Federal Register / Vol. 60, No. 245 / Thursday, December 21, 1995 / Proposed Rules 66163

1National 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).

(2) An obligation that finances the

construction or improvement of

facilities used by a hospital may be

eligible as a Type II security, if the

hospital is a department or a division of

a university, or otherwise provides a

nexus with university purposes, such as

an affiliation agreement between the

university and the hospital, faculty

positions of the hospital staff, and

training of medical students, interns,

residents, and nurses (e.g., a ‘‘teaching

hospital’’).

(c) Obligation issued for housing

purposes. An obligation issued for

housing purposes may qualify as a Type

II security if the security otherwise

meets the criteria for a Type II security.

PART 7—INTERPRETIVE RULINGS

3. The authority citation for part 7

continues to read as follows:

Authority: 12 U.S.C. 1 et seq., 93a.

§ 7.7570 [Removed]

4. Section 7.7570 is removed.

Dated: December 14, 1995.

Eugene A. Ludwig,

Comptroller of the Currency.

[FR Doc. 95–30969 Filed 12–20–95; 8:45 am]

BILLING CODE 4810–33–P

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.

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

REG.COMMENTS@OCC.TREAS.GOV.

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.

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 § 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
66164 Federal Register / Vol. 60, No. 245 / Thursday, December 21, 1995 / Proposed Rules

2The 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.

3The 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).

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 § 9.2)

The proposal moves the definitions

currently found at § 9.1 to proposed

§ 9.2. Some definitions are removed,

and others are added. Significant

changes are noted below.

Affiliate (Proposed § 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 § 9.2(b))

The current regulation uses the term

‘‘local law,’’ as defined at § 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 § 9.2(e))

Under the current regulation, the term

‘‘fiduciary,’’ defined at § 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.’’ 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., selfdirected IRA accounts for which the

bank is a named trustee.

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),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.

For example, even if the OCC adopts

the investment discretion approach, the

OCC could continue to subject nondiscretionary investment advice to

pertinent provisions of part 9 (e.g., those
Federal Register / Vol. 60, No. 245 / Thursday, December 21, 1995 / Proposed Rules 66165

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.

5The SEC’s rules governing investment advisers

are found at 17 CFR part 275.

6See SEC v. Capital Gains Research Bureau, 375

U.S. 180 (1963); Transamerica Mortgage Advisors,

Inc., v. Lewis, 444 U.S. 11, 17 (1979).

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).

8See Fiduciary Precedent 9.3115 (acceptance of

financial benefits by bank fiduciaries).

9See Fiduciary Precedent 9.4102.

governing self-dealing and conflicts of

interest). Alternatively, the OCC could

use provisions of the Investment

Advisers Act of 1940 (Advisers Act) 4 as

a point of reference. Under the Advisers

Act, as implemented by the Securities

and Exchange Commission (SEC),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.6

Fiduciary Officers and Employees

(Proposed § 9.2(f))

The proposal replaces the term ‘‘trust

department,’’ defined at § 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 § 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 § 9.3)

Consistent with § 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 specialpurpose 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 § 9.4)

The proposal relocates most of the

substance of current § 9.7 to proposed

§ 9.4, but relocates provisions in current

§ 9.7 relating to policies and procedures,

review of assets, and recordkeeping, to

other sections specifically addressing

those topics (proposed §§ 9.5, 9.6, and

9.8, respectively). The proposal also

relocates a provision in current § 9.7

relating to the need for fiduciary

counsel to proposed § 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 § 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’’).7

Policies and Procedures (Proposed § 9.5)

Current § 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 § 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 § 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 § 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,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.

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 § 9.6)

The proposal clarifies current

§ 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.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
66166 Federal Register / Vol. 60, No. 245 / Thursday, December 21, 1995 / Proposed Rules

10 See Fiduciary Precedent 9.2505 (a member of

a fiduciary committee may not serve on the trust

audit committee).

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.

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 § 9.8)

The proposal clarifies the

recordkeeping requirements currently

found at §§ 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

§ 9.9)

The proposal retains the current § 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-byactivity 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.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.

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 § 9.10)

As mentioned earlier, the proposal

relocates to proposed § 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

§ 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

§ 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
Federal Register / Vol. 60, No. 245 / Thursday, December 21, 1995 / Proposed Rules 66167

11 Letter from Julie L. Williams, Chief Counsel

(November 6, 1995).

12This provision stems from the fiduciary powers

statute. See 12 U.S.C. 92a(f).

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,11 and should

facilitate more efficient fiduciary

operations in multi-bank holding

companies.

Investment of Fiduciary Funds

(proposed § 9.11)

The proposal condenses current § 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 § 9.12)

The proposal retains the substance of

current § 9.12, which addresses

fiduciary conflicts of interest. However,

the proposal clarifies a point concerning

the general rule, found at current

§ 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

§ 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

§ 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

§ 9.13)

The proposal retains the substance of

current § 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 § 9.14)

Under current § 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.

However, current § 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
66168 Federal Register / Vol. 60, No. 245 / Thursday, December 21, 1995 / Proposed Rules

13See 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).

14Because the regulations of the Office of Thrift

Supervision incorporate § 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 § 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.

15These 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.

16See, 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).

17See 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).

18The 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 § 9.18(b)(5)(v) on advertising the

availability and performance of common trust

funds; (5) eliminate the fixed percentage limitation

in §§ 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 § 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

§ 9.18(b)(9)(iii) applicable to the assets of common

trust funds; (8) eliminate the limitations in

§ 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

§ 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.

amount of trust assets administered

from offices located in that state.13

Fiduciary Compensation (Proposed

§ 9.15)

The proposal retains the substance of

current § 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 cofiduciary 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 § 9.16)

The proposal retains the substance of

current § 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 § 9.17)

The proposal retains the substance of

current § 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

§ 9.18)

The proposal revises current § 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.

The OCC has not rewritten § 9.18

since 1972. In 1982, the OCC published

an advance notice of proposed

rulemaking requesting public comment

on § 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.

The OCC received over 70 comments,

most of which indicated that

technological advances and new

customer needs rendered portions of

§ 9.18 obsolete or even counterproductive. In November 1984,

however, the OCC suspended its

consideration of amendments to § 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 § 9.18

under the circumstances.

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 § 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

§ 9.18 as part of the comprehensive

review of part 9 under its Regulation

Review Program, rather than proceed

with § 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.

This current proposal retains the

general structure of § 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 § 9.18 are

noted below.

(a)(1) and (a)(2) Funds (Proposed

§ 9.18(a)).

The proposal retains the substance of

current § 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 § 9.18(a) the substance of

current § 9.18(b)(2), which provides
Federal Register / Vol. 60, No. 245 / Thursday, December 21, 1995 / Proposed Rules 66169

19Like the 1990 Proposal, this proposal

eliminates from current § 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.

20However, 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 § 9.18(a) and (b)), in accordance

with proposed § 9.18(c)(5).

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).

22See 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.’’

23See, e.g., Wells Fargo Decision, supra note 16,

at 10.

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

The proposal makes significant

changes to current § 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

§ 9.18, encompasses both (a)(1) funds

and (a)(2) funds.

Written Plan (Proposed § 9.18(b)(1)).

Like the 1990 Proposal, this proposal

eliminates as unnecessary two

requirements from current § 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 § 9.18(b)(1) to

proposed § 9.18(b)(4), described below.

Fund Management (Proposed

§ 9.18(b)(2))

The proposal provides an exception to

the ‘‘exclusive management’’

requirement, found in current

§ 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

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 § 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.

Proportionate Interests (Proposed

§ 9.18(b)(3))

The proposal retains the requirement

in current § 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 § 9.11, which allows

investments consistent with applicable

law.

Valuation (Proposed § 9.18(b)(4))

The proposal consolidates existing

provisions relating to valuation of

collective investment funds, including

current § 9.18(b)(1) (method of

valuation), current § 9.18(b)(4)

(frequency and date of valuation), and

current § 9.18(b)(15) (valuation of shortterm 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 § 9.18(b)(4).

Admission and Withdrawal of Accounts

(Proposed § 9.18(b)(5))

The proposal consolidates existing

provisions relating to admissions and

withdrawals of accounts, including

current § 9.18(b)(4) (prior request or

notice), current § 9.18(b)(6) (method of

distribution), and current § 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 § 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
66170 Federal Register / Vol. 60, No. 245 / Thursday, December 21, 1995 / Proposed Rules

24Thus, 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.

25See, e.g., Fiduciary Precedent 9.5330 (requiring

disclosure of management fees).

26See, e.g., Wells Fargo Decision, supra note 16,

at 11–12. 27See, e.g., Fiduciary Precedent 9.5113.

28See proposed § 9.18(b)(1)(iii) (disclosure of

anticipated fees and expenses in the written plan)

and proposed § 9.18(b)(6)(ii) (disclosure of fees and

expenses in the annual financial report).

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.

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

§ 9.18(b)(5)(iii)).

Audits and Financial Reports (Proposed

§ 9.18(b)(6))

The proposal retains the requirements

in current § 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

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.

Advertising Prohibition for Common

Trust Funds (Proposed § 9.18(b)(7))

The proposal retains and clarifies the

current regulation’s prohibition on

advertising (a)(1) funds. Current

§ 9.18(b)(5)(v) prohibits a national bank

from advertising or publicizing (a)(1)

funds except as provided in the

regulation. Current § 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

Self-dealing and Conflicts of Interest

(Proposed § 9.18(b)(8))

The proposal retains the substance of

current § 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 § 9.12, which apply

to all fiduciary activities of national

banks.

Mortgage Reserve Account (Proposed

§ 9.18(b)(9))

The proposal retains the substance of

current § 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

§ 9.18(b)(10))

The proposal retains the quantitative

management fee limitation, found in

current § 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

§ 9.18(b)(12).

The proposal, however, eliminates

other provisions in § 9.18(b) that

specifically permit or prohibit certain

expenses, including current

§ 9.18(b)(5)(i) (expenses for audits

performed by independent public

accountants), current § 9.18(b)(5)(iv)

(expenses for printing and distributing

financial reports), and current

§ 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.

Additionally, the OCC invites

comment on whether to defer to

applicable law instead of retaining the

quantitative management fee limitation.

Prohibition Against Certificates

(Proposed § 9.18(b)(11))

The proposal retains the substance of

current § 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

§ 9.18(b)(12))

The proposal retains the substance of

current § 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

§ 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

§ 9.18(c))

In addition to (a)(1) and (a)(2) funds,

current § 9.18 authorizes other means by

which a national bank may invest

fiduciary assets collectively. These other

collective investments, described in
Federal Register / Vol. 60, No. 245 / Thursday, December 21, 1995 / Proposed Rules 66171

29Under current § 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

§ 9.18(b)(9).

30The 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.

proposed § 9.18(c), are not subject to the

requirements of § 9.18(b).

The proposal eliminates the

requirement in current § 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.

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 § 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 § 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 §§ 9.21 and 9.22

to 12 CFR part 19, the OCC’s rules of

practice and procedure. Proposed

§ 19.135 incorporates by cross-reference

the SEC’s rules on this subject, which

are virtually identical to current §§ 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 RiegleNeal 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.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.

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
66172 Federal Register / Vol. 60, No. 245 / Thursday, December 21, 1995 / Proposed Rules

31Some 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)

¶ 83,236.

32See, e.g., Interpretive Letter No. 647 (April 15,

1994), reprinted in, [1994 Transfer Binder] Fed.

Banking L. Rep. (CCH) ¶ 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)

¶ 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).

33See Interpretive Letter No. 293 (May 11, 1984),

reprinted in Fed. Banking L. Rep. (CCH) ¶ 85,463.

34See Securities Act Amendments of 1990, Pub.

L. 101–550.

35Among 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.

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.31

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 § 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.32 The OCC has generally

imposed the following conditions when

a national bank’s operating subsidiary

acts as investment adviser to an

investment company:

(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 pre1990 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.33

In 1990, Congress amended the Trust

Indenture Act to permit a bank to serve

as both creditor and indenture trustee.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.

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,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.

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
Federal Register / Vol. 60, No. 245 / Thursday, December 21, 1995 / Proposed Rules 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

§ 9.1 .................. ................................................................................................... Added.

§ 9.2(a) ............. ................................................................................................... Added.

(b) .............. § 9.1(g) ...................................................................................... Significantly modified.

(c) .............. § 9.1(l) ....................................................................................... Modified.

(d) .............. § 9.1(a) ...................................................................................... Modified.

(e) .............. § 9.1(b) and (h) ......................................................................... Significantly modified.

(f) ............... § 9.1(j) ....................................................................................... Modified.

(g) .............. § 9.1(d) ...................................................................................... Modified.

(h) .............. § 9.1(c) ...................................................................................... Modified.

(i) ............... § 9.1(e) ...................................................................................... Modified.

(j) ............... ................................................................................................... Added.

§ 9.3 .................. § 9.2 ........................................................................................... Modified.

§ 9.4 .................. § 9.7(a)(1), (b), and (d) ............................................................. Significantly modified.

§ 9.5 .................. §§ 9.5, 9.7(c), 9.7(d), and 9.10(a) ............................................. Significantly modified.

§ 9.6 .................. § 9.7(a)(2) .................................................................................. Significantly modified.

§ 9.8 .................. §§ 9.7(a)(2) and 9.8 .................................................................. Modified.

§ 9.9 .................. § 9.9 ........................................................................................... Significantly modified.

§ 9.10 ................ § 9.10 ......................................................................................... Significantly modified.

§ 9.11 ................ § 9.11 ......................................................................................... Modified.

§ 9.12 ................ § 9.12 ......................................................................................... Modified.

§ 9.13 ................ § 9.13 ......................................................................................... Modified.

§ 9.14 ................ § 9.14 ......................................................................................... Significantly modified.

§ 9.15 ................ § 9.15 ......................................................................................... Modified.

§ 9.16 ................ § 9.16 ......................................................................................... Modified.

§ 9.17 ................ § 9.17 ......................................................................................... Modified.

§ 9.18(a) ........... § 9.18 (a) and (b)(2) .................................................................. Modified.

(b)(1) ......... (b)(1) .................................................................................. Significantly modified.

(b)(2) ......... (b)(12) ................................................................................ Significantly modified.

(b)(3) ......... (b)(3) .................................................................................. Modified.

(b)(4) ......... (b) (1), (4), and (15) ........................................................... Significantly modified.

(b)(5) ......... (b) (4), (6), and (7) ............................................................. Significantly modified.

(b)(6) ......... (b) (5)(i)–(iv) ....................................................................... Significantly modified.

(b)(7) ......... (b) (5)(iv) and (v) ............................................................... Significantly 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.

§ 9.20 ......... § 9.20 ......................................................................................... Modified.

§ 19.135 ..... §§ 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
66174 Federal Register / Vol. 60, No. 245 / Thursday, December 21, 1995 / Proposed Rules

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.

§ 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 § 9.2(e).

§ 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.

§ 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.

§ 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.
Federal Register / Vol. 60, No. 245 / Thursday, December 21, 1995 / Proposed Rules 66175

§ 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 selfdealing 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.

§ 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.

§ 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.

§ 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.

§ 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
66176 Federal Register / Vol. 60, No. 245 / Thursday, December 21, 1995 / Proposed Rules

1 A fund established pursuant to § 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.

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.

§ 9.11 Investment of fiduciary funds.

A national bank shall invest funds

that it holds as fiduciary in a manner

consistent with applicable law.

§ 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 § 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.

§ 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 § 9.18.

§ 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.

§ 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.

§ 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.

§ 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.

§ 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,1
Federal Register / Vol. 60, No. 245 / Thursday, December 21, 1995 / Proposed Rules 66177

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 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.

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.

(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.2

(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.3

(ii) Financial report. At least once

during each 12-month period, a bank

administering a collective investment

fund shall prepare a financial report of
66178 Federal Register / Vol. 60, No. 245 / Thursday, December 21, 1995 / Proposed Rules

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 fixedincome 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
Federal Register / Vol. 60, No. 245 / Thursday, December 21, 1995 / Proposed Rules 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.

§ 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 § 19.135 is added to subpart

E to read as follows:

§ 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

FEDERAL RESERVE SYSTEM

12 CFR Part 226

[Reg. Z; Docket No. R–0908]

Truth in Lending

AGENCY: Board of Governors of the

Federal Reserve System.

ACTION: Request for comments.

SUMMARY: The Board is soliciting

comment on how the finance charge

could more accurately reflect the cost of

consumer credit. In particular, the

Board is asking for the public’s views on

the feasibility of treating as finance

charges all costs imposed by the creditor

or payable by the consumer as an

incident to the extension of credit. The

Truth in Lending Act Amendments of

1995 direct the Board to submit a report

to the Congress regarding these issues.

Under present law, costs such as

interest are part of the finance charge;

other costs, including many associated

with real estate-secured lending, are

excluded from the finance charge. The

Board is also required to address in its

report abusive refinancing practices

engaged in by creditors for the purpose

of avoiding a consumer’s rescission

rights.

DATES: Comments must be received on

or before February 9, 1996.

ADDRESSES: Comments should refer to

Docket No. R–0908, and may be mailed

to William W. Wiles, Secretary of the

Board of Governors of the Federal

Reserve System, 20th Street and

Constitution Avenue, NW., Washington,

DC 20551. Comments also may be

delivered to Room B–2222 of the Eccles

Building between 8:45 a.m. and 5:15

p.m. weekdays, or to the guard station

in the Eccles Building courtyard on 20th

Street, NW., (between Constitution

Avenue and C Street) at any time.

Comments may be inspected in Room

MP–500 of the Martin Building between

9 a.m. and 5 p.m. weekdays, except as

provided in 12 CFR 261.8 of the Board’s

rules regarding the availability of

information.

FOR FURTHER INFORMATION CONTACT: Jane

E. Ahrens, Senior Attorney, or Sheilah

Goodman, or Kurt Schumacher, Staff

Attorneys, Division of Consumer and

Community Affairs, Board of Governors

of the Federal Reserve System, at (202)

452–3667 or 452–2412. For users of

Telecommunications Devices for the

Deaf, contact Dorothea Thompson, at

(202) 452–3544.

SUPPLEMENTARY INFORMATION:

I. Background

The Truth in Lending Act

Amendments of 1995 (1995

Amendments Act), Pub. L. 104–29, 109

Stat. 271, enacted into law on

September 30, 1995, direct the Board to

submit a report to the Congress

concerning the use of finance charges to

accurately reflect the cost of consumer

credit. The Board must consider the

feasibility of including in the finance

charge all charges payable directly or

indirectly by the consumer and imposed

directly or indirectly by the creditor as

an incident to the credit transaction—

especially costs associated with real

estate- or home-secured lending that are

currently excluded from the finance

charge under section 106 of the Truth in

Lending Act. As contemplated by the

Congress, perhaps only charges payable

in a comparable cash transaction would

continue to be excluded from the

finance charge. The report must also

address abusive refinancing practices

engaged in by a creditor for the purpose

of avoiding a consumer’s rescission

rights. The Board will submit its report

to the Congress in early spring 1996,

based on the comments of interested

parties and on its own analysis.