Fiduciary Capacity; Non-Fiduciary Custody Activities, 17967-17971 [2019-08505]
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17967
Proposed Rules
Federal Register
Vol. 84, No. 82
Monday, April 29, 2019
This section of the FEDERAL REGISTER
contains notices to the public of the proposed
issuance of rules and regulations. The
purpose of these notices is to give interested
persons an opportunity to participate in the
rule making prior to the adoption of the final
rules.
DEPARTMENT OF THE TREASURY
Office of the Comptroller of the
Currency
12 CFR Parts 9 and 150
[Docket ID OCC–2018–0018]
RIN 1557–AE46
Fiduciary Capacity; Non-Fiduciary
Custody Activities
The Office of the Comptroller
of the Currency, Department of the
Treasury.
ACTION: Advanced notice of proposed
rulemaking.
AGENCY:
The Office of the Comptroller
of the Currency (OCC) is inviting
comment on an advance notice of
proposed rulemaking (ANPR) regarding
its fiduciary activities rules and a
potential rule for non-fiduciary custody
activities of national banks, Federal
savings associations, and Federal
branches of foreign banks. Specifically,
the OCC is considering an amendment
to its fiduciary rule to update the
definition of fiduciary capacity to
include certain State recognized trustrelated activities. The OCC also is
considering issuing a regulation that
would establish certain basic
requirements for non-fiduciary custody
activities of national banks and Federal
savings associations.
DATES: Comments must be received by
June 28, 2019.
ADDRESSES: You may submit comments
to the OCC by any of the methods set
forth below. Commenters are
encouraged to submit comments
through the Federal eRulemaking Portal
or email, if possible. Please use the title
‘‘Fiduciary Capacity; Non-Fiduciary
Custody Activities’’ to facilitate the
organization and distribution of the
comments. You may submit comments
by any of the following methods:
• Federal eRulemaking Portal—
‘‘Regulations.gov’’: Go to
www.regulations.gov. Enter ‘‘Docket ID
OCC–2018–0018 in the Search Box and
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click ‘‘Search.’’ Click on ‘‘Comment
Now’’ to submit public comments. Click
on the ‘‘Help’’ tab on the
Regulations.gov home page to get
information on using Regulations.gov,
including instructions for submitting
public comments.
• Email: regs.comments@
occ.treas.gov.
• Mail: Chief Counsel’s Office, Office
of the Comptroller of the Currency, 400
7th Street SW, Suite 3E–218,
Washington, DC 20219.
• Hand Delivery/Courier: 400 7th
Street SW, Suite 3E–218, Washington,
DC 20219.
• Fax: (571) 465–4326.
Instructions: You must include
‘‘OCC’’ as the agency name and ‘‘Docket
ID OCC–2018–0018’’ in your comment.
In general, the OCC will enter all
comments received into the docket and
publish the comments on the
Regulations.gov website without
change, including any business or
personal information provided such as
name and address information, email
addresses, or phone numbers.
Comments received, including
attachments and other supporting
materials, are part of the public record
and subject to public disclosure. Do not
include any information in your
comment or supporting materials that
you consider confidential or
inappropriate for public disclosure.
You may review comments and other
related materials that pertain to this
rulemaking action by any of the
following methods:
• Viewing Comments Electronically:
Go to www.regulations.gov. Enter
‘‘Docket ID OCC–2018–0018’’ in the
Search box and click ‘‘Search.’’ Click on
‘‘Open Docket Folder’’ on the right side
of the screen. Comments and supporting
materials can be viewed and filtered by
clicking on ‘‘View all documents and
comments in this docket’’ and then
using the filtering tools on the left side
of the screen. Click on the ‘‘Help’’ tab
on the Regulations.gov home page to get
information on using Regulations.gov.
The docket may be viewed after the
close of the comment period in the same
manner as during the comment period.
• Viewing Comments Personally: You
may personally inspect comments at the
OCC, 400 7th Street SW, Washington,
DC 20219. For security reasons, the OCC
requires that visitors make an
appointment to inspect comments. You
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may do so by calling (202) 649–6700 or,
for persons who are deaf or hearing
impaired, TTY, (202) 649–5597. Upon
arrival, visitors will be required to
present valid government-issued photo
identification and submit to security
screening in order to inspect comments.
FOR FURTHER INFORMATION CONTACT:
Patricia Dalton, Technical Expert for
Market Risk, Asset Management, (202)
649–6401; David Stankiewicz, Special
Counsel, or Asa Chamberlayne, Counsel,
(202) 649–7299, or Heidi M. Thomas,
Special Counsel, or Chris Rafferty,
Attorney, (202) 649–5490, Chief
Counsel’s Office, Office of the
Comptroller of the Currency, 400 7th
Street SW, Washington, DC 20219. For
persons who are deaf or hearing
impaired, TTY, (202) 649–5597.
SUPPLEMENTARY INFORMATION:
I. Introduction
Twelve U.S.C. 92a 1 and 12 U.S.C.
1464(l) and (n) 2 set forth the authority
for fiduciary activities of national
banks 3 and Federal savings
associations, respectively. While there
are some differences, the fiduciary
authority for national banks and Federal
savings associations is substantially
similar. OCC regulations implementing
the substantive provisions of these
statutes are set forth at 12 CFR part 9 for
national banks and Federal branches of
foreign banks (collectively, national
banks) and 12 CFR part 150 for Federal
savings associations.4
The OCC is considering an
amendment to these fiduciary rules that
would update the definition of
‘‘fiduciary capacity’’ so that this term
would be more consistent with how the
role of bank fiduciaries has developed
under State law. The OCC also is
considering adopting a rule to address
non-fiduciary custody activities of
national banks and Federal savings
associations. The OCC is seeking public
comment on all aspects of these two
1 Section
1 of the Act of September 28, 1962.
5(l) and (n) of the Home Owners’ Loan
Act of 1933.
3 Twelve U.S.C. 92a also applies to Federal
branches and agencies pursuant to 12 U.S.C.
3102(b), which provides that the operations of
Federal branches and agencies shall be conducted
with the same rights and privileges accorded
national banks.
4 Twelve CFR 5.26 sets forth the OCC’s
requirements for national banks and Federal savings
associations to obtain OCC approval to engage in
fiduciary activities.
2 Section
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possible actions, discussed in detail
below. The OCC will use these
comments to determine whether to
proceed with a proposed rule and, if so,
to inform the content of a proposed rule.
The OCC will invite public comment on
a detailed proposal before adopting any
final rule.5
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II. Definition of ‘‘Fiduciary Capacity’’
Twelve CFR parts 9 and 150 apply to
national banks and Federal savings
associations, respectively, that act in a
‘‘fiduciary capacity.’’ Section 9.2(e)
defines ‘‘fiduciary capacity’’ to mean
‘‘trustee, executor, administrator,
registrar of stocks and bonds, transfer
agent, guardian, assignee, receiver, or
custodian under a uniform gifts to
minors act; investment adviser, if the
bank receives a fee for its investment
advice; any capacity in which the bank
possesses investment discretion on
behalf of another; or any other similar
capacity that the OCC authorizes
pursuant to 12 U.S.C. 92a.’’ Twelve CFR
150.30 applies a similar definition with
respect to Federal savings associations.
Many of the named capacities listed in
these rules are specified by statute.6
Numerous States have modified their
trust laws in recent years to define and
set expectations for various trust-related
roles, including roles that do not
involve investment discretion. Because
some of these laws use terms other than
those specified in 12 CFR 9.2(e) and
150.30 to describe trust-related and
fiduciary capacities, they are not
explicitly included in the definition of
fiduciary capacity in 12 CFR 9.2(e) and
150.30.
For example, some States have
amended their trust laws to authorize
directed trusts. In a traditional trust, the
trustor grants the trustee the power to
control the investment, management,
distribution, and other administration
decisions of the trust. By contrast, in a
directed trust, the trustor may grant one
or more trust advisers the power to
direct the trustee with respect to these
powers. State laws may not always refer
to such trust advisers as ‘‘trustees’’ but
instead may use other names not listed
in the OCC’s regulations. For example,
the Uniform Directed Trust Act 7 refers
5 The OCC plans to issue a proposed rulemaking
at a later date that would integrate its national bank
and Federal savings association fiduciary activities
rules so that only one rule applies to both national
banks and Federal savings associations, taking into
account consistency with the underlying statutes
that apply to each type of institution.
6 See 12 U.S.C. 92a; 12 U.S.C. 1464(n).
7 The Uniform Directed Trust Act was drafted by
the National Conference of Commissioners on
Uniform State Laws in order to address the rise of
directed trusts. See Nat’l Conf. of Comm’rs on
Uniform State Laws, Uniform Directed Trust Act
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to such advisers generally as ‘‘trust
directors.’’ Meanwhile, Illinois law
refers to such advisers as either
‘‘investment trust advisers,’’
‘‘distribution trust advisers,’’ or ‘‘trust
protectors’’ depending on the discretion
exercised.8 By default under the Illinois
statute, an ‘‘investment trust adviser’’
controls investment decisions; a
‘‘distribution trust adviser’’ controls
distribution decisions; and a ‘‘trust
protector’’ may be given various powers
by the trust instrument, including the
power to remove and appoint a trustee,
investment trust adviser, or distribution
trust adviser.9 Delaware law similarly
refers to such trust advisers generally as
‘‘advisers’’ or, in the case of advisers
with the power to remove and appoint
trustees and other advisers, as
‘‘protectors.’’ 10 State directed trust
statutes often provide that trust advisers
are fiduciaries with the same
responsibility to exercise the authority
or power granted to them as a trustee
would have, unless provided otherwise
by the trust instrument.11
This expanding list of terms for trustrelated and fiduciary roles under State
law that are not explicitly identified as
fiduciary capacities under OCC
regulations, and that may not involve
investment discretion or investment
advisory services, may create
uncertainty for national banks and
Federal savings associations with
respect to the activities governed by
OCC fiduciary regulations. This
potential uncertainty may make it
difficult for institutions to assess and
manage litigation risk and to understand
OCC expectations for managing these
accounts in a safe and sound manner.
Therefore, the OCC is considering
amending the definition of fiduciary
capacity to include these new roles.
Possible Regulatory Revisions
The OCC is contemplating updating
the regulatory definition of ‘‘fiduciary
capacity’’ to include any activity based
on the authority a national bank or
Federal savings association has with
(2017). New Mexico recently adopted this uniform
law. See Uniform Directed Trust Act, 2018 N.M
Laws, ch. 63 (S.B. 101) (to be codified at the
Uniform Trust Code N.M. Stat. § 46a).
8 See 760 ILCS 5/16.3.
9 Id.
10 See 12 Del. C. § 3313. In addition, the
Employee Retirement Income Security Act of 1974
(ERISA) defines fiduciary based on function and not
only on named capacities. For example, pursuant to
section 3(21) of ERISA (29 U.S. Code 1002(21)), a
person using discretion in administering and
managing a plan or controlling the plan’s assets is
a fiduciary to the extent of that discretion or
control.
11 See, e.g., Nat’l Conf. of Comm’rs on Uniform
State Laws, Uniform Directed Trust Act § 8 (2017);
760 ILCS 5/16.3(e); 12 Del. C. § 3313(a).
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respect to a trust, such as the power to
make discretionary distributions,
override the trustee, or select a new
trustee.12 This change could reduce
ambiguity and confusion for national
banks and Federal savings associations.
It also could provide for the uniform
application of OCC regulations to trust
activities that State laws describe with
different terminology.
Request for Comments
The OCC invites comment on whether
amending the definition of ‘‘fiduciary
capacity’’ to include these trust advisory
functions would be useful and, if so,
whether the approach suggested by the
OCC is appropriate. The OCC
specifically invites comment on what
trust adviser activities or other
capacities national banks and Federal
savings associations are performing in
providing services to their customers,
and whether the OCC should consider
explicitly identifying these activities as
fiduciary activities subject to 12 CFR
part 9 or 12 CFR part 150, respectively.
Furthermore, the OCC invites
commenters to identify any specific
State statutes, uniform laws, or
terminology that the OCC should
consider when assessing whether an
activity or appointment is a ‘‘fiduciary
capacity.’’ The OCC also invites
comments on other ways to amend this
definition so that it encompasses
evolving trust capacities, including trust
capacities recognized or permitted
under State law. Finally, the OCC
invites comment on whether there are
any additional fiduciary roles that State
chartered banks currently perform that
national banks and Federal savings
associations also may be interested in
performing that the OCC should
consider identifying as a fiduciary
capacity.
III. Custody Activities
Twelve CFR 9.8 and 9.13 impose
general recordkeeping and custody
requirements for a national bank that
acts as a fiduciary. Twelve CFR 150.230
through 150.250 and 150.410 through
150.430 impose similar requirements for
Federal savings associations.
Specifically, these provisions require
bank and savings association fiduciaries
to provide adequate safeguards and
controls over client fiduciary account
assets, to keep these fiduciary account
assets separate from bank and savings
association assets, and to maintain and
segregate certain records related to these
accounts.
12 This ANPR refers to activities based on the
authority an institution has with respect to a trust
as ‘‘trust adviser activities.’’
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National banks and Federal savings
associations also provide custody and
recordkeeping services to clients for
non-fiduciary accounts. In doing so,
these banks and savings associations are
not acting in a fiduciary capacity and,
therefore, these activities are not subject
to the OCC’s fiduciary regulations.
However, whether acting in a fiduciary
or non-fiduciary custodial capacity, the
principal roles of a national bank and
Federal savings association custodian
remain the same: To safeguard a client’s
assets and to operate in a safe and sound
manner.
Non-fiduciary custody activities have
become more sophisticated since the
OCC issued its fiduciary regulation and
may include additional services such as
fund accounting, fund administration,
securities lending, and global custodial
services involving the execution of
foreign exchange transactions and the
processing of tax reclaims.13 In addition,
the types of custody activities and assets
continue to evolve with, for example,
some banks assessing the risk and
benefits of providing custody services
for cryptocurrencies and other digital
assets.
Furthermore, the volume of nonfiduciary custody assets held in national
banks and Federal savings associations
has increased since the OCC updated its
fiduciary regulation in 1996, and, as of
December 31, 2018, totaled
approximately $41.7 trillion, with
national banks holding $39.9 trillion
and Federal savings associations
holding $1.8 trillion.14 The size of the
custody services provided by national
banks and Federal savings associations
is significantly more (in dollar terms)
than fiduciary assets ($8.7 trillion) 15
and on-balance sheet total assets ($12.1
trillion).16
The expansion of non-fiduciary
custody activities and the growth in size
of non-fiduciary custody assets increase
operational, reputational, credit, and
13 A global custodian provides custody services
for cross-border securities transactions in various
markets around the world through either its own
office in the local market or the use of agent banks
as sub-custodians.
14 Schedule RC–T—Fiduciary and Related
Services, Consolidated Reports of Condition and
Income, December 31, 2018. The OCC notes that
because national banks and Federal savings
associations may provide custody services that are
not reportable on Schedule RC–T, including
custody services offered by banks and savings
associations that do not possess fiduciary powers,
the amount of non-fiduciary custody assets is likely
larger.
15 Schedule RC–T—Fiduciary and Related
Services, Consolidated Reports of Condition and
Income, December 31, 2018.
16 Schedule RC–Balance Sheet, Consolidated
Reports of Condition and Income, December 31,
2018.
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other risks for national bank and Federal
savings association custodians. The
OCC believes that current OCC guidance
appropriately identifies safe and sound
risk management practices for
custodians, including the protection of
client assets in the custody of national
banks and Federal savings
associations.17 However, the OCC also
believes that it may be appropriate to set
out in regulation the core standards for
non-fiduciary custody activities because
of the heightened risks a business line
of this scale poses to banks and savings
associations and because of the
importance of providing adequate
safeguards for client assets. Because
non-fiduciary custody activities are not
subject to 12 CFR 9.13, 150.230,
150.240, and 150.250 and are not
governed by any other OCC regulation
that specifically requires a custodial
bank or savings association to safeguard
or segregate client assets, the OCC
invites comment on whether it should
issue rules to govern non-fiduciary
custody activities.
The OCC expects that any custody
rule the agency issued would be
consistent with its guidance on custody
service activities for national bank and
Federal savings association
custodians 18 and be compatible with
industry standards. Therefore, the OCC
believes that such a custody rule would
impose minimal new responsibilities on
well-managed national banks or Federal
savings associations.
If the OCC were to implement a rule
specific to non-fiduciary custodial
capacities, the OCC also could consider
amending the existing fiduciary custody
language in 12 CFR 9.13, 150.230,
150.240, and 150.250 to ensure that the
same standards would apply to
fiduciary custody accounts. This would
provide a single consistent standard for
safeguarding client assets and clarify
expectations for custody of both
fiduciary and non-fiduciary account
assets.
The OCC notes that an OCC custody
rule for national banks and Federal
savings associations would complement
17 The OCC has issued substantial guidance
regarding non-fiduciary custody activity. See the
‘‘Custody Services’’ (Jan. 2002), ‘‘Asset Management
Operations and Controls’’ (Jan. 2011), ‘‘Unique and
Hard-to-Value Assets’’ (August 2012), ‘‘Retirement
Plan Products and Services’’ (Feb. 2014), and
‘‘Conflicts of Interest’’ (Jan. 2015) booklets of the
Comptroller’s Handbook, and OCC Bulletin 2013–
29, ‘‘Third-Party Relationships—Risk Management
Guidance’’ (Oct. 30, 2013). The OCC made its
guidance on asset management operations and
controls applicable to Federal savings associations
on January 6, 2012 (see OCC Bulletin 2012–2) and
its guidance on custody services applicable to
Federal savings associations on May 17, 2012 (see
OCC Bulletin 2012–15).
18 Id.
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the applicable regulations of other
regulators related to the custody of
client assets. Specifically, the Securities
and Exchange Commission and the
Commodity Futures Trading
Commission have issued regulations
related to the custody of client assets by
their regulated entities,19 and the
Internal Revenue Service has issued
rules applicable to the custody of
Individual Retirement Accounts.20
Furthermore, U.S. Department of the
Treasury regulations 21 set forth specific
requirements for banks and savings
associations that hold government
securities in a custodial capacity,
Freddie Mac and Fannie Mae impose
specific requirements to be included in
document custody agreements,22 and
the National Association of Insurance
Commissioners has adopted a model act
that addresses custody and the holding
and transferring of an insurance
company’s securities.23 Various States
also have adopted custody requirements
for insurance companies and investment
advisers operating in their
jurisdictions.24 In addition, foreign
jurisdictions, including the United
19 See 17 CFR 275.206(4)–2 (Custody of funds or
securities of clients by investment advisers); 17 CFR
270.17f–1 (Custody of securities with members of
national securities exchanges); 17 CFR 270.17f–2
(Custody of investments by registered management
investment company); 17 CFR 270.17f–4 (Custody
of investment company assets with a securities
deposit); 17 CFR 270.17f–5 (Custody of investment
company assets outside the United States); 17 CFR
270.17f–6 (Custody of investment company assets
with Futures Commission Merchants and
Commodity Clearing Organizations); and 17 CFR
270.17f–7 (Custody of investment company assets
with a foreign securities depository).
20 See 26 CFR 1.408–2(d).
21 17 CFR 450 (Custodial Holding of Government
Securities by Depository Institutions).
22 See Freddie Mac Document Custody
Procedures Handbook (August 2015), https://
www.freddiemac.com/cim/pdf/EntireManual.pdf
and Fannie Mae Requirements for Document
Custodians (Version 12.0, April 2018), https://
www.fanniemae.com/content/eligibility_
information/document-custodiansrequirements.pdf.
23 See Nat’l Ass’n of Ins. Comm’rs, Model Act on
Custodial Agreements and the Use of Clearing
Corporations, MDL–295 (2008), https://
www.naic.org/prod_serv_model_laws.htm.
24 Regarding State custody requirements for
insurance companies, see, e.g., Fla. Admin. Code
Ann. r. 690–143.042 (2017) (Custody Agreements;
Requirements); Tenn. Comp. R. & Regs. 0780–01–
46 (2013) (Regulations on Custodial Agreements
and the Use of Clearing Corporations); Wyoming
Administration Rules—Insurance Department—
General Agency, Board of Commission Rules,
Chapter 57 (2017) (Regulation on Custodial
Agreements and the Use of Clearing Corporations).
Regarding State custody requirements for
investment advisers, see. e.g., Mass. Regs. Code tit.
950, § 12.205(5) (2014) (Discretion and Custody
Requirements); 10 Pa. Code § 404.014 (2018)
(Custody Requirements for Investment Advisers);
Wash. Admin. Code § 460–24A–105 to 460–24A–
108 (2019) (Custody Requirements for Investment
Advisers).
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Kingdom and the European Union, have
adopted specific regulatory
requirements covering custody
activities, many of which were
strengthened in the wake of the 2008
financial crisis.25 In general, these
regulatory requirements impose certain
minimum safekeeping and segregation
requirements on a regulated entity for
the custody of client assets. The
objective of these requirements is to
safeguard the assets of clients, with
bank custodians playing a key role in
this process. Some of these
requirements may directly or indirectly
apply to accounts for which a national
bank or Federal savings association is
custodian. The OCC believes a welldefined regulatory framework for
national bank and Federal savings
association custody activities would
codify the expectations of other
regulators that bank custodians
safeguard the client assets of the entities
that they regulate in a safe and sound
manner.
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Possible Regulatory Revisions
An OCC rule governing the nonfiduciary custody activities of national
banks and Federal savings associations
would be based on the following core
elements of sound risk management,
consistent with OCC guidance: (1)
Separation and safeguarding of
custodial assets; (2) due diligence in
selection and ongoing oversight of subcustodians; 26 (3) disclosure in custodial
contracts and agreements of the
custodian’s duties and responsibilities;
25 See, e.g., Financial Conduct Authority, FCA
Handbook, Cass § 6 (custody rules) (UK), https://
www.handbook.fca.org.uk/handbook/CASS/6/
?view=chapter; Directive 2011/61/EU of the
European Parliament and of the Council of 8 June
2001 on Alternative Investment Fund Managers and
amending Directives 2003/41/EC and 2009/65/EC
and Regulations (EC) No 1060/2009 and (EU) No
1095/2010 Text with EEA relevance, 2011 O.J. (L
174), 1–73, https://eur-lex.europa.eu/eli/dir/2011/
61/oj; Directive 2014/91/EU of the European
Parliament and of the Council of 23 July 2014
amending Directive 2009/65/EC on the coordination
of laws, regulations, and administrative provisions
relating to undertakings for collective investment in
transferable securities (UCITS) as regards depositary
functions, remuneration policies, and sanctions.
2014 OJ (L257), 186–213, https://eur-lex.europa.eu/
legal-content/EN/TXT/?uri=celex%3A32014L0091.
26 Sub-custodians are third party entities that
provide custody services to national banks or
Federal savings associations, pursuant to a written
agreement, with respect to custody assets for which
the bank or savings association is custodian. For
example, bank or savings association custodians
that are not members of a central securities
depository often engage financial institutions that
are members as their agents or sub-custodians. Bank
and savings association custodians also use subcustodians known as global custodians to facilitate
securities transactions in other countries. The
global custodian provides access to central
securities depositories in those countries either
through its local offices or by engaging a local subcustodian.
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and (4) effective policies, procedures,
and internal controls.27 These core
elements focus on protecting client
assets from loss due to physical damage,
fraud, inaccurate or improper
accounting, or bankruptcy or insolvency
of a custodian or its sub-custodian, and
enhance the safety and soundness of the
national bank or Federal savings
association engaged in custody activities
or services. A rule including these core
elements would codify safeguards to
protect client assets, including imposing
risk management standards on banks
and savings associations that use subcustodians.
Request for Comments
The OCC invites comment on all
aspects of a potential non-fiduciary
custody rule. In particular, the OCC is
interested in whether a custody rule
would help clarify the role of a national
bank or Federal savings association
acting as a non-fiduciary custodian;
whether the potential elements of such
a rule, as outlined in this ANPR, are
appropriate; and whether the OCC
should consider additional elements.
In particular, the OCC invites
comment on potential provisions that
would implement the core elements of
a custody rule. Specifically, should an
OCC rule direct national banks and
Federal savings associations to:
• Implement and maintain effective
internal controls to safeguard both
physical and book-entry assets held in
custody accounts by the national bank
or Federal savings association?
• Implement and maintain adequate
safeguards and controls when custody
account assets are maintained offpremises?
• Maintain custody assets separate
from the bank’s or savings association’s
assets, as currently required in 12 CFR
9.13 and 150.250 for custody of
fiduciary assets?
• Maintain the custody assets of each
account separate from all other accounts
or maintain records that identify the
custody assets as the property of each
particular account, as currently required
in 12 CFR 9.8, 9.13, 150.250, and
150.410 through 150.430 for custody of
fiduciary assets?
• Periodically verify the amount and
location of custody assets held
physically by comparing the bank’s or
savings association’s books and records
of custody assets to the physical assets
in their possession?
• Periodically compare custody assets
held in book-entry form or off-premises
by comparing the bank’s or savings
association’s books and records of
27 Comptroller’s
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custody assets to the books and records
of the book-entry issuer, sub-custodian,
or central securities depository?
• Place custody assets in the joint
custody or control of no fewer than two
officers or employees, which would be
consistent with the current requirement
in 12 CFR 9.13 and 150.230?
• Undertake effective due diligence
by performing an in-depth assessment of
a sub-custodian’s ability to perform the
activity in compliance with all
applicable laws and regulations prior to
depositing custodial funds with the subcustodian, and perform ongoing
periodic monitoring of the subcustodian? 28
• Adopt and follow written policies
and procedures to ensure that custody
services are provided in accordance
with custody agreements and in
compliance with the custody regulation
and applicable law, similar to the
requirements of 12 CFR 9.5 and 150.140,
respectively, for national banks and
Federal savings associations exercising
fiduciary powers?
The OCC also invites comments on
whether a custody rule should include
any specific requirements for custodial
agreements. Specifically, should an
agreement:
• Clearly define the custodian’s
duties and responsibilities, and include
a full and accurate disclosure of fees
and pricing, as well as provisions
detailing the relationship between the
client as principal and the custodian as
agent?
• Disclose whether the bank or
savings association is acting in any
other capacity with respect to services
ancillary to the custody relationship,
e.g. principal capacity for foreign
exchange trades or depository for cash?
• Include adequate disclosures, when
applicable, to make clear that the
national bank or Federal savings
association custodian is not acting in a
fiduciary capacity?
In addition to comments on specific
components of an OCC rule, the OCC
invites comment on the following
issues:
• Should the OCC update the
fiduciary standards of 12 CFR 9.13,
150.230, 150.240, and 150.250 to be
consistent with any non-fiduciary
account standards that the OCC may
adopt?
• Do any of the standards mentioned
above conflict with any other Federal
requirements applicable to national
banks and Federal savings associations
or regulated entities that use bank
custody services?
28 See OCC Bulletin 2013–29, ‘‘Third-Party
Relationships—Risk Management Guidance’’ (Oct.
30, 2013).
E:\FR\FM\29APP1.SGM
29APP1
Federal Register / Vol. 84, No. 82 / Monday, April 29, 2019 / Proposed Rules
• Should the OCC limit the types of
entities that a national bank or Federal
savings association may use as a subcustodian or limit the type of subcustodian for specific types of accounts?
For example, the Internal Revenue
Service limits which entities may act as
custodians for Individual Retirement
Accounts.29 If the OCC imposes a limit,
what types of accounts should be
subject to the limitation and why?
• What type of retail or commercial
custody and safe keeping activities
should an OCC non-fiduciary custody
rule exclude, if any, and why?
Finally, the OCC invites comment on
whether any of the possible provisions
listed above would be overly
burdensome, especially for community
institutions, and if so, whether there are
approaches that would address the same
issues in a less burdensome way. The
OCC also invites comment from clients
of national bank and Federal savings
association custodians on the
appropriateness of these suggested
provisions and whether the OCC should
consider additional provisions to
safeguard custody assets.
Dated: April 23, 2019.
Joseph M. Otting,
Comptroller of the Currency.
[FR Doc. 2019–08505 Filed 4–26–19; 8:45 am]
BILLING CODE 4810–33–P
BUREAU OF CONSUMER FINANCIAL
PROTECTION
12 CFR Part 1005
[Docket No.: CFPB–2019–0018]
Request for Information Regarding
Potential Regulatory Changes to the
Remittance Rule
Bureau of Consumer Financial
Protection.
ACTION: Request for information.
AGENCY:
The Electronic Fund
Transfers Act (EFTA), as amended by
the Dodd-Frank Wall Street Reform and
Consumer Protection Act (Dodd-Frank
Act), establishes certain protections for
consumers sending international money
transfers, or remittance transfers. The
Bureau of Consumer Financial
Protection’s (Bureau) remittance rules
(Remittance Rule or Rule) implement
these protections. This document seeks
information and evidence that may
inform possible changes to the Rule that
would not eliminate, but would mitigate
the effects of the expiration of a
statutory exception for certain financial
khammond on DSKBBV9HB2PROD with PROPOSALS
SUMMARY:
29 See
26 CFR 1.408–2.
VerDate Sep<11>2014
16:06 Apr 26, 2019
Jkt 247001
institutions. EFTA expressly limits the
length of the temporary exception to
July 21, 2020 and does not authorize the
Bureau to extend this term. Therefore,
the exception will expire on July 21,
2020 unless Congress changes the law.
In addition, the Bureau seeks
information and evidence related to the
scope of coverage of the Rule, including
whether to change a safe harbor
threshold in the Rule that determines
whether a person makes remittance
transfers in the normal course of its
business, and whether an exception for
small financial institutions may be
appropriate.
Comments must be received on
or before June 28, 2019.
ADDRESSES: You may submit responsive
information and other comments,
identified by Docket No. CFPB–2019–
0018, by any of the following methods:
• Federal eRulemaking Portal: Go to
https://www.regulations.gov. Follow the
instructions for submitting comments.
• Email: 2019-RFI-RemittanceRule@
cfpb.gov. Include Docket No. CFPB–
2019–0018 in the subject line of the
message.
• Mail: Comment Intake, Bureau of
Consumer Financial Protection, 1700 G
St. NW, Washington, DC 20552.
• Hand Delivery/Courier: Comment
Intake, Bureau of Consumer Financial
Protection, 1700 G Street NW,
Washington, DC 20552.
Instructions: Please note the number
associated with any question to which
you are responding at the top of each
response. You are not required to
answer all questions to receive
consideration of your comments. The
Bureau encourages the early submission
of comments. All submissions must
include the document title and docket
number. Because paper mail in the
Washington, DC area and at the Bureau
is subject to delay, commenters are
encouraged to submit comments
electronically. In general, all comments
received will be posted without change
to https://www.regulations.gov. In
addition, comments will be available for
public inspection and copying at 1700
G St. NW, Washington, DC 20552, on
official business days between the hours
of 10 a.m. and 5 p.m. Eastern Standard
Time. You can make an appointment to
inspect the documents by telephoning
(202) 435–7275.
All submissions, including
attachments and other supporting
materials, will become part of the public
record and subject to public disclosure.
Please do not include in your
submissions sensitive personal
information, such as account numbers
or Social Security numbers, or names of
DATES:
PO 00000
Frm 00005
Fmt 4702
Sfmt 4702
17971
other individuals, or other information
that you would not ordinarily make
public, such as trade secrets or
confidential commercial information.
Submissions will not be edited to
remove any identifying or contact
information, or other information that
you would not ordinarily make public.
If you wish to submit trade secret or
confidential commercial information,
please contact the individuals listed in
the FOR FURTHER INFORMATION CONTACT
section below. Information submitted to
the Bureau will be treated in accordance
with the Bureau’s Rule on the
Disclosure of Records and Information,
12 CFR part 1070 et seq.
FOR FURTHER INFORMATION CONTACT: Jane
Raso, Senior Counsel; Yaritza Velez,
Counsel; Office of Regulations, at (202)
435–7309. If you require this document
in alternative electronic format, please
contact CFPB_Accessibility.cfpb.gov.
SUPPLEMENTARY INFORMATION:
I. Background
Consumers in the United States send
‘‘remittance transfers’’ 1 in the billions
of dollars to recipients in foreign
countries each year. The funds that
consumers send abroad are commonly
referred to as remittances, and
consumers send remittances (often for a
fee) in a variety of ways, including by
using banks, credit unions, or money
services businesses (MSBs). The term
‘‘remittance transfers’’ is sometimes
limited to describing consumer-toconsumer transfers of small amounts of
money, often made by immigrants
supporting friends and relatives in other
countries. But ‘‘remittance transfers’’
may also include payments of larger
dollar amounts to pay, for instance,
bills, tuition, or other expenses.
Prior to the Dodd-Frank Act,
remittance transfers fell largely outside
of the scope of Federal consumer
protection laws. Section 1073 of the
Dodd-Frank Act amended EFTA by
adding a new section 919 to EFTA to
create a comprehensive system for
consumer protection for remittance
transfers sent by consumers in the
United States to individuals and
businesses in foreign countries.2 EFTA
applies broadly in terms of the types of
‘‘remittance transfers’’ it covers and
persons and financial institutions
subject to it. EFTA section 919(g)(2)
defines ‘‘remittance transfer’’ as the
electronic transfer of funds by a sender
in any State to designated recipients
located in foreign countries that are
1 The definition of ‘‘remittance transfer’’ in the
Remittance Rule is described below.
2 15 U.S.C. 1693 et seq. EFTA section 919 is
codified at 1693o–1.
E:\FR\FM\29APP1.SGM
29APP1
Agencies
[Federal Register Volume 84, Number 82 (Monday, April 29, 2019)]
[Proposed Rules]
[Pages 17967-17971]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-08505]
========================================================================
Proposed Rules
Federal Register
________________________________________________________________________
This section of the FEDERAL REGISTER contains notices to the public of
the proposed issuance of rules and regulations. The purpose of these
notices is to give interested persons an opportunity to participate in
the rule making prior to the adoption of the final rules.
========================================================================
Federal Register / Vol. 84, No. 82 / Monday, April 29, 2019 /
Proposed Rules
[[Page 17967]]
DEPARTMENT OF THE TREASURY
Office of the Comptroller of the Currency
12 CFR Parts 9 and 150
[Docket ID OCC-2018-0018]
RIN 1557-AE46
Fiduciary Capacity; Non-Fiduciary Custody Activities
AGENCY: The Office of the Comptroller of the Currency, Department of
the Treasury.
ACTION: Advanced notice of proposed rulemaking.
-----------------------------------------------------------------------
SUMMARY: The Office of the Comptroller of the Currency (OCC) is
inviting comment on an advance notice of proposed rulemaking (ANPR)
regarding its fiduciary activities rules and a potential rule for non-
fiduciary custody activities of national banks, Federal savings
associations, and Federal branches of foreign banks. Specifically, the
OCC is considering an amendment to its fiduciary rule to update the
definition of fiduciary capacity to include certain State recognized
trust-related activities. The OCC also is considering issuing a
regulation that would establish certain basic requirements for non-
fiduciary custody activities of national banks and Federal savings
associations.
DATES: Comments must be received by June 28, 2019.
ADDRESSES: You may submit comments to the OCC by any of the methods set
forth below. Commenters are encouraged to submit comments through the
Federal eRulemaking Portal or email, if possible. Please use the title
``Fiduciary Capacity; Non-Fiduciary Custody Activities'' to facilitate
the organization and distribution of the comments. You may submit
comments by any of the following methods:
Federal eRulemaking Portal--``Regulations.gov'': Go to
www.regulations.gov. Enter ``Docket ID OCC-2018-0018 in the Search Box
and click ``Search.'' Click on ``Comment Now'' to submit public
comments. Click on the ``Help'' tab on the Regulations.gov home page to
get information on using Regulations.gov, including instructions for
submitting public comments.
Email: [email protected].
Mail: Chief Counsel's Office, Office of the Comptroller of
the Currency, 400 7th Street SW, Suite 3E-218, Washington, DC 20219.
Hand Delivery/Courier: 400 7th Street SW, Suite 3E-218,
Washington, DC 20219.
Fax: (571) 465-4326.
Instructions: You must include ``OCC'' as the agency name and
``Docket ID OCC-2018-0018'' in your comment. In general, the OCC will
enter all comments received into the docket and publish the comments on
the Regulations.gov website without change, including any business or
personal information provided such as name and address information,
email addresses, or phone numbers. Comments received, including
attachments and other supporting materials, are part of the public
record and subject to public disclosure. Do not include any information
in your comment or supporting materials that you consider confidential
or inappropriate for public disclosure.
You may review comments and other related materials that pertain to
this rulemaking action by any of the following methods:
Viewing Comments Electronically: Go to
www.regulations.gov. Enter ``Docket ID OCC-2018-0018'' in the Search
box and click ``Search.'' Click on ``Open Docket Folder'' on the right
side of the screen. Comments and supporting materials can be viewed and
filtered by clicking on ``View all documents and comments in this
docket'' and then using the filtering tools on the left side of the
screen. Click on the ``Help'' tab on the Regulations.gov home page to
get information on using Regulations.gov. The docket may be viewed
after the close of the comment period in the same manner as during the
comment period.
Viewing Comments Personally: You may personally inspect
comments at the OCC, 400 7th Street SW, Washington, DC 20219. For
security reasons, the OCC requires that visitors make an appointment to
inspect comments. You may do so by calling (202) 649-6700 or, for
persons who are deaf or hearing impaired, TTY, (202) 649-5597. Upon
arrival, visitors will be required to present valid government-issued
photo identification and submit to security screening in order to
inspect comments.
FOR FURTHER INFORMATION CONTACT: Patricia Dalton, Technical Expert for
Market Risk, Asset Management, (202) 649-6401; David Stankiewicz,
Special Counsel, or Asa Chamberlayne, Counsel, (202) 649-7299, or Heidi
M. Thomas, Special Counsel, or Chris Rafferty, Attorney, (202) 649-
5490, Chief Counsel's Office, Office of the Comptroller of the
Currency, 400 7th Street SW, Washington, DC 20219. For persons who are
deaf or hearing impaired, TTY, (202) 649-5597.
SUPPLEMENTARY INFORMATION:
I. Introduction
Twelve U.S.C. 92a \1\ and 12 U.S.C. 1464(l) and (n) \2\ set forth
the authority for fiduciary activities of national banks \3\ and
Federal savings associations, respectively. While there are some
differences, the fiduciary authority for national banks and Federal
savings associations is substantially similar. OCC regulations
implementing the substantive provisions of these statutes are set forth
at 12 CFR part 9 for national banks and Federal branches of foreign
banks (collectively, national banks) and 12 CFR part 150 for Federal
savings associations.\4\
---------------------------------------------------------------------------
\1\ Section 1 of the Act of September 28, 1962.
\2\ Section 5(l) and (n) of the Home Owners' Loan Act of 1933.
\3\ Twelve U.S.C. 92a also applies to Federal branches and
agencies pursuant to 12 U.S.C. 3102(b), which provides that the
operations of Federal branches and agencies shall be conducted with
the same rights and privileges accorded national banks.
\4\ Twelve CFR 5.26 sets forth the OCC's requirements for
national banks and Federal savings associations to obtain OCC
approval to engage in fiduciary activities.
---------------------------------------------------------------------------
The OCC is considering an amendment to these fiduciary rules that
would update the definition of ``fiduciary capacity'' so that this term
would be more consistent with how the role of bank fiduciaries has
developed under State law. The OCC also is considering adopting a rule
to address non-fiduciary custody activities of national banks and
Federal savings associations. The OCC is seeking public comment on all
aspects of these two
[[Page 17968]]
possible actions, discussed in detail below. The OCC will use these
comments to determine whether to proceed with a proposed rule and, if
so, to inform the content of a proposed rule. The OCC will invite
public comment on a detailed proposal before adopting any final
rule.\5\
---------------------------------------------------------------------------
\5\ The OCC plans to issue a proposed rulemaking at a later date
that would integrate its national bank and Federal savings
association fiduciary activities rules so that only one rule applies
to both national banks and Federal savings associations, taking into
account consistency with the underlying statutes that apply to each
type of institution.
---------------------------------------------------------------------------
II. Definition of ``Fiduciary Capacity''
Twelve CFR parts 9 and 150 apply to national banks and Federal
savings associations, respectively, that act in a ``fiduciary
capacity.'' Section 9.2(e) defines ``fiduciary capacity'' to mean
``trustee, executor, administrator, registrar of stocks and bonds,
transfer agent, guardian, assignee, receiver, or custodian under a
uniform gifts to minors act; investment adviser, if the bank receives a
fee for its investment advice; any capacity in which the bank possesses
investment discretion on behalf of another; or any other similar
capacity that the OCC authorizes pursuant to 12 U.S.C. 92a.'' Twelve
CFR 150.30 applies a similar definition with respect to Federal savings
associations. Many of the named capacities listed in these rules are
specified by statute.\6\
---------------------------------------------------------------------------
\6\ See 12 U.S.C. 92a; 12 U.S.C. 1464(n).
---------------------------------------------------------------------------
Numerous States have modified their trust laws in recent years to
define and set expectations for various trust-related roles, including
roles that do not involve investment discretion. Because some of these
laws use terms other than those specified in 12 CFR 9.2(e) and 150.30
to describe trust-related and fiduciary capacities, they are not
explicitly included in the definition of fiduciary capacity in 12 CFR
9.2(e) and 150.30.
For example, some States have amended their trust laws to authorize
directed trusts. In a traditional trust, the trustor grants the trustee
the power to control the investment, management, distribution, and
other administration decisions of the trust. By contrast, in a directed
trust, the trustor may grant one or more trust advisers the power to
direct the trustee with respect to these powers. State laws may not
always refer to such trust advisers as ``trustees'' but instead may use
other names not listed in the OCC's regulations. For example, the
Uniform Directed Trust Act \7\ refers to such advisers generally as
``trust directors.'' Meanwhile, Illinois law refers to such advisers as
either ``investment trust advisers,'' ``distribution trust advisers,''
or ``trust protectors'' depending on the discretion exercised.\8\ By
default under the Illinois statute, an ``investment trust adviser''
controls investment decisions; a ``distribution trust adviser''
controls distribution decisions; and a ``trust protector'' may be given
various powers by the trust instrument, including the power to remove
and appoint a trustee, investment trust adviser, or distribution trust
adviser.\9\ Delaware law similarly refers to such trust advisers
generally as ``advisers'' or, in the case of advisers with the power to
remove and appoint trustees and other advisers, as ``protectors.'' \10\
State directed trust statutes often provide that trust advisers are
fiduciaries with the same responsibility to exercise the authority or
power granted to them as a trustee would have, unless provided
otherwise by the trust instrument.\11\
---------------------------------------------------------------------------
\7\ The Uniform Directed Trust Act was drafted by the National
Conference of Commissioners on Uniform State Laws in order to
address the rise of directed trusts. See Nat'l Conf. of Comm'rs on
Uniform State Laws, Uniform Directed Trust Act (2017). New Mexico
recently adopted this uniform law. See Uniform Directed Trust Act,
2018 N.M Laws, ch. 63 (S.B. 101) (to be codified at the Uniform
Trust Code N.M. Stat. Sec. 46a).
\8\ See 760 ILCS 5/16.3.
\9\ Id.
\10\ See 12 Del. C. Sec. 3313. In addition, the Employee
Retirement Income Security Act of 1974 (ERISA) defines fiduciary
based on function and not only on named capacities. For example,
pursuant to section 3(21) of ERISA (29 U.S. Code 1002(21)), a person
using discretion in administering and managing a plan or controlling
the plan's assets is a fiduciary to the extent of that discretion or
control.
\11\ See, e.g., Nat'l Conf. of Comm'rs on Uniform State Laws,
Uniform Directed Trust Act Sec. 8 (2017); 760 ILCS 5/16.3(e); 12
Del. C. Sec. 3313(a).
---------------------------------------------------------------------------
This expanding list of terms for trust-related and fiduciary roles
under State law that are not explicitly identified as fiduciary
capacities under OCC regulations, and that may not involve investment
discretion or investment advisory services, may create uncertainty for
national banks and Federal savings associations with respect to the
activities governed by OCC fiduciary regulations. This potential
uncertainty may make it difficult for institutions to assess and manage
litigation risk and to understand OCC expectations for managing these
accounts in a safe and sound manner. Therefore, the OCC is considering
amending the definition of fiduciary capacity to include these new
roles.
Possible Regulatory Revisions
The OCC is contemplating updating the regulatory definition of
``fiduciary capacity'' to include any activity based on the authority a
national bank or Federal savings association has with respect to a
trust, such as the power to make discretionary distributions, override
the trustee, or select a new trustee.\12\ This change could reduce
ambiguity and confusion for national banks and Federal savings
associations. It also could provide for the uniform application of OCC
regulations to trust activities that State laws describe with different
terminology.
---------------------------------------------------------------------------
\12\ This ANPR refers to activities based on the authority an
institution has with respect to a trust as ``trust adviser
activities.''
---------------------------------------------------------------------------
Request for Comments
The OCC invites comment on whether amending the definition of
``fiduciary capacity'' to include these trust advisory functions would
be useful and, if so, whether the approach suggested by the OCC is
appropriate. The OCC specifically invites comment on what trust adviser
activities or other capacities national banks and Federal savings
associations are performing in providing services to their customers,
and whether the OCC should consider explicitly identifying these
activities as fiduciary activities subject to 12 CFR part 9 or 12 CFR
part 150, respectively. Furthermore, the OCC invites commenters to
identify any specific State statutes, uniform laws, or terminology that
the OCC should consider when assessing whether an activity or
appointment is a ``fiduciary capacity.'' The OCC also invites comments
on other ways to amend this definition so that it encompasses evolving
trust capacities, including trust capacities recognized or permitted
under State law. Finally, the OCC invites comment on whether there are
any additional fiduciary roles that State chartered banks currently
perform that national banks and Federal savings associations also may
be interested in performing that the OCC should consider identifying as
a fiduciary capacity.
III. Custody Activities
Twelve CFR 9.8 and 9.13 impose general recordkeeping and custody
requirements for a national bank that acts as a fiduciary. Twelve CFR
150.230 through 150.250 and 150.410 through 150.430 impose similar
requirements for Federal savings associations. Specifically, these
provisions require bank and savings association fiduciaries to provide
adequate safeguards and controls over client fiduciary account assets,
to keep these fiduciary account assets separate from bank and savings
association assets, and to maintain and segregate certain records
related to these accounts.
[[Page 17969]]
National banks and Federal savings associations also provide
custody and recordkeeping services to clients for non-fiduciary
accounts. In doing so, these banks and savings associations are not
acting in a fiduciary capacity and, therefore, these activities are not
subject to the OCC's fiduciary regulations. However, whether acting in
a fiduciary or non-fiduciary custodial capacity, the principal roles of
a national bank and Federal savings association custodian remain the
same: To safeguard a client's assets and to operate in a safe and sound
manner.
Non-fiduciary custody activities have become more sophisticated
since the OCC issued its fiduciary regulation and may include
additional services such as fund accounting, fund administration,
securities lending, and global custodial services involving the
execution of foreign exchange transactions and the processing of tax
reclaims.\13\ In addition, the types of custody activities and assets
continue to evolve with, for example, some banks assessing the risk and
benefits of providing custody services for cryptocurrencies and other
digital assets.
---------------------------------------------------------------------------
\13\ A global custodian provides custody services for cross-
border securities transactions in various markets around the world
through either its own office in the local market or the use of
agent banks as sub-custodians.
---------------------------------------------------------------------------
Furthermore, the volume of non-fiduciary custody assets held in
national banks and Federal savings associations has increased since the
OCC updated its fiduciary regulation in 1996, and, as of December 31,
2018, totaled approximately $41.7 trillion, with national banks holding
$39.9 trillion and Federal savings associations holding $1.8
trillion.\14\ The size of the custody services provided by national
banks and Federal savings associations is significantly more (in dollar
terms) than fiduciary assets ($8.7 trillion) \15\ and on-balance sheet
total assets ($12.1 trillion).\16\
---------------------------------------------------------------------------
\14\ Schedule RC-T--Fiduciary and Related Services, Consolidated
Reports of Condition and Income, December 31, 2018. The OCC notes
that because national banks and Federal savings associations may
provide custody services that are not reportable on Schedule RC-T,
including custody services offered by banks and savings associations
that do not possess fiduciary powers, the amount of non-fiduciary
custody assets is likely larger.
\15\ Schedule RC-T--Fiduciary and Related Services, Consolidated
Reports of Condition and Income, December 31, 2018.
\16\ Schedule RC-Balance Sheet, Consolidated Reports of
Condition and Income, December 31, 2018.
---------------------------------------------------------------------------
The expansion of non-fiduciary custody activities and the growth in
size of non-fiduciary custody assets increase operational,
reputational, credit, and other risks for national bank and Federal
savings association custodians. The OCC believes that current OCC
guidance appropriately identifies safe and sound risk management
practices for custodians, including the protection of client assets in
the custody of national banks and Federal savings associations.\17\
However, the OCC also believes that it may be appropriate to set out in
regulation the core standards for non-fiduciary custody activities
because of the heightened risks a business line of this scale poses to
banks and savings associations and because of the importance of
providing adequate safeguards for client assets. Because non-fiduciary
custody activities are not subject to 12 CFR 9.13, 150.230, 150.240,
and 150.250 and are not governed by any other OCC regulation that
specifically requires a custodial bank or savings association to
safeguard or segregate client assets, the OCC invites comment on
whether it should issue rules to govern non-fiduciary custody
activities.
---------------------------------------------------------------------------
\17\ The OCC has issued substantial guidance regarding non-
fiduciary custody activity. See the ``Custody Services'' (Jan.
2002), ``Asset Management Operations and Controls'' (Jan. 2011),
``Unique and Hard-to-Value Assets'' (August 2012), ``Retirement Plan
Products and Services'' (Feb. 2014), and ``Conflicts of Interest''
(Jan. 2015) booklets of the Comptroller's Handbook, and OCC Bulletin
2013-29, ``Third-Party Relationships--Risk Management Guidance''
(Oct. 30, 2013). The OCC made its guidance on asset management
operations and controls applicable to Federal savings associations
on January 6, 2012 (see OCC Bulletin 2012-2) and its guidance on
custody services applicable to Federal savings associations on May
17, 2012 (see OCC Bulletin 2012-15).
---------------------------------------------------------------------------
The OCC expects that any custody rule the agency issued would be
consistent with its guidance on custody service activities for national
bank and Federal savings association custodians \18\ and be compatible
with industry standards. Therefore, the OCC believes that such a
custody rule would impose minimal new responsibilities on well-managed
national banks or Federal savings associations.
---------------------------------------------------------------------------
\18\ Id.
---------------------------------------------------------------------------
If the OCC were to implement a rule specific to non-fiduciary
custodial capacities, the OCC also could consider amending the existing
fiduciary custody language in 12 CFR 9.13, 150.230, 150.240, and
150.250 to ensure that the same standards would apply to fiduciary
custody accounts. This would provide a single consistent standard for
safeguarding client assets and clarify expectations for custody of both
fiduciary and non-fiduciary account assets.
The OCC notes that an OCC custody rule for national banks and
Federal savings associations would complement the applicable
regulations of other regulators related to the custody of client
assets. Specifically, the Securities and Exchange Commission and the
Commodity Futures Trading Commission have issued regulations related to
the custody of client assets by their regulated entities,\19\ and the
Internal Revenue Service has issued rules applicable to the custody of
Individual Retirement Accounts.\20\ Furthermore, U.S. Department of the
Treasury regulations \21\ set forth specific requirements for banks and
savings associations that hold government securities in a custodial
capacity, Freddie Mac and Fannie Mae impose specific requirements to be
included in document custody agreements,\22\ and the National
Association of Insurance Commissioners has adopted a model act that
addresses custody and the holding and transferring of an insurance
company's securities.\23\ Various States also have adopted custody
requirements for insurance companies and investment advisers operating
in their jurisdictions.\24\ In addition, foreign jurisdictions,
including the United
[[Page 17970]]
Kingdom and the European Union, have adopted specific regulatory
requirements covering custody activities, many of which were
strengthened in the wake of the 2008 financial crisis.\25\ In general,
these regulatory requirements impose certain minimum safekeeping and
segregation requirements on a regulated entity for the custody of
client assets. The objective of these requirements is to safeguard the
assets of clients, with bank custodians playing a key role in this
process. Some of these requirements may directly or indirectly apply to
accounts for which a national bank or Federal savings association is
custodian. The OCC believes a well-defined regulatory framework for
national bank and Federal savings association custody activities would
codify the expectations of other regulators that bank custodians
safeguard the client assets of the entities that they regulate in a
safe and sound manner.
---------------------------------------------------------------------------
\19\ See 17 CFR 275.206(4)-2 (Custody of funds or securities of
clients by investment advisers); 17 CFR 270.17f-1 (Custody of
securities with members of national securities exchanges); 17 CFR
270.17f-2 (Custody of investments by registered management
investment company); 17 CFR 270.17f-4 (Custody of investment company
assets with a securities deposit); 17 CFR 270.17f-5 (Custody of
investment company assets outside the United States); 17 CFR
270.17f-6 (Custody of investment company assets with Futures
Commission Merchants and Commodity Clearing Organizations); and 17
CFR 270.17f-7 (Custody of investment company assets with a foreign
securities depository).
\20\ See 26 CFR 1.408-2(d).
\21\ 17 CFR 450 (Custodial Holding of Government Securities by
Depository Institutions).
\22\ See Freddie Mac Document Custody Procedures Handbook
(August 2015), https://www.freddiemac.com/cim/pdf/EntireManual.pdf
and Fannie Mae Requirements for Document Custodians (Version 12.0,
April 2018), https://www.fanniemae.com/content/eligibility_information/document-custodians-requirements.pdf.
\23\ See Nat'l Ass'n of Ins. Comm'rs, Model Act on Custodial
Agreements and the Use of Clearing Corporations, MDL-295 (2008),
https://www.naic.org/prod_serv_model_laws.htm.
\24\ Regarding State custody requirements for insurance
companies, see, e.g., Fla. Admin. Code Ann. r. 690-143.042 (2017)
(Custody Agreements; Requirements); Tenn. Comp. R. & Regs. 0780-01-
46 (2013) (Regulations on Custodial Agreements and the Use of
Clearing Corporations); Wyoming Administration Rules--Insurance
Department--General Agency, Board of Commission Rules, Chapter 57
(2017) (Regulation on Custodial Agreements and the Use of Clearing
Corporations). Regarding State custody requirements for investment
advisers, see. e.g., Mass. Regs. Code tit. 950, Sec. 12.205(5)
(2014) (Discretion and Custody Requirements); 10 Pa. Code Sec.
404.014 (2018) (Custody Requirements for Investment Advisers); Wash.
Admin. Code Sec. 460-24A-105 to 460-24A-108 (2019) (Custody
Requirements for Investment Advisers).
\25\ See, e.g., Financial Conduct Authority, FCA Handbook, Cass
Sec. 6 (custody rules) (UK), https://www.handbook.fca.org.uk/handbook/CASS/6/?view=chapter; Directive 2011/61/EU of the European
Parliament and of the Council of 8 June 2001 on Alternative
Investment Fund Managers and amending Directives 2003/41/EC and
2009/65/EC and Regulations (EC) No 1060/2009 and (EU) No 1095/2010
Text with EEA relevance, 2011 O.J. (L 174), 1-73, https://eur-lex.europa.eu/eli/dir/2011/61/oj; Directive 2014/91/EU of the
European Parliament and of the Council of 23 July 2014 amending
Directive 2009/65/EC on the coordination of laws, regulations, and
administrative provisions relating to undertakings for collective
investment in transferable securities (UCITS) as regards depositary
functions, remuneration policies, and sanctions. 2014 OJ (L257),
186-213, https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=celex%3A32014L0091.
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Possible Regulatory Revisions
An OCC rule governing the non-fiduciary custody activities of
national banks and Federal savings associations would be based on the
following core elements of sound risk management, consistent with OCC
guidance: (1) Separation and safeguarding of custodial assets; (2) due
diligence in selection and ongoing oversight of sub-custodians; \26\
(3) disclosure in custodial contracts and agreements of the custodian's
duties and responsibilities; and (4) effective policies, procedures,
and internal controls.\27\ These core elements focus on protecting
client assets from loss due to physical damage, fraud, inaccurate or
improper accounting, or bankruptcy or insolvency of a custodian or its
sub-custodian, and enhance the safety and soundness of the national
bank or Federal savings association engaged in custody activities or
services. A rule including these core elements would codify safeguards
to protect client assets, including imposing risk management standards
on banks and savings associations that use sub-custodians.
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\26\ Sub-custodians are third party entities that provide
custody services to national banks or Federal savings associations,
pursuant to a written agreement, with respect to custody assets for
which the bank or savings association is custodian. For example,
bank or savings association custodians that are not members of a
central securities depository often engage financial institutions
that are members as their agents or sub-custodians. Bank and savings
association custodians also use sub-custodians known as global
custodians to facilitate securities transactions in other countries.
The global custodian provides access to central securities
depositories in those countries either through its local offices or
by engaging a local sub-custodian.
\27\ Comptroller's Handbook, supra, note 17.
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Request for Comments
The OCC invites comment on all aspects of a potential non-fiduciary
custody rule. In particular, the OCC is interested in whether a custody
rule would help clarify the role of a national bank or Federal savings
association acting as a non-fiduciary custodian; whether the potential
elements of such a rule, as outlined in this ANPR, are appropriate; and
whether the OCC should consider additional elements.
In particular, the OCC invites comment on potential provisions that
would implement the core elements of a custody rule. Specifically,
should an OCC rule direct national banks and Federal savings
associations to:
Implement and maintain effective internal controls to
safeguard both physical and book-entry assets held in custody accounts
by the national bank or Federal savings association?
Implement and maintain adequate safeguards and controls
when custody account assets are maintained off-premises?
Maintain custody assets separate from the bank's or
savings association's assets, as currently required in 12 CFR 9.13 and
150.250 for custody of fiduciary assets?
Maintain the custody assets of each account separate from
all other accounts or maintain records that identify the custody assets
as the property of each particular account, as currently required in 12
CFR 9.8, 9.13, 150.250, and 150.410 through 150.430 for custody of
fiduciary assets?
Periodically verify the amount and location of custody
assets held physically by comparing the bank's or savings association's
books and records of custody assets to the physical assets in their
possession?
Periodically compare custody assets held in book-entry
form or off-premises by comparing the bank's or savings association's
books and records of custody assets to the books and records of the
book-entry issuer, sub-custodian, or central securities depository?
Place custody assets in the joint custody or control of no
fewer than two officers or employees, which would be consistent with
the current requirement in 12 CFR 9.13 and 150.230?
Undertake effective due diligence by performing an in-
depth assessment of a sub-custodian's ability to perform the activity
in compliance with all applicable laws and regulations prior to
depositing custodial funds with the sub-custodian, and perform ongoing
periodic monitoring of the sub-custodian? \28\
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\28\ See OCC Bulletin 2013-29, ``Third-Party Relationships--Risk
Management Guidance'' (Oct. 30, 2013).
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Adopt and follow written policies and procedures to ensure
that custody services are provided in accordance with custody
agreements and in compliance with the custody regulation and applicable
law, similar to the requirements of 12 CFR 9.5 and 150.140,
respectively, for national banks and Federal savings associations
exercising fiduciary powers?
The OCC also invites comments on whether a custody rule should
include any specific requirements for custodial agreements.
Specifically, should an agreement:
Clearly define the custodian's duties and
responsibilities, and include a full and accurate disclosure of fees
and pricing, as well as provisions detailing the relationship between
the client as principal and the custodian as agent?
Disclose whether the bank or savings association is acting
in any other capacity with respect to services ancillary to the custody
relationship, e.g. principal capacity for foreign exchange trades or
depository for cash?
Include adequate disclosures, when applicable, to make
clear that the national bank or Federal savings association custodian
is not acting in a fiduciary capacity?
In addition to comments on specific components of an OCC rule, the
OCC invites comment on the following issues:
Should the OCC update the fiduciary standards of 12 CFR
9.13, 150.230, 150.240, and 150.250 to be consistent with any non-
fiduciary account standards that the OCC may adopt?
Do any of the standards mentioned above conflict with any
other Federal requirements applicable to national banks and Federal
savings associations or regulated entities that use bank custody
services?
[[Page 17971]]
Should the OCC limit the types of entities that a national
bank or Federal savings association may use as a sub-custodian or limit
the type of sub-custodian for specific types of accounts? For example,
the Internal Revenue Service limits which entities may act as
custodians for Individual Retirement Accounts.\29\ If the OCC imposes a
limit, what types of accounts should be subject to the limitation and
why?
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\29\ See 26 CFR 1.408-2.
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What type of retail or commercial custody and safe keeping
activities should an OCC non-fiduciary custody rule exclude, if any,
and why?
Finally, the OCC invites comment on whether any of the possible
provisions listed above would be overly burdensome, especially for
community institutions, and if so, whether there are approaches that
would address the same issues in a less burdensome way. The OCC also
invites comment from clients of national bank and Federal savings
association custodians on the appropriateness of these suggested
provisions and whether the OCC should consider additional provisions to
safeguard custody assets.
Dated: April 23, 2019.
Joseph M. Otting,
Comptroller of the Currency.
[FR Doc. 2019-08505 Filed 4-26-19; 8:45 am]
BILLING CODE 4810-33-P