not contribute significantly to maintaining the 
safety and soundness of national banks or to accomplishing the OCC's 
other statutory responsibilities, including the oversight of national 
banks' fiduciary activities. Another goal of the Program is to improve 
clarity of the OCC's regulations.
    This rulemaking is the OCC's first comprehensive revision of the 
rule since 1963.\1\ Much about national banks' fiduciary business has 
changed since that time, including the nature and scope of the 
fiduciary services that banks offer and the structures and operational 
methods that banks use to deliver those services. The OCC's particular 
goal in revising part 9 is to accommodate those changes by lifting 
unnecessary regulatory burden and facilitating the continued 
development of national banks' fiduciary business consistent with safe 
and sound banking practices and national banks' fiduciary obligations. 
Three principal themes have emerged from the OCC's review of part 9.

    \1\ National banks have been authorized to exercise fiduciary 
powers since 1913. In 1962, the responsibility for the oversight of 
their fiduciary activities was transferred from the Board of 
Governors of the Federal Reserve System to the OCC. See 12 U.S.C. 
92a. Following the transfer of oversight responsibilities, the OCC 
promulgated 12 CFR part 9 in 1962 (27 FR 9764), and revised it soon 
thereafter in 1963 (28 FR 3309).
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    First, bank organizational structures, particularly with respect to 
the geographic structure of banking organizations, have changed 
significantly since Congress created the basic framework for national 
banks' fiduciary operations. These changes strongly suggest that part 9 
should be adjusted so that its requirements are more workable for both 
large, multistate fiduciary banking organizations and small banks that 
conduct fiduciary activities primarily on a local basis.
    Second, national banks' fiduciary activities, in many respects, are 
subject to state law. In some cases, however, the OCC has the 
flexibility either to prescribe a uniform Federal standard or to direct 
national banks to follow state law.
    Third, over the years, part 9 has been applied to a wide variety of 
investment advisory activities and related services, not all of which 
involve the bank's exercise of investment discretion. In some cases, 
banks engaged in these activities are subject to different standards 
than other types of entities that conduct the same type of business, 
raising the question of whether the OCC should narrow the range of 
investment advisory activities to which part 9 applies.
    These three themes form the basis for requests for comment on 
specific provisions and issues described in detail in the remainder of 
this preamble discussion.
    More generally, the proposal revises part 9 in its entirety. The 
proposal updates, clarifies, and streamlines part 9, incorporates 
significant interpretive positions, and eliminates unnecessary 
regulatory burden wherever possible to promote more efficient operation 
and supervision of national banks' fiduciary activities. The proposal 
adds headings for ease of reference, but, for the most part, retains 
the numbering system used in the current regulation. Commenters are 
invited to address all aspects of the proposal, including recommending 
further improvements to its organization, structure, and content.

Section-by-Section Description of the Proposal

Authority, Purpose, and Scope (Proposed Sec. 9.1)

     The proposal adds a new provision that explicitly sets forth the 
statutory authority for, and the purpose and scope of, part 9. In 
addition to standards found in part 9, the OCC provides guidance 
(including policies, procedures, precedents, circulars, and bulletins) 
regarding the fiduciary activities of national banks in the 
``Comptroller's Handbook for Fiduciary Activities.'' The OCC currently 
is revising the guidance contained in the ``Comptroller's Handbook for 
Fiduciary Activities.'' The OCC anticipates that the revised fiduciary 
guidance will consist of a 

[[Page 66164]]
series of booklets in a comprehensive ``Comptroller's Handbook,'' which 
will replace the ``Comptroller's Handbook for Fiduciary Activities'' 
and other OCC guidance currently found in separate publications.

Definitions (Proposed Sec. 9.2)

    The proposal moves the definitions currently found at Sec. 9.1 to 
proposed Sec. 9.2. Some definitions are removed, and others are added. 
Significant changes are noted below.

Affiliate (Proposed Sec. 9.2(a))

    The proposal adds a definition of ``affiliate'' to part 9. This 
definition cross-references the definition in the Federal Reserve Act 
at 12 U.S.C. 221a(b), which is consistent with the way the OCC defines 
the term ``affiliate'' in a number of its other regulations.

Applicable Law (Proposed Sec. 9.2(b))

    The current regulation uses the term ``local law,'' as defined at 
Sec. 9.1(g), to refer to the laws of the state or other jurisdiction 
governing a fiduciary relationship. The proposal replaces ``local law'' 
with ``applicable law'' in order to streamline some of the operative 
provisions of part 9 and to make clear that the bodies of authority 
that govern a national bank's fiduciary relationships include Federal 
law (including regulations), state law governing a national bank's 
fiduciary relationships (that is, fiduciary duties and 
responsibilities) the terms of the instrument governing a fiduciary 
relationship, and any court order pertaining to the relationship. The 
Federal law relevant to a national bank's fiduciary activities 
includes, for example, provisions of the Federal banking laws (12 
U.S.C. 1 et seq.), the Employee Retirement Income Security Act of 1974 
(29 U.S.C. 1001 et seq.), the Securities Act of 1933 (15 U.S.C. 77a et 
seq.), the Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.), the 
Investment Company Act of 1940 (15 U.S.C. 80a-1 et seq.), the 
Investment Advisers Act of 1940 (15 U.S.C. 80b-1 et seq.), the Trust 
Indenture Act of 1939 (15 U.S.C. 77aaa et seq.), the Internal Revenue 
Code of 1986 (26 U.S.C. 1 et seq.), and the rules issued pursuant to 
those acts. The OCC does not intend the term ``applicable law'' to 
incorporate any state law or other body of authority that would not 
otherwise apply to a national bank's fiduciary relationships. The OCC 
invites comment on the adequacy of this definition.

Fiduciary Capacity (Proposed Sec. 9.2(e))

    Under the current regulation, the term ``fiduciary,'' defined at 
Sec. 9.1(b), includes ``a bank undertaking to act alone or jointly with 
others primarily for the benefit of another in all matters connected 
with its undertaking'' and goes on to list the ``traditional'' 
fiduciary capacities enumerated by 12 U.S.C. 92a: Trustee, executor, 
administrator, registrar of stocks and bonds, guardian of estates, 
assignee, receiver, and committee of estates of lunatics. The proposed 
definition of ``fiduciary capacity'' retains the current regulation's 
list of traditional fiduciary capacities with minor modification. For 
example, the phrase ``committee of estates of lunatics'' is removed 
because it is outdated and because the definition of the term 
``guardian'' is broad enough to encompass that capacity. The proposed 
definition also clarifies that acting as registrar of stocks and bonds 
includes acting as transfer agent.
    The current regulation's definition of ``fiduciary'' also includes 
fiduciary capacities that are not listed in the fiduciary powers 
statute. These capacities include ``managing agent'' and, as a catch-
all category, ``any other similar capacity.''
    The proposal attempts to establish a clearer and more objective 
boundary for the coverage of part 9 while retaining the traditional 
concept that acting on another's behalf is at the heart of serving in a 
fiduciary capacity. Under the proposal, the term ``fiduciary capacity'' 
includes, in addition to the statutory fiduciary capacities, ``any 
capacity involving investment discretion on behalf of another'' and 
``any other similar capacity that the OCC authorizes pursuant to 12 
U.S.C. 92a.'' <SUP>2 The proposal uses investment discretion as the 
factor that distinguishes fiduciary from non-fiduciary investment 
advisory activities. Thus, under the proposal, part 9 applies to (and, 
accordingly, requires a national bank to obtain fiduciary powers for) 
any investment advisory activity in which the bank manages the assets 
of another. Conversely, a national bank is not subject to part 9 with 
respect to an activity in which the bank does not have investment 
discretion, unless, of course, the bank acts in one of the 
``traditional'' fiduciary capacities. For example, part 9 does not 
govern a directed custodian account (absent a ``traditional'' fiduciary 
capacity) because the customer, and not the bank, has investment 
discretion, although the bank may provide advice about investments 
appropriate to the customer's objectives. The proposed investment 
discretion test affects only those activities in which the bank does 
not act in one of the enumerated ``traditional'' fiduciary capacities. 
Part 9 continues to apply to activities in which the bank acts in a 
``traditional'' fiduciary capacity regardless of whether the bank has 
investment discretion, e.g., self-directed IRA accounts for which the 
bank is a named trustee.

    \2\ The term ``fiduciary capacity'' under the proposal also 
includes acting as a custodian under a uniform gifts to minors act, 
because a custodian under a uniform gifts to minors act is a 
fiduciary under current part 9.
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    As an alternative to using investment discretion as the dividing 
line between fiduciary and non-fiduciary investment advisory 
activities, the OCC could adopt an approach that relies on state law. 
Under a state law approach, for example, part 9 would apply to a 
national bank's investment advisory activity if that activity, when 
engaged in by competing state fiduciaries, requires state authorization 
and is regulated as a fiduciary activity under state law. Thus, the 
applicability of part 9 to a national bank's investment advisory 
activities could differ among states. The OCC invites comment on this 
and other alternative approaches to defining which investment advisory 
activities to regulate under part 9.
    Adopting an approach that excludes some types of investment 
advisory activities from part 9's coverage raises the question of how 
to oversee these ``non-fiduciary'' investment advisory activities. Some 
of these activities already are subject to the Interagency Statement on 
Retail Sales of Nondeposit Investment Products (February 14, 
1994),<SUP>3 the anti-fraud provisions of the Securities Exchange Act 
of 1934, and the recordkeeping and confirmation requirements for 
brokerage customers under the OCC's rules at 12 CFR part 12. In 
addition, a national bank must conduct its investment advisory 
activities (as with all its activities) in a manner consistent with 
safe and sound banking practices. Furthermore, the national bank must 
adhere to any conditions imposed by the OCC in writing in connection 
with approval of an application or request. The OCC invites comment on 
whether these existing regulatory safeguards are adequate to regulate 
non-fiduciary investment advisory activities. If the existing 
safeguards are not adequate, the OCC invites comment on what additional 
safeguards are appropriate.

    \3\ The four Federal banking agencies have recently issued a 
clarification of the Interagency Statement. See ``Joint 
Interpretation of the Interagency Statement on Retail Sales of 
Nondeposit Investment Products (September 12, 1995).
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    For example, even if the OCC adopts the investment discretion 
approach, the OCC could continue to subject non-discretionary 
investment advice to pertinent provisions of part 9 (e.g., those 

[[Page 66165]]
governing self-dealing and conflicts of interest). Alternatively, the 
OCC could use provisions of the Investment Advisers Act of 1940 
(Advisers Act) <SUP>4 as a point of reference. Under the Advisers Act, 
as implemented by the Securities and Exchange Commission (SEC),<SUP>5 
an investment adviser must, among other things: (1) Provide clients and 
prospective clients with a written disclosure statement about the 
adviser's business practices and educational and business background; 
(2) comply with specific contractual requirements in their dealings 
with clients, including a prohibition against assigning an advisory 
contract without client consent and restrictions on performance fee 
arrangements; (3) comply with prohibitions against misstatements or 
misleading omissions of material facts and fraudulent acts or 
practices; and (4) comply with anti-fraud provisions dealing with 
advertising, solicitations, and custody or possession of client funds. 
In addition, the Supreme Court has held that a registered investment 
adviser owes its clients an affirmative duty of good faith and full and 
fair disclosure of all material facts, especially where the adviser's 
interests may conflict with those of its clients.<SUP>6

    \4\ 15 U.S.C. 80b-1-80b-21. Under the Advisers Act, investment 
advisers generally must register with the Securities and Exchange 
Commission if, for compensation, they engage in the business of 
advising others, either directly or through certain types of 
publications or writings, as to the value of securities or the 
advisability of investing in, purchasing, or selling securities. 
Banks and bank holding companies are, for the most part, exempt from 
the requirements of the Advisers Act.
    \5\ The SEC's rules governing investment advisers are found at 
17 CFR part 275.
    \6\ See SEC v. Capital Gains Research Bureau, 375 U.S. 180 
(1963); Transamerica Mortgage Advisors, Inc., v. Lewis, 444 U.S. 11, 
17 (1979).
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Fiduciary Officers and Employees (Proposed Sec. 9.2(f))

    The proposal replaces the term ``trust department,'' defined at 
Sec. 9.1(j), with the term ``fiduciary officers and employees,'' to 
reflect the increasing diffusion of fiduciary functions throughout a 
national bank.

Investment Discretion (Proposed Sec. 9.2(j))

    As mentioned earlier, the proposal defines the term ``fiduciary 
capacity'' to include any capacity involving investment discretion on 
behalf of another. The new term ``investment discretion,'' in turn, 
includes any account for which a national bank has the authority to 
determine what securities or other assets to purchase or sell on behalf 
of the account. The OCC considers this term to apply whether or not the 
bank itself in fact exercises that discretion or delegates that 
function to another.

Approval Requirements (Proposed Sec. 9.3)

    Consistent with Sec. 9.2 of the current regulation, the proposal 
directs a national bank seeking approval to exercise fiduciary powers 
and a person seeking approval to organize a special-purpose national 
bank limited to fiduciary powers, to appropriate provisions in 12 CFR 
part 5 (rules, policies, and procedures for corporate activities).

Administration of Fiduciary Powers (Proposed Sec. 9.4)

    The proposal relocates most of the substance of current Sec. 9.7 to 
proposed Sec. 9.4, but relocates provisions in current Sec. 9.7 
relating to policies and procedures, review of assets, and 
recordkeeping, to other sections specifically addressing those topics 
(proposed Secs. 9.5, 9.6, and 9.8, respectively). The proposal also 
relocates a provision in current Sec. 9.7 relating to the need for 
fiduciary counsel to proposed Sec. 9.5 (policies and procedures).
    The proposal continues to place the primary responsibility for a 
national bank's fiduciary activities on its directors. Under the 
proposal, as under the current rule, the board may assign functions 
related to the exercise of fiduciary powers to bank directors, 
officers, employees, and committees thereof. The proposal allows a 
national bank to use personnel and facilities of the bank to perform 
services related to the exercise of its fiduciary powers, and to allow 
any department of the bank to use fiduciary officers and employees and 
facilities to perform services unrelated to the exercise of fiduciary 
powers, to the extent not prohibited by applicable law. The proposal 
retains the requirement that all fiduciary officers and employees must 
be adequately bonded.
    The proposal adds a new provision, at proposed Sec. 9.4(c), to 
clarify that a national bank may enter into an agency agreement with 
another entity to purchase or sell services related to the exercise of 
fiduciary powers. This provision reflects the OCC position contained in 
Fiduciary Precedent 9.1300 (found in the ``Comptroller's Handbook for 
Fiduciary Activities'').<SUP>7

     7  See also 12 U.S.C. 1867 (regulation and examination of bank 
service corporations); Fiduciary Precedent 9.1390 (fiduciary support 
services rendered by agent); and Trust Interpretive Letter #168 
(August 3, 1988) (use of an affiliate to perform trust 
administrative and investment services).
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Policies and Procedures (Proposed Sec. 9.5)

    Current Sec. 9.5 requires a national bank to adopt policies and 
procedures with respect to brokerage placement practices but not with 
respect to other areas of fiduciary practice. The proposal, on the 
other hand, requires that a national bank have written policies and 
procedures to ensure that its fiduciary practices comply with 
applicable law. The proposal lists particular areas that a bank's 
policies and procedures should address.
    Several of the items on this list of required policies and 
procedures stem from provisions located in other sections of the 
current regulation, including methods for ensuring that fiduciary 
officers and employees do not use material inside information in 
connection with any decision or recommendation to purchase or sell any 
security (current Sec. 9.7(d)); selection and retention of legal 
counsel readily available to advise the bank and its fiduciary officers 
and employees on fiduciary matters (current Sec. 9.7(c)); and 
investment of funds held as fiduciary, including short-term investments 
and the treatment of fiduciary funds awaiting investment or 
distribution (current Sec. 9.10(a)).
    Other items on the list are not based on requirements in the 
current regulation, including methods for preventing self-dealing and 
conflicts of interest, allocation to fiduciary accounts of any 
financial incentives the bank may receive for investing fiduciary funds 
in a particular investment,<SUP>8 and disclosure to beneficiaries and 
other interested parties of fees and expenses charged to fiduciary 
accounts. The OCC believes that these new items are important to the 
proper exercise of national bank fiduciary powers, and should be 
addressed in a bank's policies and procedures.

     <SUP>8 See Fiduciary Precedent 9.3115 (acceptance of financial 
benefits by bank fiduciaries).
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    The OCC invites comment on whether to add any items to, or delete 
any items from, the proposed list.

Review of Assets of Fiduciary Accounts (Proposed Sec. 9.6)

    The proposal clarifies current Sec. 9.7(a)(2) by explicitly 
requiring national banks to perform two distinct types of written asset 
reviews with respect to fiduciary accounts: individual account reviews 
and reviews of assets by issuer.<SUP>9 Before accepting a fiduciary 
account, a national bank must review the account to determine whether 
it can administer the account properly. After accepting a fiduciary 
account for which 

[[Page 66166]]
a national bank has investment discretion, and each year thereafter, 
the bank promptly must conduct an individual account review of the 
account's assets to evaluate whether they are appropriate, individually 
and collectively, for the account. In addition to the individual 
account review, a bank must conduct an annual review of assets by 
issuer to determine the investment merit of the assets (or potential 
assets) in fiduciary accounts for which the bank has investment 
discretion, to the extent appropriate for that asset. The OCC 
anticipates that the scope of a bank's assets review will vary, 
depending on the nature of the particular asset.

     <SUP>9 See Fiduciary Precedent 9.4102.
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    To contrast the two types of review, a review of assets by issuer 
determines what investments, by issuer, (e.g., common stock of 
Corporation X) are potentially appropriate investments for the bank's 
fiduciary accounts. In some banks, for example, the review of assets by 
issuer results in a list of permissible fiduciary investments for the 
bank's fiduciary accounts. The person or committee in charge of 
investing for a particular fiduciary account chooses investments from 
this list. An individual account review, on the other hand, determines 
whether the investments chosen for that particular account are 
appropriate, individually and collectively, given the objectives of the 
account.
    The OCC invites comment on whether these specific standards are 
necessary or appropriate and, if not, what alternative approaches are 
preferable. For example, commenters may wish to discuss approaches that 
distinguish between large and small accounts or between large and small 
institutions.

Recordkeeping (Proposed Sec. 9.8)

    The proposal clarifies the recordkeeping requirements currently 
found at Secs. 9.7(a)(2) and 9.8. In particular, a national bank must 
document the establishment and termination of fiduciary accounts, must 
maintain adequate records for fiduciary accounts, must retain records 
for a specified period of time, and must make sure its fiduciary 
records are distinguishable from other bank records.

Audit of Fiduciary Activities (Proposed Sec. 9.9)

    The proposal retains the current Sec. 9.9 requirement that a 
national bank perform suitable audits of its fiduciary activities 
annually (specifically, at least once during each calendar year and not 
later than 15 months after the last audit), and that the bank report 
the results of the audit (including all actions taken as a result of 
the audit) in the minutes of the board. The proposal removes as 
redundant the requirement that the national bank ascertain compliance 
with ``law, this part, and sound fiduciary principles.''
    The proposal clarifies that if a bank adopts a continuous audit 
system in lieu of performing annual audits, the bank may perform 
discrete audits of each fiduciary activity, on an activity-by-activity 
basis, at intervals appropriate for that activity. For example, a bank 
may determine that it is appropriate to audit certain low-risk 
fiduciary activities every 18 months. A bank that adopts a continuous 
audit system must report the results of any discrete audits performed 
since the last audit report (including all actions taken as a result of 
the audits) in the minutes of the board of directors at least once 
during each calendar year and not later than 15 months after the last 
audit report.
    The proposal also clarifies that a national bank's audit committee 
may not include directors who are members of a fiduciary committee of 
the bank.<SUP>10 The proposal also modifies the current regulation's 
position that active officers of the bank may not serve on the audit 
committee. Under the proposal, only officers who participate 
significantly in the administration of the bank's fiduciary activities 
are barred from serving on the audit committee. This proposed position 
provides some degree of flexibility to smaller banks, which may have a 
limited number of outside directors.

     <SUP>10  See Fiduciary Precedent 9.2505 (a member of a 
fiduciary committee may not serve on the trust audit committee).
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    Finally, the proposal permits an audit committee of an affiliate of 
the bank to conduct the required audit. This change allows a bank 
holding company to audit the fiduciary activities of its subsidiary 
national banks through a central audit committee. This approach 
facilitates consolidation of functions, and the accompanying 
efficiencies, within a bank holding company structure.
    The OCC invites comment on these proposed changes and, in addition, 
on the relationship between the audit requirement and the OCC's 
fiduciary examination process (in particular, the extent to which OCC 
examiners should rely on a bank's internal or external fiduciary 
audits).

Fiduciary Funds Awaiting Investment or Distribution (Proposed 
Sec. 9.10)

    As mentioned earlier, the proposal relocates to proposed Sec. 9.5 
the current regulation's requirement that a national bank adopt 
policies and procedures regarding short-term investments. The proposal 
retains the current regulation's general prohibition against allowing 
fiduciary funds to remain uninvested and undistributed any longer than 
reasonable for proper account management. The OCC invites comment on 
whether reasonableness is a sufficiently clear standard and, if not, on 
what standard is appropriate.
    The proposal continues to allow a national bank to deposit idle 
fiduciary funds (i.e., fiduciary funds awaiting investment or 
distribution) in its commercial, savings, or another department, 
provided that the bank secures the deposit with appropriate collateral. 
Additionally, the proposal explicitly allows a national bank to use, as 
collateral for self- deposits of idle fiduciary funds, assets 
(including surety bonds) that qualify under state law as appropriate 
security for deposits of fiduciary funds. The proposal also permits a 
national bank to deposit idle fiduciary funds with affiliates.
    Surety bonds as collateral. Under 12 U.S.C. 92a(d), a national bank 
may deposit idle fiduciary funds with itself (e.g., in its commercial 
or savings department) only if it pledges United States bonds or 
``other securities'' approved by the OCC. Current Sec. 9.10(b)(3) 
allows a bank to meet this requirement by pledging qualifying assets of 
the bank to secure a deposit in compliance with local law.
    Under the OCC's interpretation of Sec. 9.10(b)(3), a national bank 
may pledge, as a qualifying asset, a surety bond as collateral for a 
deposit of idle fiduciary funds if a surety bond is permissible 
collateral under state law, unless the instrument governing the 
fiduciary relationship prohibits the use of a surety bond. This 
interpretation recognizes that a surety bond provides protection that 
is functionally at least equivalent to the protection provided by other 
types of assets that the OCC has approved under section 92a(d). 
Moreover, this interpretation promotes Congress' policy objective of 
protecting the interests of beneficiaries and ensures that national 
banks are not disadvantaged in a state that permits its institutions to 
use surety bonds to secure deposits of idle fiduciary funds.
    The proposal explicitly incorporates this interpretation into part 
9 by allowing a national bank to secure deposits of idle fiduciary 
funds with assets, including surety bonds, that qualify under state law 
as appropriate security for deposits of fiduciary funds. The theory 
that a surety bond is comparable to other forms of security permitted 
by the OCC could have a broader application, however. In particular, 
the OCC invites comment on 

[[Page 66167]]
whether to adopt a uniform standard allowing national banks in all 
states to use surety bonds as collateral for these deposits.
    Deposits with affiliates. Section 92a(d) authorizes a national bank 
to pledge assets to secure self-deposits of idle fiduciary funds. Thus, 
section 92a(d) accommodates a bank with a trust department and a 
commercial or savings department, the bank organizational structure 
prevalent when Congress enacted the statutory language in 1918. 
However, the statutory language does not address other organizational 
structures that have evolved since 1918. For example, some banks today 
are special-purpose trust companies. These entities do not have 
commercial or savings departments in which to deposit idle fiduciary 
funds, but many are affiliated with banks that do. Other banks operate 
as part of a large system of affiliated banks and wish, for reasons of 
efficiency, to consolidate their fiduciary payment and disbursement 
functions in a single bank. In these situations, a bank may want to 
deposit idle fiduciary funds with an affiliated bank. However, the OCC 
has previously applied 12 CFR 9.12(c) to restrict a national bank from 
depositing idle fiduciary funds with an affiliated bank unless 
authorized by the instrument governing the account, court order, or 
state law.
    Some states explicitly authorize their banks to deposit idle 
fiduciary funds with affiliated banks, however. Thus, a national bank 
in any of these states may deposit idle fiduciary funds in an 
affiliated bank in accordance with current 12 CFR 9.12(c) (because the 
deposit is authorized by state law). Additionally, however, many of 
these states require that these deposits be secured with a pledge of 
assets. The OCC previously took the position that neither a national 
bank making a deposit of idle fiduciary funds with an affiliate, nor a 
national bank accepting the deposit, can pledge assets to secure the 
deposit, regardless of whether state banks can pledge in that 
situation. Consequently, a national bank could not legitimately comply 
with a state's pledging requirement and, thus, could not avail itself 
of the state's authorization to deposit idle fiduciary funds with an 
affiliate bank. The OCC believes that a prohibition on pledging assets 
to secure idle fiduciary funds deposited by or with affiliates is not 
legally required and may prevent a national bank from achieving 
efficiencies in its fiduciary operations.
    Consequently, the OCC proposes to allow a national bank to secure a 
deposit of idle fiduciary funds by or with an affiliate if consistent 
with applicable law. This change is consistent with a recent OCC 
interpretative letter,<SUP>11 and should facilitate more efficient 
fiduciary operations in multi-bank holding companies.

     <SUP>11  Letter from Julie L. Williams, Chief Counsel (November 
6, 1995).
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Investment of Fiduciary Funds (proposed Sec. 9.11)

    The proposal condenses current Sec. 9.11 without changing its 
substance. The proposal simply directs a national bank to invest 
fiduciary funds in a manner consistent with applicable law. Applicable 
law, as described earlier, includes Federal law, state law governing a 
national bank's fiduciary relationships, the terms of the instrument 
governing the relationships, and any court order pertaining to the 
relationships.

Self-dealing and Conflicts of Interest (Proposed Sec. 9.12)

    The proposal retains the substance of current Sec. 9.12, which 
addresses fiduciary conflicts of interest. However, the proposal 
clarifies a point concerning the general rule, found at current 
Sec. 9.12(b), that a national bank may not lend, sell, or otherwise 
transfer assets held in a fiduciary capacity to the bank or any of its 
directors, officers, or employees, or to affiliates of the bank or any 
of their directors, officers, or employees, or to individuals or 
organizations with whom there exists an interest that might affect the 
exercise of the best judgment of the bank. Current Sec. 9.12(b) 
provides certain exceptions to this general rule, such as where local 
law authorizes those loans. However, under 12 U.S.C. 92a(h), it is 
unlawful for a national bank to lend to its directors, officers, or 
employees any funds it holds in trust. A national bank cannot invoke 
the exceptions in current Sec. 9.12(b) in contravention of section 
92a(h). Thus, the proposal clarifies that despite the exceptions to the 
general rule, a bank may not lend to any of its directors, officers, or 
employees any funds it holds in trust, except with respect to bank's 
own employee benefit plans in accordance with section 408(b)(1) of the 
Employee Retirement Income Security Act of 1974 (29 U.S.C. 1108(b)(1)), 
which specifically authorizes loans to participants and beneficiaries 
of such plans under certain circumstances.

Custody of Fiduciary Assets (Proposed Sec. 9.13)

    The proposal retains the substance of current Sec. 9.13, which 
addresses custody of fiduciary assets. The proposal continues to 
require joint custody or control of fiduciary assets, separation of 
fiduciary assets from the assets of the bank, and separation or 
identification of the assets of each fiduciary account from all other 
accounts (except when assets are invested in collective investment 
funds). The proposal also continues to allow a national bank to 
maintain fiduciary assets off-premises.

Deposit of Securities With State Authorities (Proposed Sec. 9.14)

    Under current Sec. 9.14, whenever state law requires institutions 
acting as fiduciaries to deposit securities with state authorities for 
the protection of trust accounts, a national bank in that state must 
make a similar deposit before it can act in a fiduciary capacity.\12\ 
The proposal retains this general requirement.

    \12\ This provision stems from the fiduciary powers statute. See 
12 U.S.C. 92a(f).
---------------------------------------------------------------------------

    However, current Sec. 9.14 does not address how a bank should 
calculate the amount of its required deposit when the bank administers 
trust assets from offices located in more than one state--i.e., whether 
the bank must compute the amount of deposit required by a particular 
state on the basis of all of the bank's trust assets nationwide, or on 
the basis of the bank's trust assets in that state. This issue will 
become increasingly significant as interstate branching becomes more 
common. Many states have laws requiring a state fiduciary to deposit an 
amount of securities based on its total trust assets. These laws 
apparently did not contemplate that state fiduciaries would expand 
geographically and administer significant amounts of trust assets from 
other states.
    It is unnecessary to require a bank with multistate trust 
operations to deposit in each state in which it administers trust 
assets an amount based on its total trust assets nationwide. To do so 
goes far beyond the deposit requirement's purpose of protecting trust 
assets relating to a particular state, and unnecessarily burdens a bank 
that conducts fiduciary operations in multiple states. Consequently, 
the proposal allows a national bank to meet its deposit requirement in 
each state based on the 

[[Page 66168]]
amount of trust assets administered from offices located in that 
state.\13\

    \13\ See also Op. Chief Counsel, Office of Thrift Supervision 
(December 24, 1992) (interpreting 12 U.S.C. 1464(n)(5) (the Federal 
savings association equivalent of 12 U.S.C. 92a(f) with virtually 
identical language) and concluding that a Federal savings 
association should compute the amount of a required state deposit 
based on the amount of trust assets administered from offices 
located in that particular state, rather than on the basis of the 
bank's total trust assets nationwide).
---------------------------------------------------------------------------

Fiduciary Compensation (Proposed Sec. 9.15)

    The proposal retains the substance of current Sec. 9.15, which 
addresses fiduciary compensation. Under the proposal, a national bank 
may charge a reasonable fee for its fiduciary services if the amount is 
not set or governed by applicable law. Moreover, the proposal prohibits 
an officer or an employee of a national bank from retaining any 
compensation for acting as a co-fiduciary with the bank in the 
administration of a fiduciary account, except with the specific 
approval of its board of directors.

Receivership or Voluntary Liquidation of Bank (Proposed Sec. 9.16)

    The proposal retains the substance of current Sec. 9.16, which 
addresses receivership and voluntary liquidation. The proposal directs 
a receiver or liquidating agent to close promptly all fiduciary 
accounts to the extent practicable (in accordance with OCC instructions 
and the orders of the court having jurisdiction) and to transfer all 
remaining fiduciary accounts to substitute fiduciaries.

Surrender or Revocation of Fiduciary Powers (Proposed Sec. 9.17)

    The proposal retains the substance of current Sec. 9.17, which 
addresses surrender and revocation of fiduciary powers. The proposal 
sets forth the standards and procedures that apply when a national bank 
seeks to surrender its fiduciary powers. The proposal also describes 
the standards that apply when the OCC seeks to revoke a bank's 
fiduciary powers.

Collective Investment Funds (Proposed Sec. 9.18)

    The proposal revises current Sec. 9.18, which governs the 
establishment and operation of common trust funds and other collective 
investment funds by national banks.\14\ The central purpose of this 
proposed revision is to lift certain unnecessary regulatory burdens 
currently imposed on institutions that administer collective investment 
funds, while preserving appropriate protections to beneficiaries (and 
other interested parties) of fiduciary accounts participating in those 
funds.

    \14\ Because the regulations of the Office of Thrift Supervision 
incorporate Sec. 9.18, this revision also affects collective 
investment funds administered by Federally-chartered savings and 
loan associations. 12 CFR 550.13(b). Moreover, because common trust 
funds must comply with Sec. 9.18 in order to qualify for tax-exempt 
status under section 584 of the Internal Revenue Code of 1986, as 
amended (26 U.S.C. 584), this revision affects state-chartered 
banks, trust companies, and other financial institution fiduciaries 
that administer collective investment funds.
---------------------------------------------------------------------------

    The OCC has not rewritten Sec. 9.18 since 1972. In 1982, the OCC 
published an advance notice of proposed rulemaking requesting public 
comment on Sec. 9.18 (47 FR 27833, June 25, 1982). The OCC specifically 
solicited comments on several issues.\15\ Moreover, the OCC indicated 
its intention to undertake a comprehensive review of its collective 
investment fund regulation.

    \15\ These issues included: (1) operations of guaranteed 
insurance contract funds; (2) establishment of commingled agency 
accounts; (3) commingling of Keogh trusts with corporate employee 
benefit funds; (4) establishment of common trust funds for 
individual retirement accounts; (5) advertising of common trust 
funds; and (6) commingling of charitable trusts with employee 
benefit trusts.
---------------------------------------------------------------------------

    The OCC received over 70 comments, most of which indicated that 
technological advances and new customer needs rendered portions of 
Sec. 9.18 obsolete or even counter-productive. In November 1984, 
however, the OCC suspended its consideration of amendments to 
Sec. 9.18, due to pending litigation stemming from the OCC's approval 
of collective investment funds consisting of Individual Retirement 
Accounts, Keogh Accounts, or other employee benefit accounts that are 
exempt from taxation (collective IRA funds).\16\ The OCC determined 
that it would be premature to pursue significant changes to Sec. 9.18 
under the circumstances.

    \16\ See, e.g., ``Decision of the Comptroller of the Currency on 
the Application by Citibank, N.A., pursuant to 12 CFR 9.18(c)(5) to 
Establish Common Trust Funds for the Collective Investment of 
Individual Retirement Account Trusts Exempt from Taxation under 
Section 408 of the Internal Revenue Code of 1954'' (Oct 31, 1982), 
reprinted in 1 Comptroller of the Currency Q.J. No. 4 (1982), at 45; 
and ``Decision of the Office of the Comptroller of the Currency on 
the Application by Wells Fargo Bank, N.A. to Establish a Common 
Trust Fund for the Collective Investment of Individual Retirement 
Account Trust Assets Exempt From Taxation Under section 408(a) of 
the Internal Revenue Code of 1954, as amended'' (Jan. 28, 1984) 
(Wells Fargo Decision).
---------------------------------------------------------------------------

    In view of the disposition of the collective IRA fund 
litigation,\17\ the OCC decided in 1990 to resume the rulemaking 
process by publishing a proposal to amend Sec. 9.18 (55 FR 4184, 
February 7, 1990) (1990 Proposal) based largely on the public comments 
received in 1982.\18\ The OCC received 150 comment letters on the 1990 
Proposal. In 1994, the OCC decided to revise Sec. 9.18 as part of the 
comprehensive review of part 9 under its Regulation Review Program, 
rather than proceed with Sec. 9.18 alone. This proposal incorporates 
many of the elements of the 1990 Proposal. Readers seeking additional 
background on these elements may refer to the 1990 Proposal.

    \17\ See Investment Company Institute v. Clarke, 789 F.2d 175 
(2d Cir. 1986), cert. denied, 479 U.S. 940 (1986); Investment 
Company Institute v. Conover, 790 F.2d 925 (D.C. Cir. 1986), cert. 
denied, 479 U.S. 939 (1986), Investment Company Institute v. Clarke, 
No. 86-3725 (W.D.N.C. August 25, 1986, appeal withdrawn by 
stipulation, Jan. 6, 1987).
    \18\ The 1990 proposal included revisions that would: (1) 
Eliminate the requirement for specific approval by an institution's 
board of directors prior to establishing a collective investment 
fund, and eliminate the requirement for national banks to file fund 
plans of operation with the OCC; (2) clarify the participation in 
collective investment funds by certain tax-exempt employee benefit 
funds; (3) broaden the authority to establish ``closed-end'' 
collective investment funds, the assets of which are illiquid; (4) 
eliminate the specific regulatory prohibition in Sec. 9.18(b)(5)(v) 
on advertising the availability and performance of common trust 
funds; (5) eliminate the fixed percentage limitation in 
Secs. 9.18(b)(9)(i) and 9.18(c)(3) on the interest a single 
participating account may have in a particular common trust fund; 
(6) eliminate the fixed percentage limitation in Sec. 9.18(b)(9)(ii) 
on the concentration of investment by a common trust fund in the 
obligations of any one entity; (7) eliminate the liquidity 
requirement in Sec. 9.18(b)(9)(iii) applicable to the assets of 
common trust funds; (8) eliminate the limitations in 
Sec. 9.18(b)(12) on fees and expenses incurred by an institution in 
the administration of a collective investment fund, but require 
appropriate disclosure; (9) eliminate the requirement in 
Sec. 9.18(c)(2)(ii) that investments in variable-amount notes be 
made on a short-term basis; (10) provide an expeditious procedure 
for the review of new types of funds; and (11) codify the authority 
to establish registered collective investment funds whose assets 
consist solely of Individual Retirement Accounts, Keogh Accounts, or 
other eligible employee benefit accounts.
---------------------------------------------------------------------------

    This current proposal retains the general structure of Sec. 9.18. 
Paragraph (a) authorizes national banks to invest fiduciary assets in 
two types of collective investment funds. Paragraph (b) sets forth the 
requirements applicable to funds authorized under paragraph (a). 
Paragraph (c) describes other types of collective investments available 
to national bank fiduciaries. Significant changes to current Sec. 9.18 
are noted below.

(a)(1) and (a)(2) Funds (Proposed Sec. 9.18(a)).

    The proposal retains the substance of current Sec. 9.18(a), which 
authorizes national banks to invest fiduciary assets in common trust 
funds ((a)(1) funds) and funds consisting of employee benefit and other 
tax-exempt trusts ((a)(2) funds). The proposal, however, relocates to 
Sec. 9.18(a) the substance of current Sec. 9.18(b)(2), which provides 

[[Page 66169]]
guidance on the circumstances under which a bank may place employee 
benefit and other tax-exempt trust assets in either an (a)(1) or an 
(a)(2) fund, and on the circumstances under which a bank may place 
trusts for which the bank is not the trustee in an (a)(2) fund.\19\

    \19\ Like the 1990 Proposal, this proposal eliminates from 
current Sec. 9.18(b)(2) references to specific sections of the 
Internal Revenue Code and to specific Internal Revenue Service 
rulings to make clear that the OCC promulgates this regulation 
solely on the authority of Federal banking law and not under 
authority of the Internal Revenue Code.
---------------------------------------------------------------------------

    The proposal makes significant changes to current Sec. 9.18(b), 
which sets forth the requirements for (a)(1) and (a)(2) funds. On 
balance, these changes, described below, will reduce the Federal 
regulatory burdens imposed on collective investment funds and enable 
banks to operate collective investment funds more efficiently. The term 
``collective investment fund,'' as used in Sec. 9.18, encompasses both 
(a)(1) funds and (a)(2) funds.

Written Plan (Proposed Sec. 9.18(b)(1)).

     Like the 1990 Proposal, this proposal eliminates as unnecessary 
two requirements from current Sec. 9.18(b)(1). First, instead of 
requiring the full board of directors to approve new collective 
investment fund plans, the proposal allows a committee of the board to 
perform this function. Second, the proposal removes the requirement 
that the bank file (a)(1) and (a)(2) fund plans with the OCC.\20\ 
Additionally, the proposal relocates a provision on fund valuation from 
current Sec. 9.18(b)(1) to proposed Sec. 9.18(b)(4), described below.

    \20\ However, national banks must file written plans with the 
OCC in order to establish special exemption funds (i.e., funds that 
deviate from the requirements of Sec. 9.18(a) and (b)), in 
accordance with proposed Sec. 9.18(c)(5).
---------------------------------------------------------------------------

Fund Management (Proposed Sec. 9.18(b)(2))

    The proposal provides an exception to the ``exclusive management'' 
requirement, found in current Sec. 9.18(b)(12), to allow prudent 
delegation of responsibilities to others.\21\ This exception is 
consistent with the modern prudent investor rule as set forth in the 
American Law Institute's Restatement (Third) of Trusts (1992).\22\

    \21\ In the past, the OCC recognized only limited exceptions to 
the exclusive management requirement. See, e.g., Fiduciary Precedent 
9.5320 (an affiliate may manage a bank's collective investment 
fund).
    \22\ See Rest. 3rd, Trusts (Prudent Investor Rule), section 171 
(Duty with Respect to Delegation): ``A trustee has a duty personally 
to perform the responsibilities of the trusteeship except as a 
prudent person might delegate those responsibilities to others. In 
deciding whether, to whom and in what manner to delegate fiduciary 
authority in the administration of a trust, and thereafter in 
supervising agents, the trustee is under a duty to the beneficiaries 
to exercise fiduciary discretion and to act as a prudent person 
would act in similar circumstances.''
---------------------------------------------------------------------------

    The proposal also provides an exception to the exclusive management 
requirement for collective IRA funds registered under the Investment 
Company Act of 1940. A bank with a collective IRA fund generally 
registers that fund as an investment company under the Investment 
Company Act because the SEC takes the position that IRA, Keogh, and 
certain other similar trusts may not qualify for exemption from 
registration. However, the exclusive management requirement of current 
Sec. 9.18(b)(12) arguably conflicts with the Investment Company 
Act.\23\ Currently, the OCC grants waivers of the exclusive management 
requirement for collective IRA funds that register as investment 
companies. The proposal obviates the need for these routine waivers.

    \23\ See, e.g., Wells Fargo Decision, supra note 16, at 10.
---------------------------------------------------------------------------

Proportionate Interests (Proposed Sec. 9.18(b)(3))

    The proposal retains the requirement in current Sec. 9.18(b)(3) 
that all participating accounts in a collective investment fund must 
have a proportionate interest in all of the fund's assets. However, the 
proposal eliminates the language concerning the propriety of investing 
fiduciary assets in a collective investment fund. The permissibility of 
investing the assets of a fiduciary account in a particular collective 
investment fund is governed by proposed Sec. 9.11, which allows 
investments consistent with applicable law.

Valuation (Proposed Sec. 9.18(b)(4))

    The proposal consolidates existing provisions relating to valuation 
of collective investment funds, including current Sec. 9.18(b)(1) 
(method of valuation), current Sec. 9.18(b)(4) (frequency and date of 
valuation), and current Sec. 9.18(b)(15) (valuation of short-term 
investment funds). The OCC invites comment on the need to clarify 
valuation issues in the regulatory text or an interpretive ruling 
accompanying part 9.
    The OCC also invites comment on the proposed exception to the 
quarterly valuation requirement for collective investment funds that 
are invested primarily in real estate or other assets that are not 
readily marketable. Allowing banks to value these illiquid collective 
investment funds annually rather than quarterly appears consistent with 
the one-year prior notice allowance for withdrawals from these funds, 
found at Sec. 9.18(b)(4).

Admission and Withdrawal of Accounts (Proposed Sec. 9.18(b)(5))

    The proposal consolidates existing provisions relating to 
admissions and withdrawals of accounts, including current 
Sec. 9.18(b)(4) (prior request or notice), current Sec. 9.18(b)(6) 
(method of distribution), and current Sec. 9.18(b)(7) (segregation of 
investments).
    The proposal also substantially revises the current regulation's 
standard for distributions to an account withdrawing from a collective 
investment fund. Current Sec. 9.18(b)(6) sets a Federal standard 
requiring the bank to make distributions in cash, ratably in kind 
(i.e., a proportional share in each of the assets held by the 
collective investment fund), or a combination of the two. The OCC 
believes that this Federal standard may not be sufficiently flexible to 
address distribution problems that arise, particularly with respect to 
collective investment funds that invest primarily in assets that are 
not readily marketable (illiquid assets). Even with respect to these 
collective investment funds that invest primarily in illiquid assets, 
banks generally make distributions in cash only, either from the fund's 
cash reserves or after selling some of the fund's assets within the 
one-year prior notice period. However, if withdrawal requests exceed 
the fund's cash reserves, and if the bank believes the market for the 
fund's assets is depressed, a bank under the constraint of the one-year 
time limit may have to resort to ratable in-kind distributions rather 
than (1) sell fund assets at depressed prices, or (2) liquidate the 
fund. With ratable in-kind distributions of certain assets, such as 
readily marketable securities, a withdrawing participant may easily 
convert the distribution into cash. However, that may not be the case 
for ratable in-kind distributions of illiquid assets, where valuation 
may be complicated and a recipient may have no practical avenue to 
liquidate its proportionate share of an asset.
    In response to these concerns, the proposal allows any 
distributions consistent with applicable law. The OCC believes that 
this approach will provide banks with sufficient flexibility to address 
complex distribution problems that may arise (particularly with respect 
to collective investment funds that invest primarily in illiquid 
assets), while maintaining the basic 

[[Page 66170]]
protections of state fiduciary law.\24\ The OCC invites comment on 
whether to adopt this proposed state law-based approach instead of 
retaining a Federal standard. In the event that the OCC does not adopt 
the state law-based approach, the OCC also invites comment on what 
Federal standard is appropriate.

    \24\ Thus, for example, a bank with a collective investment fund 
facing distribution problems, or beneficiaries (or interested 
parties) of fiduciary accounts participating in that fund, could 
seek from a court of competent jurisdiction an order authorizing an 
equitable solution. Allowing a bank to make distributions in 
accordance with a court order allows the bank to seek a solution 
more flexible than what current OCC regulations prescribe. A court-
ordered solution also provides all interested parties with the 
opportunity to present their concerns in a judicial forum, ensuring 
that the distribution reflects a consideration of all relevant 
interests.
---------------------------------------------------------------------------

    Moreover, the OCC invites comment on whether, if the OCC adopts a 
state law-based standard, there is a need to retain the provision that 
allows a prior notice period of up to one year for withdrawals from 
funds with assets not readily marketable (proposed 
Sec. 9.18(b)(5)(iii)).

Audits and Financial Reports (Proposed Sec. 9.18(b)(6))

    The proposal retains the requirements in current 
Sec. 9.18(b)(5)(i)-(iv) regarding collective investment fund annual 
audits and financial reports. The proposal also adds a requirement that 
a national bank disclose in the annual financial report fees and 
expenses charged to the fund, consistent with OCC precedent.\25\

    \25\ See, e.g., Fiduciary Precedent 9.5330 (requiring disclosure 
of management fees).
---------------------------------------------------------------------------

    The proposal, however, provides an exception to this requirement 
for collective IRA funds registered under the Investment Company Act. 
As mentioned earlier, a bank generally registers a collective IRA fund 
as an investment company under the Investment Company Act. The 
requirement that the auditors are responsible only to the bank's board 
of directors arguably conflicts with the Investment Company Act.\26\ 
Currently, the OCC grants waivers of this requirement for collective 
IRA funds registered as investment companies. The proposal obviates the 
need for these routine waivers.

    \26\ See, e.g., Wells Fargo Decision, supra note 16, at 11-12.
---------------------------------------------------------------------------

Advertising Prohibition for Common Trust Funds (Proposed 
Sec. 9.18(b)(7))

    The proposal retains and clarifies the current regulation's 
prohibition on advertising (a)(1) funds. Current Sec. 9.18(b)(5)(v) 
prohibits a national bank from advertising or publicizing (a)(1) funds 
except as provided in the regulation. Current Sec. 9.18(b)(5)(iv) 
allows a national bank to publicize the availability of financial 
reports for (a)(1) funds in connection with the promotion of the 
general fiduciary services of the bank. The OCC interprets these 
provisions to allow a bank to advertise (a)(1) funds only in connection 
with the advertisement of the general fiduciary services of the 
bank.\27\

    \27\ See, e.g., Fiduciary Precedent 9.5113.
---------------------------------------------------------------------------

Self-dealing and Conflicts of Interest (Proposed Sec. 9.18(b)(8))

    The proposal retains the substance of current Sec. 9.18(b)(8), 
which addresses self-dealing and conflicts of interest specific to 
collective investment funds. A national bank administering a collective 
investment fund must comply with these provisions in addition to the 
self-dealing and conflicts of interest provisions found in Sec. 9.12, 
which apply to all fiduciary activities of national banks.

Mortgage Reserve Account (Proposed Sec. 9.18(b)(9))

    The proposal retains the substance of current Sec. 9.18(b)(11), 
which allows a bank administering a collective investment fund to 
establish a mortgage reserve account for overdue interest payments on 
mortgages in the fund. The OCC invites comment on the extent to which 
banks use mortgage reserve accounts, and whether their experience 
suggests the need for any modifications to this provision.

Fees and Expenses (Proposed Sec. 9.18(b)(10))

    The proposal retains the quantitative management fee limitation, 
found in current Sec. 9.18(b)(12). Under this limitation, a bank 
administering a collective investment fund may charge a fund management 
fee only if the total fees charged to a participating account 
(including the fund management fee) does not exceed the total fees that 
the bank would have charged if it had not invested assets of the 
account in the fund. Moreover, the proposal retains the requirement 
that the bank absorb fund establishment and reorganization expenses, 
also found in current Sec. 9.18(b)(12).
    The proposal, however, eliminates other provisions in Sec. 9.18(b) 
that specifically permit or prohibit certain expenses, including 
current Sec. 9.18(b)(5)(i) (expenses for audits performed by 
independent public accountants), current Sec. 9.18(b)(5)(iv) (expenses 
for printing and distributing financial reports), and current 
Sec. 9.18(b)(10) (expenses incurred in servicing mortgages). Rather 
than mandating the treatment of specific expenses (other than 
establishment and reorganization expenses), the proposal defers to 
state law, in effect, by allowing a bank to charge any reasonable 
expenses incurred in operating the collective investment fund to the 
extent not prohibited by applicable law. When expenses of a fund are 
reasonable and permissible under state law, and are fully disclosed in 
appropriate documentation,\28\ the OCC believes that it is not 
necessary to micromanage the precise types of expenses charged directly 
to collective investment funds.

    \28\ See proposed Sec. 9.18(b)(1)(iii) (disclosure of 
anticipated fees and expenses in the written plan) and proposed 
Sec. 9.18(b)(6)(ii) (disclosure of fees and expenses in the annual 
financial report).
---------------------------------------------------------------------------

    Additionally, the OCC invites comment on whether to defer to 
applicable law instead of retaining the quantitative management fee 
limitation.

Prohibition Against Certificates (Proposed Sec. 9.18(b)(11))

    The proposal retains the substance of current Sec. 9.18(b)(13), 
which prohibits a national bank administering a collective investment 
fund from issuing certificates evidencing an interest in the fund.

Good Faith Mistakes (Proposed Sec. 9.18(b)(12))

    The proposal retains the substance of current Sec. 9.18(b)(14), 
which provides that if a bank, in good faith and in the exercise of due 
care, makes a mistake in administering a collective investment fund, 
the bank will not be in violation of this part if it takes prompt 
action to remedy the mistake.

Elimination of Participation, Investment, and Liquidity Requirements

    The proposal eliminates the 10 percent participation limitation, 
the 10 percent investment limitation, and the liquidity requirement 
applicable to common trust funds under current Sec. 9.18(b)(9), in 
accordance with the 1990 Proposal. These Federal restrictions have at 
times interfered with optimal management of common trust funds, and the 
protections found in state fiduciary law adequately address the 
concerns underlying these restrictions.

Other Collective Investments (Proposed Sec. 9.18(c))

    In addition to (a)(1) and (a)(2) funds, current Sec. 9.18 
authorizes other means by which a national bank may invest fiduciary 
assets collectively. These other collective investments, described in 

[[Page 66171]]
proposed Sec. 9.18(c), are not subject to the requirements of 
Sec. 9.18(b).
    The proposal eliminates the requirement in current 
Sec. 9.18(c)(2)(ii) that investments in variable-amount notes be made 
on a short-term basis, in accordance with the 1990 Proposal. The 
proposal also eliminates the requirement applicable to mini-funds 
(i.e., funds established for the collective investment of cash 
balances) that no participating account's interest in the fund exceed 
$10,000, again in accordance with the 1990 Proposal.\29\ Moreover, the 
proposal expands the total amount of assets permitted in a mini-fund to 
$1,000,000.

    \29\ Under current Sec. 9.18(c)(3), a mini-fund may not exceed 
$100,000. Limiting participation in this fund to $10,000 is 
equivalent to limiting participation to 10 percent. Thus, 
eliminating the $10,000 limitation is consistent with eliminating 
the 10 percent participation limitation found in current 
Sec. 9.18(b)(9).
---------------------------------------------------------------------------

    Finally, the proposal provides an expeditious procedure for the 
review of new types of funds, in accordance with the 1990 Proposal. The 
purpose of this new procedure is to encourage innovation by improving 
the approval procedures for banks that wish to establish new types of 
funds.

Transfer Agents (Proposed Sec. 9.20)

    The proposal incorporates by means of cross-reference the SEC's 
rules prescribing procedures for registration of transfer agents for 
which the SEC is the appropriate regulatory agency (17 CFR 240.17Ac2-
1). Although section 17A(d)(1) of the Securities Exchange Act of 1934 
(15 U.S.C. 78q-1(d)(1)) generally subjects all transfer agents to SEC 
rules, section 17A(c) (15 U.S.C. 78q-1(c)) provides that transfer 
agents shall register with their appropriate regulatory agencies. 
Current 12 CFR 9.20 sets forth procedural requirements for national 
banks that register as transfer agents that are virtually identical to 
the SEC's registration rules. Thus, the OCC does not need to maintain 
separate procedures, and the proposal simply incorporates the SEC's 
rule instead.
    The proposal also clarifies that a national bank transfer agent 
must comply with rules adopted by the SEC pursuant to section 17A of 
the Securities Exchange Act (15 U.S.C. 78q-1) prescribing operational 
and reporting requirements that apply to all transfer agents (17 CFR 
240.17Ac2-2, and 240.17Ad-1 through 240.17Ad-16).
    The OCC's ``National Bank Transfer Agents' Guide'' provides 
additional guidance regarding the transfer agent activities of national 
banks, including the forms that national banks must file. The OCC sends 
the Guide to all national bank transfer agents, and to any person who 
requests it from the Communications Division, Office of the Comptroller 
of the Currency, 250 E Street, SW, Washington, DC 20219.

Disciplinary Sanctions Imposed by Clearing Agencies (Proposed 
Sec. 19.135)

    The proposal relocates provisions concerning applications by 
national banks for stay or review of disciplinary sanctions imposed by 
registered clearing agencies from current Secs. 9.21 and 9.22 to 12 CFR 
part 19, the OCC's rules of practice and procedure. Proposed 
Sec. 19.135 incorporates by cross-reference the SEC's rules on this 
subject, which are virtually identical to current Secs. 9.21 and 9.22.

Other Issues for Comment

    The OCC has identified several other issues that relate to national 
banks' fiduciary activities. The OCC is not proposing specific 
regulatory text on these issues at this time, but invites comment on 
whether and how to address these issues in part 9.

Multistate Fiduciary Operations

    As noted at the outset of this preamble discussion, bank 
organizational structures have changed significantly since 1913, when 
Congress first enacted the national bank fiduciary powers statute. Many 
bank holding companies currently conduct multistate fiduciary 
operations through separate bank or trust company subsidiaries 
chartered in different states. The Riegle-Neal Interstate Banking and 
Branching Efficiency Act of 1994 (Interstate Act) facilitates the 
consolidation of multistate fiduciary operations by permitting 
interstate bank mergers. Moreover, the ability to branch interstate may 
encourage some banks to expand the multistate fiduciary business they 
already have, and others to enter the fiduciary business on a 
multistate basis for the first time. However, the Interstate Act does 
not define the scope of a national bank's multistate fiduciary 
authority. For example, it does not address activities conducted at 
places other than interstate branches.
    In a recent letter, the OCC analyzed the authority of a national 
bank to exercise fiduciary powers on an interstate basis under 12 
U.S.C. 92a. See Letter from Julie L. Williams, Chief Counsel (December 
8, 1995). The letter dealt with a proposal for a national bank to 
establish non-branch trust offices in many states and to conduct 
fiduciary business in each state. But the interstate considerations 
discussed below also apply to fiduciary activities conducted at 
interstate branches.
    In brief, section 92a authorizes a national bank to conduct 
fiduciary activities but imposes no limitations on the places where, or 
the customers for whom, the bank may conduct those activities.<SUP>30 
Since an office that conducts only fiduciary activities and does not 
engage in any of the so-called ``core banking functions'' in 12 U.S.C. 
36(j) is not a branch for purposes of the McFadden Act (12 U.S.C. 
36(c)), a bank may establish non-branch trust offices at any location, 
without regard to branching limitations. Thus, a national bank may 
conduct fiduciary activities at non-branch trust offices in states 
other than the state in which it has its main office. A national bank 
may also offer fiduciary services at its interstate branches.

    \30\ The basic authority for national banks to exercise 
fiduciary powers is found in 12 U.S.C. 92(a) and (b):
    (a) Authority of the Comptroller of the Currency
      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.
    (b) Grant and exercise of powers deemed not in contravention of 
State or local law
      Whenever the laws of such State authorize or permit the 
exercise of any or all of the foregoing powers by State banks, trust 
companies, or other corporations which compete with national banks, 
the granting to and the exercise of such powers by national banks 
shall not be deemed to be in contravention of State or local law 
within the meaning of this section.
---------------------------------------------------------------------------

    The OCC believes that the effect of section 92a is that in any 
specific state, the extent of fiduciary powers is the same for out-of-
state national banks as for in-state national banks and depends upon 
what the state permits for its own state institutions. A state may 
limit national banks from exercising any or all fiduciary powers in 
that state, but only if it also bars its own institutions from 
exercising the same powers. Therefore, a national bank with its main 
office in one state may exercise fiduciary powers in that state and 
other states, depending upon--with respect to each state--the powers 
each state allows its own institutions to exercise. In essence, with 
respect to national bank fiduciary powers in a given state, the OCC 
believes that section 92a applies the same standards to all national 
banks, regardless of where a national bank has its main office. Whether 
state administrative requirements connected 

[[Page 66172]]
with fiduciary activities apply to national banks (other than the 
requirements specifically made applicable by sections 92a(f), (g), and 
(h)), is determined by principles of federal preemption and must be 
considered on a case-by-case basis.<SUP>31

    \31\ Some earlier OCC letters suggesting that all aspects of 
state law governing fiduciary institutions apply to national banks 
have generally dealt with substantive fiduciary law and have not 
fully distinguished between state substantive fiduciary duties and 
standards and state administrative requirements. See, e.g., OCC 
Letter No. 525 (August 8, 1990), reprinted in Fed. Banking L. Rep. 
(CCH) para. 83,236.
---------------------------------------------------------------------------

    The OCC invites comment on the legal framework under section 92a 
for interstate fiduciary powers of national banks as discussed above 
and in the Letter (December 8, 1995). The OCC also invites comment on 
whether to add any new provisions to part 9, or modify any existing 
provisions (in addition to the modification of Sec. 9.14(b)), to 
address other issues presented by fiduciary activities conducted on an 
interstate basis.

Investment Adviser to an Investment Company

    When a bank or its operating subsidiary acts as an investment 
adviser to an investment company (such as a mutual fund), that activity 
raises conflicts of interest and other concerns that part 9 was not 
designed to address. The OCC currently addresses these concerns by 
imposing certain conditions on a case-by-case basis in connection with 
operating subsidiary filings involving mutual fund advisory 
activities.<SUP>32 The OCC has generally imposed the following 
conditions when a national bank's operating subsidiary acts as 
investment adviser to an investment company:

    \32\ See, e.g., Interpretive Letter No. 647 (April 15, 1994), 
reprinted in, [1994 Transfer Binder] Fed. Banking L. Rep. (CCH) 
para. 83,558 (Letter approving notification by First Union National 
Bank of North Carolina to establish three wholly-owned operating 
subsidiaries to acquire the partnership interests of Lieber and 
Company and the assets and liabilities of Evergreen Management 
Corporation); Interpretive Letter No. 648 (May 4, 1994), reprinted 
in, [1994 Transfer Binder] Fed. Banking L. Rep. (CCH) para. 83,557 
(Letter approving notification by Mellon Bank, N.A. and Mellon Bank 
(DE), N.A. to establish certain operating subsidiaries to acquire 
most of the assets, operations, and activities of The Dreyfus 
Corporation).
---------------------------------------------------------------------------

    (1) The investment company is treated as an affiliate of the bank 
and its operating subsidiary for purposes of Sections 23A and 23B of 
the Federal Reserve Act (12 U.S.C. 371c and 371c-1) and thus is subject 
to the restrictions on transactions between affiliates;
    (2) The bank's aggregate direct and indirect investments in and 
advances to the subsidiary may not exceed an amount equal to the bank's 
legal lending limit under 12 CFR part 32;
    (3) Neither the bank nor the subsidiary may purchase shares of the 
investment company for its own account; and
    (4) The bank and the subsidiary are subject to the Interagency 
Statement on Retail Sales of Nondeposit Investment Products (February 
15, 1994).
    The OCC invites comment on whether these conditions are appropriate 
in all situations where a national bank or its operating subsidiary 
acts as investment adviser to an investment company, and, if so, 
whether to include them in part 9.

Indenture Trustee Conflicts of Interest

    A national bank that serves as an indenture trustee to an issue of 
debt securities and also provides additional banking services to, or 
has additional relationships with, the securities issue or issuer, is 
subject to potential conflicts of interest. An indenture trustee to a 
debt securities issuance represents the security holders as their 
fiduciary, seeking interest and principal payments from the securities 
issuer on their behalf. If a bank provides a letter of credit to an 
issuer while acting as the indenture trustee for the issuer's 
securities, and the issuer fails to make a scheduled payment to the 
security holders, the bank, as indenture trustee, must declare the 
issuer in default and seek payment from itself as issuer of the letter 
of credit. In this situation, the bank's role as trustee may conflict 
with its own interest as issuer of the letter of credit. Upon default, 
when the bank extends credit to the defaulted securities issuance, the 
bank, as creditor, becomes a competing creditor with itself as trustee 
for the security holders.
    Before 1990, the Trust Indenture Act of 1939 contained conflict of 
interest prohibitions that disqualified banks from serving as indenture 
trustees to certain debt securities issuances if they provided credit 
to the securities issuer. Given the provisions of the statute, the OCC 
did not need to address conflicts of interest that a national bank 
might face with respect to securities covered by the Trust Indenture 
Act.
    Some securities issuances, however, are exempt from the Trust 
Indenture Act. Exempt securities include those exempt from registration 
under the Securities Exchange Act of 1934, such as municipal industrial 
revenue bond issuances. With respect to exempt securities issuances, 
the OCC recommended, consistent with the pre-1990 policies articulated 
in the Trust Indenture Act, that a national bank avoid acting both as 
indenture trustee and as issuer of a letter of credit.<SUP>33

    \33\ See Interpretive Letter No. 293 (May 11, 1984), reprinted 
in Fed. Banking L. Rep. (CCH) para. 85,463.
---------------------------------------------------------------------------

    In 1990, Congress amended the Trust Indenture Act to permit a bank 
to serve as both creditor and indenture trustee.<SUP>34 The Trust 
Indenture Act now requires that, upon default of the issuance, the 
indenture trustee must eliminate the conflict within 90 days or 
disqualify itself from further service as indenture trustee. As a 
result of the 1990 amendments, OCC precedent treats exempt securities 
more stringently than the Trust Indenture Act treats covered 
securities. These developments raise the issue of whether and how to 
address conflicts that may arise when a national bank serves as 
indenture trustee.

    \34\ See Securities Act Amendments of 1990, Pub. L. 101-550.
---------------------------------------------------------------------------

    The OCC is inclined to allow a national bank to act as creditor and 
indenture trustee until 90 days after default, consistent with the 
Trust Indenture Act, with the added condition that the banks maintain 
adequate controls to manage the potential conflicts of interest. 
Additionally, the OCC is inclined to apply this policy consistently to 
all debt securities issuances, including debt securities issuances 
exempt from the Trust Indenture Act.
    Because many national banks already have adopted policies and 
procedures to manage these potential conflicts of interest,<SUP>35 the 
OCC may not need to address this issue by regulation. It may be 
sufficient for the OCC to develop guidance on what controls banks 
should maintain in order to manage potential conflicts.

    \35\ Among these policies and procedures are: (1) Favoring debt 
issuers that have a low risk rating to minimize the possibility of 
default; (2) ensuring that the credit is fully collateralized by 
cash or cash equivalents to give the bank a lower credit and asset 
quality risk and superior credit rights (compared to bondholders); 
(3) participating out most of the credit to reduce the bank's total 
credit risk; and (4) employing an independent, third party to become 
trustee upon default.
---------------------------------------------------------------------------

    The OCC invites comment on how banks are managing these conflicts, 
and on the need to address this issue in part 9.

Waiver of Regulatory Requirements

    The OCC also is considering whether to establish standards and 
procedures for obtaining waivers of any of the requirements in part 9. 
The OCC notes that a banking circular, BC-205 (dated July 26, 1985), 
already provides general guidance to national banks, bank counsel, and 
interested members of the public on requests for staff no-objection 
positions. The banking circular 

[[Page 66173]]
establishes procedures for obtaining the informal views of the OCC 
legal staff regarding the applicability of national banking law 
requirements to contemplated transactions or activities, including 
fiduciary activities. The OCC invites comment on whether these 
procedures are sufficient to accommodate meet banks that seek 
clarification of, or relief from, requirements in part 9, or whether 
the OCC should add a waiver provision specific to part 9.
    This table directs readers to the provisions of the current 12 CFR 
part 9, if any, on which the revised 12 CFR part 9 and the amended 12 
CFR part 19 are based

                   DERIVATION TABLE FOR 12 CFR PART 9                   
------------------------------------------------------------------------
    Revised  Provision        Current Provision           Comments      
------------------------------------------------------------------------
Sec.  9.1.................  .....................  Added.               
Sec.  9.2(a)..............  .....................  Added.               
    (b)...................  Sec.  9.1(g).........  Significantly        
                                                    modified.           
    (c)...................  Sec.  9.1(l).........  Modified.            
    (d)...................  Sec.  9.1(a).........  Modified.            
    (e)...................  Sec.  9.1(b) and (h).  Significantly        
                                                    modified.           
    (f)...................  Sec.  9.1(j).........  Modified.            
    (g)...................  Sec.  9.1(d).........  Modified.            
    (h)...................  Sec.  9.1(c).........  Modified.            
    (i)...................  Sec.  9.1(e).........  Modified.            
    (j)...................  .....................  Added.               
Sec.  9.3.................  Sec.  9.2............  Modified.            
Sec.  9.4.................  Sec.  9.7(a)(1), (b),  Significantly        
                             and (d).               modified.           
Sec.  9.5.................  Secs.  9.5, 9.7(c),    Significantly        
                             9.7(d), and 9.10(a).   modified.           
Sec.  9.6.................  Sec.  9.7(a)(2)......  Significantly        
                                                    modified.           
Sec.  9.8.................  Secs.  9.7(a)(2) and   Modified.            
                             9.8.                                       
Sec.  9.9.................  Sec.  9.9............  Significantly        
                                                    modified.           
Sec.  9.10................  Sec.  9.10...........  Significantly        
                                                    modified.           
Sec.  9.11................  Sec.  9.11...........  Modified.            
Sec.  9.12................  Sec.  9.12...........  Modified.            
Sec.  9.13................  Sec.  9.13...........  Modified.            
Sec.  9.14................  Sec.  9.14...........  Significantly        
                                                    modified.           
Sec.  9.15................  Sec.  9.15...........  Modified.            
Sec.  9.16................  Sec.  9.16...........  Modified.            
Sec.  9.17................  Sec.  9.17...........  Modified.            
Sec.  9.18(a).............  Sec.  9.18 (a) and     Modified.            
                             (b)(2).                                    
    (b)(1)................      (b)(1)...........  Significantly        
                                                    modified.           
    (b)(2)................      (b)(12)..........  Significantly        
                                                    modified.           
    (b)(3)................      (b)(3)...........  Modified.            
    (b)(4)................      (b) (1), (4), and  Significantly        
                             (15).                  modified.           
    (b)(5)................      (b) (4), (6), and  Significantly        
                             (7).                   modified.           
    (b)(6)................      (b) (5)(i)-(iv)..  Significantly        
                                                    modified.           
    (b)(7)................      (b) (5)(iv) and    Significantly        
                             (v).                   modified.           
    (b)(8)................      (b)(8)...........  Modified.            
    (b)(9)................      (b)(11)..........  Modified.            
    (b)(10)...............      (b)(12)..........  Significantly        
                                                    modified.           
    (b)(11)...............      (b)(13)..........  Modified.            
    (b)(12)...............      (b)(14)..........  Modified.            
    (c)(1)................      (c)(1)...........  Modified.            
    (c)(2)................      (c)(2)...........  Modified.            
    (c)(3)................      (c)(3)...........  Significantly        
                                                    modified.           
    (c)(4)................      (c)(4)...........  Modified.            
    (c)(5)................      (c)(5)...........  Significantly        
                                                    modified.           
    Sec.  9.20............  Sec.  9.20...........  Modified.            
    Sec.  19.135..........  Secs.  9.21 and 9.22.  Modified.            
------------------------------------------------------------------------

Regulatory Flexibility Act

    It is hereby certified that this proposal will not have a 
significant economic impact on a substantial number of small entities. 
Accordingly, a regulatory flexibility analysis is not required. The 
proposal's requirements, for the most part, are not new to the 
regulation. The proposal liberalizes requirements and reduces burden 
for all national banks that exercise fiduciary powers, regardless of 
size.

Executive Order 12866

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

Paperwork Reduction Act of 1995

    The OCC invites comment on:
    (1) Whether the proposed information collection contained in this 
proposal is necessary for the proper performance of the OCC's 
functions, including whether the information has practical utility;
    (2) The accuracy of the OCC's estimate of the burden of the 
proposed information collection;
    (3) Ways to enhance the quality, utility, and clarity of the 
information to be collected; and
    (4) Ways to minimize the burden of the information collection on 
respondents, including through the use of automated collection 
techniques or other forms of information technology.
    Respondents/recordkeepers are not required to respond to this 
collection of 

[[Page 66174]]
information unless it displays a currently valid OMB control number.
    The collection of information requirements contained in this 
proposal have been submitted to the Office of Management and Budget for 
review in accordance with the Paperwork Reduction Act of 1995 (44 
U.S.C. 3507(d)). Comments on the collections of information should be 
sent to the Office of Management and Budget, Paperwork Reduction 
Project (1557-AB12), Washington, DC 20503, with copies to the 
Legislative and Regulatory Activities Division (1557-AB12), Office of 
the Comptroller of the Currency, 250 E Street, SW, Washington, DC 
20219.
    The collection of information requirements in this proposed rule 
are found in 12 CFR 9.8, 9.9, 9.17, and 9.18. The OCC requires this 
information for the proper supervision of national banks' fiduciary 
activities. The likely respondents/recordkeepers are national banks.
    Estimated average annual burden hours per respondent/recordkeeper: 
15.01 hours.
    Estimated number of respondents and/or recordkeepers: 1,000.
    Estimated total annual reporting and recordkeeping burden: 15,010 
hours.
    Start-up costs to respondents: None.

Unfunded Mandates Act of 1995

    The OCC has determined that this proposal will not result in 
expenditures by state, local, and tribal governments, or by the private 
sector, of more than $100 million in any one year. Accordingly, a 
budgetary impact statement is not required under section 202 of the 
Unfunded Mandates Act of 1995.

List of Subjects

12 CFR Part 9

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

12 CFR Part 19

    Administrative practice and procedure, Crime, Investigations, 
National banks, Penalties, Securities.

Authority and Issuance

    For the reasons set out in the preamble, chapter I of title 12 of 
the Code of Federal Regulations is proposed to be amended as follows:
    1. Part 9 is revised to read as follows:

PART 9--FIDUCIARY ACTIVITIES OF NATIONAL BANKS

Sec.
9.1  Authority, purpose, and scope.
9.2  Definitions.
9.3  Approval requirements.
9.4  Administration of fiduciary powers.
9.5  Policies and procedures.
9.6  Review of assets of fiduciary accounts.
9.8  Recordkeeping.
9.9  Audit of fiduciary activities.
9.10  Fiduciary funds awaiting investment or distribution.
9.11  Investment of fiduciary funds.
9.12  Self-dealing and conflicts of interest.
9.13  Custody of fiduciary assets.
9.14  Deposit of securities with state authorities.
9.15  Fiduciary compensation.
9.16  Receivership or voluntary liquidation of bank.
9.17  Surrender or revocation of fiduciary powers.
9.18  Collective investment funds.
9.20  Transfer agents.
    Authority: 12 U.S.C. 24(Seventh), 92a, and 93a; 15 U.S.C. 78q, 
78q-1, and 78w.

Sec. 9.1  Authority, purpose, and scope.

    (a) Authority. The OCC issues this part pursuant to its authority 
under 12 U.S.C. 24 (Seventh), 92a, and 93a, and 15 U.S.C. 78q, 78q-1, 
and 78w.
    (b) Purpose. The purpose of this part is to set forth the standards 
that apply to the fiduciary activities of national banks.
    (c) Scope. This part applies to all national banks that act in a 
fiduciary capacity, as defined in Sec. 9.2(e).


Sec. 9.2  Definitions.

    For the purposes of this part, the following definitions apply:
    (a) Affiliate has the same meaning as in 12 U.S.C. 221a(b).
    (b) Applicable law means Federal law, state law governing a 
national bank's fiduciary relationships, the terms of the instrument 
governing a fiduciary relationship, or any court order pertaining to 
the relationship.
    (c) Custodian under a uniform gifts to minors act means a fiduciary 
relationship established pursuant to a state law substantially similar 
to the Uniform Gifts to Minors Act as published by the American Law 
Institute.
    (d) Fiduciary account means an account administered by a national 
bank acting in a fiduciary capacity.
    (e) Fiduciary capacity means: acting as trustee, executor, 
administrator, registrar of stocks and bonds (including transfer 
agent), guardian, assignee, receiver, or custodian under a uniform 
gifts to minors act; any capacity involving investment discretion on 
behalf of another; or any other similar capacity that the OCC 
authorizes pursuant to 12 U.S.C. 92a.
    (f) Fiduciary officers and employees means all officers and 
employees of a national bank to whom the board of directors or its 
designees has assigned functions involving the exercise of the bank's 
fiduciary powers.
    (g) Fiduciary records means all written or otherwise recorded 
information that a national bank creates or receives relating to a 
fiduciary account or the fiduciary activities of the bank.
    (h) Fiduciary powers means the authority the OCC grants to a 
national bank to act in a fiduciary capacity pursuant to 12 U.S.C. 92a.
    (i) Guardian means the guardian or committee, by whatever name 
employed by state law, of the estate of an infant, an incompetent 
person, an absent person, or a person over whose estate a court has 
taken jurisdiction, other than under bankruptcy or insolvency laws.
    (j) Investment discretion means, with respect to an account, the 
authority to determine what securities or other assets to purchase or 
sell on behalf of the account.


Sec. 9.3  Approval requirements.

    (a) 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.
    (b) 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.


Sec. 9.4  Administration of fiduciary powers.

    (a) Responsibilities of the board of directors. A national bank's 
fiduciary activities shall be managed by or under the direction of its 
board of directors. In discharging its responsibilities, the board may 
assign any function related to the exercise of fiduciary powers to any 
director, officer, employee, or committee thereof.
    (b) Use of other personnel. The national bank may use any qualified 
personnel and facilities of the bank to perform services related to the 
exercise of its fiduciary powers, and any department of the bank may 
use fiduciary officers and employees and facilities to perform services 
unrelated to the exercise of fiduciary powers, to the extent not 
prohibited by applicable law.
    (c) Agency agreements. A national bank exercising fiduciary powers 
may perform services related to the exercise of fiduciary powers for 
another bank or other entity, and may purchase services related to the 
exercise of fiduciary powers from another bank or other entity, 
pursuant to a written agreement.
    (d) Bond requirement. A national bank shall ensure that all 
fiduciary officers and employees are adequately bonded. 

[[Page 66175]]



Sec. 9.5  Policies and procedures.

    A national bank exercising fiduciary powers shall adopt and follow 
written policies and procedures adequate to ensure that its fiduciary 
practices comply with applicable law. Among other relevant matters, the 
policies and procedures should address, where appropriate, the bank's:
    (a) Brokerage placement practices, including:
    (1) Selection of persons to effect securities transactions and the 
evaluation of the reasonableness of any brokerage commissions paid to 
those persons;
    (2) Acquisition of services or products, including research 
services, in return for brokerage commissions;
    (3) Allocation of research or other services among accounts, 
including those that did not generate commissions to pay for that 
research or other services; and
    (4) Disclosure of information concerning these brokerage placement 
policies and procedures to prospective and existing customers;
    (b) Methods for ensuring that fiduciary officers and employees do 
not use material inside information in connection with any decision or 
recommendation to purchase or sell any security;
    (c) Methods for preventing self-dealing and conflicts of interest;
    (d) Selection and retention of legal counsel who is readily 
available to advise the bank and its fiduciary officers and employees 
on fiduciary matters;
    (e) Investment of funds held as fiduciary, including short-term 
investments and the treatment of fiduciary funds awaiting investment or 
distribution;
    (f) Allocation to fiduciary accounts of any financial incentives 
the bank may receive for investing fiduciary funds in a particular 
investment; and
    (g) Disclosure to beneficiaries and other interested parties of 
fees and expenses charged to fiduciary accounts.


Sec. 9.6  Review of assets of fiduciary accounts.

    (a) Individual account review--(1) Pre-acceptance review. Before 
accepting a fiduciary account, a national bank shall review the 
prospective account to determine whether it can properly administer the 
account.
    (2) Initial post-acceptance review. Upon the acceptance of a 
fiduciary account for which a national bank has investment discretion, 
the bank shall conduct a prompt, written review of all assets of the 
account to evaluate whether they are appropriate, individually and 
collectively, for the account.
    (3) Annual review. At least once during every calendar year, and 
not later than 15 months after the last review, a bank shall conduct a 
written review of all assets of each account for which the bank has 
investment discretion to evaluate whether they are appropriate, 
individually and collectively, for the account.
    (b) Annual review of assets by issuer. At least once during every 
calendar year, and not later than 15 months after the last review, a 
bank shall conduct a written review of the investment merit of each 
asset in fiduciary accounts for which the bank has investment 
discretion, to the extent appropriate for that asset.


Sec. 9.8  Recordkeeping.

    (a) Documentation of accounts. A national bank shall adequately 
document the establishment and termination of each fiduciary account 
and shall maintain adequate records for all fiduciary accounts, 
including any records required under 12 CFR part 12.
    (b) Retention of records. A national bank shall retain all 
fiduciary records relating to an account for a period of three years 
from the later of the termination of the account or the termination of 
any litigation relating to the account.
    (c) Separation of records. The bank shall ensure that its fiduciary 
records are separate and distinct from other records of the bank.


Sec. 9.9  Audit of fiduciary activities.

    (a) Annual audit. At least once during each calendar year and not 
later than 15 months after the last audit, a national bank shall 
perform, through its audit committee, a suitable audit of all of its 
fiduciary activities, unless the bank adopts a continuous audit system 
in accordance with paragraph (b) of this section. The bank shall note 
the results of the audit (including all actions taken as a result of 
the audit) in the minutes of the board of directors.
    (b) Continuous audit. In lieu of performing annual audits under 
paragraph (a) of this section, a national bank may adopt a continuous 
audit system under which the bank performs, through its audit 
committee, a discrete audit of each fiduciary activity (i.e., on an 
activity-by-activity basis) at intervals appropriate for that activity. 
Thus, a bank may audit certain fiduciary activities at intervals 
greater or less than one year, as appropriate. A bank that adopts a 
continuous audit system shall note the results of all discrete audits 
performed since the last audit report (including all actions taken as a 
result of the audits) in the minutes of the board of directors at least 
once during each calendar year and not later than 15 months after the 
last audit report.
    (c) Audit committee. A national bank's audit committee may consist 
of a committee of the bank's directors or an audit committee of an 
affiliate of the bank. However, the national bank's audit committee 
must not include:
    (i) Any officers of the bank who participate significantly in the 
administration of the bank's fiduciary activities or;
    (ii) Any members of a fiduciary committee of the bank.


Sec. 9.10  Fiduciary funds awaiting investment or distribution.

    (a) In general. A national bank shall not allow funds of a 
fiduciary account that are awaiting investment or distribution to 
remain uninvested and undistributed any longer than is reasonable for 
the proper management of the account and consistent with applicable 
law.
    (b) Self-deposits--(1) In general. Unless prohibited by applicable 
law, a national bank may deposit funds of a fiduciary account that are 
awaiting investment or distribution in the commercial, savings, or 
another department of the bank. To the extent that the funds are not 
insured by the Federal Deposit Insurance Corporation, the bank shall 
secure them by setting aside collateral, under the control of 
appropriate fiduciary officers and employees, in accordance with 
paragraph (b)(2) of this section. The market value of the collateral 
set aside must at all times equal or exceed the amount of the uninsured 
fiduciary funds.
    (2) Acceptable collateral. A national bank may satisfy the 
collateral requirement of paragraph (b)(1) of this section with any of 
the following:
    (i) Direct obligations of the United States, or other obligations 
fully guaranteed by the United States as to principal and interest;
    (ii) Readily marketable securities that qualify as investment 
securities pursuant to 12 CFR part 1;
    (iii) Readily marketable securities of the classes in which state 
banks, trust companies, or other corporations exercising fiduciary 
powers are permitted to invest fiduciary funds under state law; and
    (iv) Assets, including surety bonds, that qualify under applicable 
state law as appropriate security for deposits of fiduciary funds.
    (c) Affiliate deposits. If consistent with applicable law, a 
national bank may deposit funds of a fiduciary account that are 
awaiting investment or 

[[Page 66176]]
distribution with an affiliate insured depository institution. If 
consistent with applicable law, a national bank may secure a deposit by 
or with an affiliate of fiduciary funds awaiting investment or 
distribution.


Sec. 9.11  Investment of fiduciary funds.

    A national bank shall invest funds that it holds as fiduciary in a 
manner consistent with applicable law.


Sec. 9.12  Self-dealing and conflicts of interest.

    (a) Investments for fiduciary accounts--(1) In general. Unless 
consistent with applicable law, a national bank shall not invest 
fiduciary funds in the stock or obligations of, or in assets acquired 
from: the bank or any of its directors, officers, or employees; 
affiliates of the bank or any of their directors, officers, or 
employees; or individuals or organizations with whom there exists an 
interest that might affect the exercise of the best judgment of the 
bank.
    (2) Additional securities investments. If retention of stock or 
obligations of the bank or its affiliates is consistent with applicable 
law, the bank may:
    (i) Exercise rights to purchase additional stock (or securities 
convertible into additional stock) when offered pro rata to 
stockholders; and
    (ii) Purchase fractional shares to complement fractional shares 
acquired through the exercise of rights or the receipt of a stock 
dividend resulting in fractional share holdings.
    (b) Loans, sales, or other transfers from fiduciary accounts--(1) 
In general. A national bank shall not lend, sell, or otherwise transfer 
assets held in a fiduciary capacity to the bank or any of its 
directors, officers, or employees, or to affiliates of the bank or any 
of their directors, officers, or employees, or to individuals or 
organizations with whom there exists an interest that might affect the 
exercise of the best judgment of the bank, unless:
    (i) The transaction is consistent with applicable law;
    (ii) Legal counsel advises the bank in writing that the bank has 
incurred, in its fiduciary capacity, a contingent or potential 
liability, in which case the bank, upon the sale or transfer of assets, 
shall reimburse the fiduciary account in cash at the greater of book or 
market value of the assets;
    (iii) As provided in Sec. 9.18(b)(8)(iii) for defaulted fixed-
income investments; or
    (iv) Required in writing by the OCC.
    (2) Loans of funds held in trust. Notwithstanding paragraph (b)(1) 
of this section, a national bank shall not lend to any of its 
directors, officers, or employees any funds held in trust, except with 
respect to the bank's own employee benefit plans in accordance with 
section 408(b)(1) of the Employee Retirement Income Security Act of 
1974 (29 U.S.C. 1108(b)(1)).
    (c) Loans to fiduciary accounts. A national bank may make a loan to 
a fiduciary account and may hold a security interest in assets of the 
account if the transaction is fair to the account and is not prohibited 
by applicable law.
    (d) Sales between fiduciary accounts. A national bank may sell 
assets between any of its fiduciary accounts if the transaction is fair 
to both accounts and is not prohibited by applicable law.
    (e) Loans between fiduciary accounts. A national bank may make a 
loan between any of its fiduciary accounts if the transaction is 
authorized by the instrument creating the account from which the loan 
is made and is not prohibited by applicable law.


Sec. 9.13  Custody of fiduciary assets.

    (a) Control of fiduciary assets. A national bank shall place assets 
of fiduciary accounts in the joint custody or control of not fewer than 
two of the fiduciary officers or employees designated for that purpose 
by the board of directors. A national bank may maintain the investments 
of a fiduciary account off-premises, if the bank maintains adequate 
safeguards and controls.
    (b) Separation of fiduciary assets. A national bank shall keep the 
assets of fiduciary accounts separate from the assets of the bank. A 
national bank shall keep the assets of each fiduciary account separate 
from all other accounts or shall identify the investments as the 
property of a particular account, except as provided in Sec. 9.18.


Sec. 9.14  Deposit of securities with state authorities.

    (a) In general. If state law requires corporations acting in a 
fiduciary capacity to deposit securities with state authorities for the 
protection of private or court trusts, then before a national bank acts 
as a private or court-appointed trustee in that state, it shall make a 
similar deposit with state authorities. If the state authorities refuse 
to accept the deposit, the bank shall deposit the securities with the 
Federal Reserve Bank of the district in which the national bank is 
located, to be held for the protection of private or court trusts to 
the same extent as if the securities had been deposited with state 
authorities.
    (b) Assets held in more than one state. If a national bank 
administers trust assets in more than one state, the bank may compute 
the amount of deposit required for each state on the basis of trust 
assets that the bank administers from offices located in that state.


Sec. 9.15  Fiduciary compensation.

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


Sec. 9.16  Receivership or voluntary liquidation of bank.

    If the OCC appoints a receiver for a national bank, or if a 
national bank places itself in voluntary liquidation, the receiver or 
liquidating agent shall promptly close all fiduciary accounts to the 
extent practicable, in accordance with OCC instructions and the orders 
of the court having jurisdiction. The receiver or liquidating agent 
shall transfer all remaining fiduciary accounts to substitute 
fiduciaries.


Sec. 9.17  Surrender or revocation of fiduciary powers.

    (a) Surrender. In accordance with 12 U.S.C. 92a(j), a national bank 
seeking to surrender its fiduciary powers shall file with the OCC a 
certified copy of the resolution of its board of directors evidencing 
that intent. If satisfied that the bank has been discharged from all 
fiduciary duties, the OCC will provide written notice that the bank is 
no longer authorized to exercise fiduciary powers.
    (b) Revocation. If the OCC determines that a national bank has 
unlawfully or unsoundly exercised, or has failed for a period of five 
consecutive years to exercise, its fiduciary powers, the Comptroller 
may, in accordance with the provisions of 12 U.S.C. 92a(k), revoke the 
bank's fiduciary powers.


Sec. 9.18  Collective investment funds.

    (a) In general. Where consistent with applicable law, a national 
bank may invest assets that it holds as fiduciary in the following 
collective investment funds:
    (1) A fund maintained by the bank, or by one or more affiliate 
banks,<SUP>1 

[[Page 66177]]
exclusively for the collective investment and reinvestment of money 
contributed to the fund by the bank, or by one or more affiliate banks, 
in its capacity as trustee, executor, administrator, guardian, or 
custodian under a uniform gifts to minors act.

     <SUP>1  A fund established pursuant to Sec. 9.18(a)(1) that 
includes moneys contributed by entities that are affiliates under 12 
U.S.C. 221a(b), but are not members of the same affiliated group, as 
defined at 26 U.S.C. 1504, may fail to qualify for tax-exempt status 
under the Internal Revenue Code. See 26 U.S.C. 584.
---------------------------------------------------------------------------

    (2) A fund consisting solely of assets of retirement, pension, 
profit sharing, stock bonus or other trusts that are exempt from 
Federal income taxation under the Internal Revenue Code.
    (i) A national bank may invest assets of retirement, pension, 
profit sharing, stock bonus or other trusts exempt from Federal income 
taxation and that the bank holds in its capacity as trustee in a 
collective investment fund established under paragraph (a)(1) or (a)(2) 
of this section.
    (ii) A national bank may invest assets of retirement, pension, 
profit sharing, stock bonus or other employee benefit trusts exempt 
from Federal income taxation and that the bank holds in any capacity 
(including agent), in a collective investment fund established under 
paragraph (a)(2) of this section if the fund itself qualifies for 
exemption from Federal income taxation.
    (b) Requirements. A national bank administering a collective 
investments fund authorized under paragraph (a) of this section shall 
comply with the following requirements:
    (1) Written plan. The bank shall establish and maintain each 
collective investment fund in accordance with a written plan approved 
by a resolution of the bank's board of directors or by a committee 
thereof (Plan). The bank shall make a copy of the Plan available for 
public inspection at its main office during all banking hours, and 
shall provide a copy of the Plan to any person who requests it. The 
Plan must contain appropriate provisions, not inconsistent with this 
part, regarding the manner in which the bank will operate the fund, 
including provisions relating to:
    (i) Investment powers and policies with respect to the fund;
    (ii) Allocation of income, profits, and losses;
    (iii) Fees and expenses that will be charged to the fund and to 
participating accounts;
    (iv) Terms and conditions governing the admission and withdrawal of 
participating accounts;
    (v) Audits of participating accounts;
    (vi) Basis and method of valuing assets in the fund;
    (vii) Expected frequency for income distribution to participating 
accounts;
    (viii) Minimum frequency for valuation of fund assets;
    (ix) Period following each valuation date during which the 
valuation must be made;
    (x) Bases upon which the bank may terminate the fund; and
    (xi) Any other matters necessary to define clearly the rights of 
participating accounts.
    (2) Fund management. A bank administering a collective investment 
fund shall have exclusive management thereof, except as a prudent 
person might delegate responsibilities to others.<SUP>2

     2 If a fund, the assets of which consist solely of Individual 
Retirement Accounts, Keogh Accounts, or other employee benefit 
accounts that are exempt from taxation, is registered under the 
Investment Company Act of 1940 (15 U.S.C. 80a-1 et seq.), the fund 
will not be deemed in violation of paragraph (b)(2) of this section 
as a result of its compliance with section 10(c) of the Investment 
Company Act of 1940 (15 U.S.C. 80a-10(c)).
---------------------------------------------------------------------------

    (3) Proportionate interests. Each participating account in a 
collective investment fund must have a proportionate interest in all 
the fund's assets.
    (4) Valuation--(i) Frequency of valuation. A bank administering a 
collective investment fund shall determine the value of the fund's 
assets at least once every three months. However, in the case of a fund 
that is invested primarily in real estate or other assets that are not 
readily marketable, the bank shall determine the value of the fund's 
assets at least once each year.
    (ii) Method of valuation--(A) In general. Except as provided in 
paragraph (b)(4)(ii)(B) of this section, a bank shall value each fund 
asset at market value as of the date set for valuation, unless the bank 
cannot readily ascertain market value, in which case the bank shall use 
a fair value determined in good faith.
    (B) Short-term investment funds. A bank may value a fund's assets 
on a cost, rather than market value, basis for purposes of admissions 
and withdrawals, if the Plan requires the bank to:
    (1) Invest at least 80 percent of the fund's assets in bonds, 
notes, or other evidences of indebtedness that are payable on demand 
(including variable amount notes), or that have a maturity date not 
exceeding 91 days from the date of purchase;
    (2) Accrue on a straight-line basis the difference between the cost 
and anticipated principal receipt on maturity;
    (3) Hold the fund's assets until maturity under usual 
circumstances; and
    (4) Ensure that, after effecting admissions and withdrawals, at 
least 20 percent of the value of the remaining fund assets are cash, 
demand obligations, or assets that will mature on the fund's next 
business day.
    (5) Admission and withdrawal of accounts--(i) In general. A bank 
administering a collective investment fund shall admit an account to or 
withdraw an account from the fund only on the basis of the valuation 
described in paragraph (b)(4) of this section.
    (ii) Prior request or notice. A bank administering a collective 
investment fund may admit an account to or withdraw an account from a 
collective investment fund only if the bank has approved a request for 
or notice of intention of taking that action on or before the valuation 
date on which the admission or withdrawal is based. No requests or 
notices may be canceled or countermanded after the valuation date.
    (iii) Prior notice period for withdrawals from funds with assets 
not readily marketable. A bank administering a collective investment 
fund described in paragraph (a)(2) of this section that is invested 
primarily in real estate or other assets that are not readily 
marketable, may require a prior notice period, not to exceed one year, 
for withdrawals.
    (iv) Method of distributions. A bank administering a collective 
investment fund shall make distributions to accounts withdrawing from 
the fund in a manner consistent with applicable law.
    (v) Segregation of investments. If an investment is withdrawn in 
kind from a collective investment fund for the benefit of all 
participants in the fund at the time of the withdrawal but the 
investment is not distributed ratably in kind, the bank shall segregate 
and administer it for the benefit ratably of all participants in the 
collective investment fund at the time of withdrawal.
    (6) Audits and financial reports--(i) Annual audit. At least once 
during each 12-month period, a bank administering a collective 
investment fund shall arrange for an audit of the collective investment 
fund by auditors responsible only to the board of directors of the 
bank.<SUP>3

     3 If a fund, the assets of which consist solely of Individual 
Retirement Accounts, Keogh Accounts, or other employee benefit 
accounts that are exempt from taxation, is registered under the 
Investment Company Act of 1940 (15 U.S.C. 80a-1 et seq.), the fund 
will not be deemed in violation of paragraph (b)(6)(i) of this 
section as a result of its compliance with section 10(c) of the 
Investment Company Act of 1940 (15 U.S.C. 80a-10(c)), if the bank 
has access to the audit reports of the fund.
---------------------------------------------------------------------------

    (ii) Financial report. At least once during each 12-month period, a 
bank administering a collective investment fund shall prepare a 
financial report of 

[[Page 66178]]
the fund based on the audit required by paragraph (b)(6)(i) of this 
section. The report must disclose fees and expenses charged to the 
fund. This report must contain a list of investments in the fund 
showing the cost and current market value of each investment, and a 
statement covering the period after the previous report showing the 
following (organized by type of investment):
    (A) Summaries of all purchases (with costs);
    (B) Summaries of all sales (with profit or loss and any other 
investment changes);
    (C) Income and disbursements; and
    (D) An appropriate notation as to any investments in default.
    (iii) Limitation on representations. A bank may include in the 
financial report a description of the fund's value on previous dates, 
as well as its income and disbursements during previous accounting 
periods. A bank shall not publish in the financial report any 
predictions or representations as to future results. In addition, with 
respect to funds described in paragraph (a)(1) of this section, a bank 
shall not publish the performance of funds other than those 
administered by the bank or its affiliates.
    (iv) Availability of the report. A bank administering a collective 
investment fund shall provide a copy of the financial report, or shall 
provide notice that a copy of the report is available upon request 
without charge, to each person who ordinarily would receive a regular 
periodic accounting with respect to each participating account. The 
bank may provide a copy of the financial report to prospective 
customers. In addition, the bank shall provide a copy of the report 
upon request to any person for a reasonable charge.
    (7) Advertising prohibition for common trust funds. A bank shall 
not advertise or publicize any fund authorized under paragraph (a)(1) 
of this section, except in connection with the advertisement of the 
general fiduciary services of the bank.
    (8) Self-dealing and conflicts of interest--(i) Bank interests. A 
bank administering a collective investment fund shall not have an 
interest in that fund other than in its fiduciary capacity. Except for 
temporary net cash overdrafts or as otherwise specifically provided in 
this paragraph, the bank shall not lend to, sell assets to, or purchase 
assets from a fund. The bank shall not invest fund assets in stock or 
obligations, including time or savings deposits, of the bank or any of 
its affiliates, except for funds awaiting investment or distribution. 
If, because of a creditor relationship or otherwise, the bank acquires 
an interest in a participating account, the participating account must 
be withdrawn on the next withdrawal date. However, a bank may invest 
assets that it holds as fiduciary for its own employees in a collective 
investment fund.
    (ii) Loans to participating accounts. A bank administering a 
collective investment fund shall not make any loan on the security of a 
participant's interest in the fund. An unsecured advance to a fiduciary 
account participating in the fund until the time of the next valuation 
date does not constitute the acquisition of an interest in a 
participating account by the bank.
    (iii) Purchase of defaulted fixed-income investments. A bank 
administering a collective investment fund may purchase for its own 
account any defaulted fixed-income investment held by the fund if, in 
the judgment of the bank, the cost of segregation of the investment is 
greater than the difference between its market value and its principal 
amount plus interest and penalty charges due. If the bank elects to 
purchase a defaulted fixed-income investment, it shall do so at the 
greater of market value or the sum of cost, accrued unpaid interest, 
and penalty charges.
    (9) Mortgage reserve account--(i) In general. A bank administering 
a collective investment fund may transfer to a reserve account up to 5 
percent of the net income derived by the fund from mortgages held by 
the fund during any regular accounting period. The amount held in the 
reserve account must not exceed 1 percent of the outstanding principal 
amount of all mortgages held in the fund. The bank shall deduct the 
amount of the reserve account from the fund's assets in determining the 
fair market value of the fund for the purposes of admissions and 
withdrawals.
    (ii) Charges against reserve account. At the end of each accounting 
period, the bank shall charge all interest payments that are due but 
unpaid with respect to mortgages in the fund against the reserve 
account to the extent available, and shall credit the payments to 
income distributed to participating accounts. In the event of 
subsequent recovery of the payments by the fund, the bank shall credit 
the reserve account with the amounts recovered.
    (10) Fees and expenses--(i) Fund management fees. A bank 
administering a collective investment fund may charge a fund management 
fee if the total fees charged to a participating account (including the 
fund management fee) does not exceed the total fees that the bank would 
have charged had it not invested assets of the account in the fund.
    (ii) Reasonable expenses. A bank administering a collective 
investment fund may charge reasonable expenses incurred in operating 
the collective investment fund, to the extent not prohibited by 
applicable law. However, a bank shall absorb the expenses of 
establishing or reorganizing a collective investment fund.
    (11) Prohibition against certificates. A bank administering a 
collective investment fund shall not issue any certificate or other 
document evidencing a direct or indirect interest in the fund.
    (12) Good faith mistakes. No mistake made in good faith and in the 
exercise of due care in connection with the administration of a 
collective investment fund will be deemed to be a violation of this 
part if, promptly after the discovery of the mistake, the bank takes 
whatever action is practicable under the circumstances to remedy the 
mistake.
    (c) Other collective investments. In addition to the collective 
investment funds authorized under paragraph (a) of this section, a 
national bank may invest assets that it holds as fiduciary, to the 
extent not prohibited by applicable law, as follows:
    (1) Bank fiduciary funds. In shares of a mutual trust investment 
company, organized and operated pursuant to a statute that specifically 
authorizes the organization of those companies exclusively for the 
investment of funds held by corporate fiduciaries.
    (2) Single loans or obligations. In the following loans or 
obligations, if the bank's only interest in the loans or obligations is 
its capacity as fiduciary:
    (i) A single real estate loan, a direct obligation of the United 
States, or an obligation fully guaranteed by the United States, or a 
single fixed amount security, obligation, or other property, either 
real, personal, or mixed, of a single issuer; or
    (ii) A variable amount note of a borrower of prime credit, if the 
bank uses the note solely for investment of funds held in its fiduciary 
accounts.
    (3) Mini-funds. In a fund maintained by the bank for the collective 
investment of cash balances received or held by a bank in its capacity 
as trustee, executor, administrator, or guardian, or custodian under a 
uniform gifts to minors act, that the bank considers to be too small to 
be invested separately to advantage. The total assets in the fund must 
not exceed $1,000,000, and the number of participating accounts must 
not exceed 100.
    (4) Trust funds of corporations and closely-related settlors. In 
any 

[[Page 66179]]
investment specifically authorized by the instrument creating the 
fiduciary account or a court order, in the case of trusts created by a 
corporation, including its affiliates and subsidiaries, or by several 
individual settlors who are closely related.
    (5) Special exemption funds. In any other manner described by the 
bank in a written plan approved by the OCC. The written plan is deemed 
approved by the OCC 30 days after it receives the plan, unless the OCC 
notifies the bank that the OCC has disapproved the plan or is extending 
review beyond the 30-day period because the proposal raises issues that 
require additional information or additional time for analysis. The 
written plan must set forth:
    (i) The reason that the proposed fund requires a special exemption;
    (ii) The provisions of the proposed fund that are inconsistent with 
paragraphs (a) and (b) of this section;
    (iii) The provisions of paragraph (b) of this section for which the 
bank seeks an exemption; and
    (iv) The manner in which the proposed fund addresses the rights and 
interests of participating accounts.


Sec. 9.20  Transfer agents.

    (a) The rules adopted by the Securities and Exchange Commission 
(SEC) pursuant section 17A of the Securities Exchange Act of 1934 (15 
U.S.C. 78q-1) prescribing procedures for registration of transfer 
agents for which the SEC is the appropriate regulatory agency (17 CFR 
240.17Ac2-1) apply to national bank transfer agents. References to the 
``Commission'' are deemed to refer to the ``OCC.''
    (b) The rules adopted by the SEC pursuant section 17A of the 
Securities Exchange Act of 1934 prescribing operational and reporting 
requirements for transfer agents (17 CFR 240.17Ac2-2, and 240.17Ad-1 
through 240.17Ad-16) apply to national bank transfer agents.

PART 19--RULES OF PRACTICE AND PROCEDURE

    2. The authority citation for part 19 is revised to read as 
follows:

    Authority: 5 U.S.C. 504, 554-557; 12 U.S.C. 93(b), 164, 505, 
1817, 1818, 1820, 1831o, 1972, 3102, 3108(a), and 3909; 15 U.S.C. 
78(h), 78(i), 78o-4(c), 78o-5, 78q-1, 78s, 78u, 78u-2, 78u-3, and 
78w; and 31 U.S.C. 330.

    3. A new Sec. 19.135 is added to subpart E to read as follows:


Sec. 19.135  Applications for stay or review of disciplinary actions 
imposed by registered clearing agencies.

    (a) Stays. The rules adopted by the Securities and Exchange 
Commission (SEC) pursuant to section 19 of the Securities Exchange Act 
of 1934 (15 U.S.C. 78s) regarding applications by persons for whom the 
SEC is the appropriate regulatory agency for stays of disciplinary 
sanctions or summary suspensions imposed by registered clearing 
agencies (17 CFR 240.19d-2) apply to applications by national banks. 
References to the ``Commission'' are deemed to refer to the ``OCC.''
    (b) Reviews. The regulations adopted by the SEC pursuant to section 
19 of the Securities Exchange Act of 1934 (15 U.S.C. 78s) regarding 
applications by persons for whom the SEC is the appropriate regulatory 
agency for reviews of final disciplinary sanctions, denials of 
participation, or prohibitions or limitations of access to services 
imposed by registered clearing agencies (17 CFR 240.19d-3(a)-(f)) apply 
to applications by national banks. References to the ``Commission'' are 
deemed to refer to the ``OCC.''

    Dated: December 11, 1995.
Eugene A. Ludwig,
Comptroller of the Currency.
[FR Doc. 95-30971 Filed 12-20-95; 8:45 am]
BILLING CODE 4810-33-P

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