Collective Investment Funds: Prior Notice Period for Withdrawals, 28238-28241 [2021-11130]

Download as PDF 28238 Federal Register / Vol. 86, No. 100 / Wednesday, May 26, 2021 / Rules and Regulations For the Nuclear Regulatory Commission. Angella M. Love Blair, Acting Chief, Regulatory Analysis and Rulemaking Support Branch, Division of Rulemaking, Environmental, andFinancial Support, Office of Nuclear Material Safety and Safeguards. [FR Doc. 2021–11192 Filed 5–25–21; 8:45 am] BILLING CODE 7590–01–P DEPARTMENT OF TREASURY Office of the Comptroller of the Currency 12 CFR Part 9 [Docket ID OCC–2020–0031] RIN 1557–AE99 Collective Investment Funds: Prior Notice Period for Withdrawals Office of the Comptroller of the Currency, Treasury. ACTION: Final rule. AGENCY: The OCC is adopting as final, with one minor change, the interim final rule published in the Federal Register on August 13, 2020, that codifies and creates an exception to the standard withdrawal period for a bank administering a collective investment fund invested primarily in real estate or other assets that are not readily marketable (a covered CIF). Pursuant to the interim final rule, a bank administering a covered CIF may request OCC approval to extend the standard withdrawal period under limited circumstances and if certain conditions are met. The final rule adopts as final the changes made by the interim final rule and introduces a minor revision to one of the conditions necessary for the extension. DATES: The interim final rule is effective May 26, 2021. FOR FURTHER INFORMATION CONTACT: Beth Kirby, Assistant Director, Asa Chamberlayne, Counsel, or Daniel Perez, Counsel, Chief Counsel’s Office, (202) 649–5490; or David Stankiewicz, Technical Expert for Asset Management Policy, Market Risk Policy Division, Bank Supervision Policy, 202–649– 6360, Office of the Comptroller of the Currency, 400 7th Street SW, Washington, DC 20219. SUMMARY: SUPPLEMENTARY INFORMATION: I. Background A collective investment fund (CIF) is a bank-managed fiduciary fund that holds pooled assets. A national bank or Federal savings association VerDate Sep<11>2014 18:33 May 25, 2021 Jkt 253001 (collectively, a bank) that establishes and operates a CIF must do so in accordance with the criteria established under the fiduciary activities regulation of the Office of the Comptroller of the Currency (OCC) at 12 CFR 9.18.1 A CIF is funded through contributions by the CIF’s participants, which are the beneficial owners of the fund’s assets. A bank admitting a CIF participant or withdrawing all or part of its participating interest (that is, allowing the participant to, in effect, redeem a proportionate interest in the assets of the CIF) must do so on the basis of a valuation of the CIF’s assets.2 A bank administering a C IF invested primarily in real estate or other assets that are not readily marketable (a covered CIF) may require a prior notice period of up to one year for withdrawals.3 The OCC previously interpreted this notice period requirement as requiring the bank to withdraw an account within the prior notice period or, if permissible under the CIF’s written plan, within one year after prior notice was required (standard withdrawal period).4 The OCC also recognized, however, that there were circumstances when a longer withdrawal period was appropriate. For example, during the 2009 financial crisis, the OCC permitted a bank to extend the time period for withdrawals, subject to certain conditions.5 During normal market conditions, a bank can typically satisfy withdrawal requests within the standard withdrawal period. However, in the event of unanticipated and severe market conditions, a bank may be faced with an increased number of withdrawal requests and reduced market liquidity. In such conditions, a bank that is required to sell CIF assets to satisfy withdrawals within the standard withdrawal period could have difficulty realizing a fair value for those assets. This could compel ‘‘fire sales’’ of CIF assets and lead to avoidable economic harm for CIF participants, which would be contrary to general fiduciary principles that require a CIF trustee to act in the best interests of CIF participants. II. Interim Final Rule On August 13, 2020, the OCC published an interim final rule in the Federal Register that codified the 1 Pursuant to 12 CFR 150.260, the terms ‘‘bank’’ and ‘‘national bank’’ as used in 12 CFR 9.18 are deemed to include a Federal savings association. 2 12 CFR 9.18(b)(5)(i). 3 12 CFR 9.18(b)(5)(iii). 4 See, e.g., OCC Interpretive Letter No. 1121 (Aug. 2009) (Interpretive Letter 1121). 5 Id. PO 00000 Frm 00002 Fmt 4700 Sfmt 4700 standard withdrawal period for a bank administering a covered CIF and established a limited exception to that withdrawal period. The exception was intended to enable a bank to preserve the value of a CIF’s assets for the benefit of fund participants during unanticipated and severe market conditions, such as those resulting from the current national health emergency concerning the coronavirus disease (COVID–19) outbreak. Under the interim final rule, to satisfy the standard withdrawal period requirement, a bank administering a covered CIF that requires a prior notice period for withdrawals generally must withdraw an account within the prior notice period or, if permissible under the CIF’s written plan, within one year after prior notice was required. Under the exception established by the interim final rule, a bank may withdraw an account from a CIF up to one year beyond the standard withdrawal period with OCC approval and if certain conditions are met. Namely, the fund’s written plan (including its notice and withdrawal policy) must authorize an extended withdrawal period and be fully disclosed to fund participants. In addition, the bank’s board of directors, or a committee authorized by the board of directors, must determine that (1) due to unanticipated and severe market conditions for specific assets held by the fund, an extended withdrawal period is necessary in order to preserve the value of the fund’s assets for the benefit of fund participants; and (2) the extended withdrawal period is consistent with 12 CFR part 9 and applicable law. The bank’s board of directors, or a committee authorized by the board of directors, must also commit that the bank will act upon any withdrawal request as soon as practicable. Finally, the rule provides discretion for the OCC to impose additional conditions if the OCC determines that the conditions are necessary or appropriate to protect the interests of fund participants. The conditions established by this interim final rule were intended to ensure that the exception is only granted if it is consistent with fiduciary principles, applicable law, and the CIF’s written plan.6 To ensure that the exception is consistent with these principles and requirements, and as described above, the OCC may impose additional conditions, such as requiring periodic progress reports from the bank. In addition to the above, the interim final rule provided that if, due to 6 See 12 CFR 9.18(b)(1) (written plan requirements). E:\FR\FM\26MYR1.SGM 26MYR1 Federal Register / Vol. 86, No. 100 / Wednesday, May 26, 2021 / Rules and Regulations ongoing severe market conditions, a bank has been unable to satisfy withdrawal requests during the one-year extension period without causing harm to participants, the bank may request OCC approval for up to two additional one-year extensions. The OCC may only approve each additional one-year extension if the OCC determines that the bank has made a good faith effort to satisfy withdrawal requests during the original extension period and the bank has been unable to satisfy such requests without causing harm to participants due to ongoing severe market conditions. The bank must also continue to satisfy the conditions described above. By creating a limited exception to the standard withdrawal period, the IFR permits a bank administering a covered CIF to take appropriate steps to satisfy account withdrawal requests during severe market conditions, while permitting an orderly liquidation of sufficient assets to raise cash through prudent and appropriate sales, as the return of more normal market conditions permit. III. Comments Received The OCC received comment letters from two commenters—a trade association and a law firm—that were relevant to the scope of the rulemaking. Both commenters requested that the OCC revise the interim final rule to accommodate state-chartered banks that are required to comply with the OCC’s regulations under 12 CFR 9.18, either by reason of the Internal Revenue Code, state law, or a CIF’s written plan. In particular, the commenters expressed concern that state-chartered banks that are required to comply with 12 CFR 9.18 would be unable to comply with the requirement for OCC approval. Accordingly, commenters suggested that the exception to the standard withdrawal period be revised to allow for notice or disclosure instead of requiring approval, provided the interim final rule’s enumerated conditions were satisfied. Alternatively, the commenters suggested the OCC clarify the application of the interim final rule to state-chartered banks. The OCC uses the review and approval process to assess, among other things, current market conditions, the number and dollar amount of account withdrawals received, whether the bank satisfies the enumerated conditions, whether additional conditions are necessary or appropriate, and the bank’s efforts to satisfy withdrawal requests. Accordingly, and because the OCC does not determine requirements for nonOCC-regulated institutions, the OCC is VerDate Sep<11>2014 18:33 May 25, 2021 Jkt 253001 not revising the approval requirement in this final rule. However, the OCC clarifies that it would not expect a statechartered bank to request OCC approval to extend its withdrawal period, nor does the OCC have the authority to approve a request received from a statechartered bank. Commenters also objected to the requirement that, in order for a bank to receive an exception to the standard withdrawal period, the bank’s board of directors, or a committee authorized by the board of directors, must ‘‘commit that the bank will act upon any withdrawal request as soon as practicable.’’ In particular, commenters raised concerns that the term ‘‘commit’’ in this context was ambiguous and raised compliance concerns. In response to this comment, the OCC is revising this condition, as described in the subsequent section. One commenter raised concerns with the requirement that the bank’s board of directors, or a committee authorized by the board of directors, ‘‘determine that, due to unanticipated and severe market conditions for specific assets held by the fund, an extended withdrawal period is necessary in order to preserve the value of the fund’s assets for the benefit of fund participants.’’ The commenter argued that the conditions set by the interim final rule should be aligned with past OCC guidance and that a bank should be able to avail itself of the exception to the standard withdrawal period if it has ‘‘valid reasons’’ or if the extension is in the best interest of the fund’s participants, rather than having to prove that the exception is necessary to ‘‘preserve the value of the fund’s assets.’’ The OCC believes that a narrower and more specific requirement is necessary to avoid ambiguity and that it provides more concrete support for the conclusion that an extension to the standard withdrawal period would be in the interest of fund participants. Accordingly, the OCC is not revising this requirement. This commenter also requested that the OCC clarify the number of submissions to the OCC required for the exception to the withdrawal period. Namely, the commenter suggested that the OCC clarify that a bank may submit a single approval request to the OCC for a one-year extension to the standard withdrawal period that would cover any and all account withdrawal requests that the bank has received or may receive in the future in the given year. The commenter suggested that a bank should be able to request additional extensions even if it has not yet received additional redemption requests. PO 00000 Frm 00003 Fmt 4700 Sfmt 4700 28239 In response to this comment, the OCC is clarifying that a bank may submit a single request for OCC approval covering any account withdrawal requests that were received prior to the bank’s submission to the OCC. A bank is not required to prepare different submissions for every account withdrawal request received. However, the OCC would not approve an application to extend the withdrawal period in connection with account withdrawal requests that have not yet been received by the bank. Under the standard withdrawal period, a bank may withdraw an account from a CIF up to one year after the date on which notice was required, if permitted by the CIF’s written plan. Approving an application with respect to future withdrawal requests would require the OCC to make a determination, using incomplete information, as to an extended time horizon over which conditions may change. IV. Final Rule This final rule adopts as final the changes made by the interim final rule, but revises, in response to comments received, one of the enumerated conditions for extending the standard withdrawal period. As described above, in order to receive an exception to the standard withdrawal period, a bank’s board of directors (or a committee authorized by the board of directors) must commit that the bank will act upon any withdrawal request as soon as practicable. Pursuant to this final rule, the OCC is revising this condition to read, ‘‘The bank’s board of directors, or a committee authorized by the board of directors, represents that the bank will act upon any withdrawal request as soon as practicable and consistent with fiduciary duties.’’ The OCC believes that the revised condition accomplishes its intended purpose without imposing unintended legal and compliance risk. V. Administrative Law Matters A. Administrative Procedure Act Under 5 U.S.C. 553(b)(B) of the Administrative Procedure Act (APA), an agency may, for good cause, find (and incorporate the finding and a brief statement of reasons therefore in the rules issued) that notice and public procedure thereon are impracticable, unnecessary, or contrary to the public interest. The OCC issued the August 13, 2020, interim final rule without notice and comment based on concerns that the disruption and stress in the real estate markets and other markets for not readily marketable assets resulting from the outbreak of the COVID–19 E:\FR\FM\26MYR1.SGM 26MYR1 28240 Federal Register / Vol. 86, No. 100 / Wednesday, May 26, 2021 / Rules and Regulations emergency, coupled with requiring a bank to withdraw an account within the standard withdrawal period, could undermine the ability of a bank to realize an appropriate value for CIF assets and be harmful in preserving the value of the CIF’s assets for the benefit of fund participants. Accordingly, the OCC found that the public interest was best served by implementing the interim final rule immediately upon publication in the Federal Register. The effective date of these corrections is May 26, 2021. Under 5 U.S.C. 553(d)(3) of the APA, the required publication or service of a substantive rule shall be made not less than 30 days before its effective date, except, among other things, as provided by the agency for good cause found and published with the rule. This final rule implements one change relative to the August 13, 2020, interim final rule. The change is being made in response to a commenter and is intended to reduce ambiguity and compliance risks for banks seeking an exception under the rule. Because the severe market conditions related to the COVID–19 outbreak are ongoing as of the date of issuance of this final rule, the OCC finds that notice and public procedure is contrary to the public interest and that good cause exists for dispensing with the delayed effective date requirement. B. Congressional Review Act For purposes of the Congressional Review Act, the Office of Management and Budget (OMB) makes a determination as to whether a final rule constitutes a ‘‘major’’ rule.7 If a rule is deemed a ‘‘major rule’’ by the OMB, the Congressional Review Act generally provides that the rule may not take effect until at least 60 days following its publication.8 The Congressional Review Act defines a ‘‘major rule’’ as any rule that the Administrator of the Office of Information and Regulatory Affairs of the OMB finds has resulted in or is likely to result in (A) an annual effect on the economy of $100,000,000 or more; (B) a major increase in costs or prices for consumers, individual industries, Federal, State, or local government agencies or geographic regions; or (C) significant adverse effects on competition, employment, investment, productivity, innovation, or on the ability of United States-based enterprises to compete with foreignbased enterprises in domestic and export markets.9 75 U.S.C. 801 et seq. U.S.C. 801(a)(3). 9 5 U.S.C. 804(2). As required by the Congressional Review Act, the agencies will submit the final rule and other appropriate reports to Congress and the Government Accountability Office for review. C. Paperwork Reduction Act The Paperwork Reduction Act of 1995 (44 U.S.C. 3501–3521) (PRA) states that no agency may conduct or sponsor, nor is the respondent required to respond to, an information collection unless it displays a currently valid OMB control number. The interim final rule contained reporting requirements under the Paperwork Reduction Act. With the OCC’s approval, and if certain conditions are satisfied, a bank may withdraw an account from a collective investment fund up to one year after the end of the standard withdrawal period. In addition, a bank may request that the OCC approve an extension beyond the one-year extension period, if certain conditions are satisfied. Extensions past the initial one-year extension must be requested and approved annually, for a maximum of two years after the initial one-year extension period. OMB provided emergency PRA approval for the interim final rule. Renewal of the emergency approval is currently underway. Title of Information Collection: Fiduciary Activities. OMB Control No.: 1557–0140. Frequency: On occasion. Affected Public: Businesses or other for-profit. Estimated number of respondents: 4. Total estimated annual burden: 220 burden hours. Comments continue to be invited on: a. Whether the collections of information are necessary for the proper performance of the OCC’ including whether the information has practical utility; b. The accuracy or the estimate of the burden of the information collections, including the validity of the methodology and assumptions used; c. Ways to enhance the quality, utility, and clarity of the information to be collected; d. Ways to minimize the burden of the information collections on respondents, including through the use of automated collection techniques or other forms of information technology; and e. Estimates of capital or startup costs and costs of operation, maintenance, and purchase of services to provide information. D. Regulatory Flexibility Act The Regulatory Flexibility Act (RFA) 10 requires an agency to consider 85 VerDate Sep<11>2014 18:33 May 25, 2021 10 5 Jkt 253001 PO 00000 U.S.C. 601 et seq. Frm 00004 Fmt 4700 Sfmt 4700 whether the rules it proposes will have a significant economic impact on a substantial number of small entities.11 The RFA applies only to rules for which an agency publishes a general notice of proposed rulemaking pursuant to 5 U.S.C. 553(b). As discussed previously, consistent with section 553(b)(B) of the APA, the OCC determined for good cause that general notice and opportunity for public comment is impracticable and contrary to the public’s interest, and therefore the OCC did not issue a notice of proposed rulemaking prior to issuing the August 13, 2020, interim final rule. Because the agency did not publish a notice of proposed rulemaking, the OCC concludes that the RFA’s requirements relating to initial and final regulatory flexibility analysis do not apply to this final rule. Nevertheless, when issuing the August 13, 2020, interim final rule, the OCC requested feedback on ways that the OCC could reduce any potential burden of the interim final rule on small entities. No comments were received in response to this request. E. Riegle Community Development and Regulatory Improvement Act of 1994 Pursuant to section 302(a) of the Riegle Community Development and Regulatory Improvement Act (RCDRIA),12 in determining the effective date and administrative compliance requirements for new regulations that impose additional reporting, disclosure, or other requirements on insured depository institutions (IDIs), each Federal banking agency must consider, consistent with the principle of safety and soundness and the public interest, any administrative burdens that such regulations would place on depository institutions, including small depository institutions, and customers of depository institutions, as well as the benefits of such regulations. In addition, section 302(b) of RCDRIA requires new regulations and amendments to regulations that impose additional reporting, disclosures, or other new requirements on IDIs generally to take effect on the first day of a calendar quarter that begins on or after the date on which the regulations are published in final form, with certain exceptions, including for good cause.13 For the reasons described above, the OCC finds good cause exists under section 302 of 11 Under regulations issued by the Small Business Administration, a small entity includes a depository institution, bank holding company, or savings and loan holding company with total assets of $600 million or less and trust companies with total assets of $41.5 million or less. See 13 CFR 121.201. 12 12 U.S.C. 4802(a). 13 12 U.S.C. 4802. E:\FR\FM\26MYR1.SGM 26MYR1 Federal Register / Vol. 86, No. 100 / Wednesday, May 26, 2021 / Rules and Regulations RCDRIA to publish the final rule with an immediate effective date. F. Use of Plain Language Section 722 of the Gramm-LeachBliley Act 14 requires the Federal banking agencies to use ‘‘plain language’’ in all proposed and final rules published after January 1, 2000. In light of this requirement, the OCC has sought to present the final rule in a simple and straightforward manner. The OCC invited comment at the interim final rule stage on whether there were additional steps the OCC could take to make the rule easier to understand. No comments were received in response to this request. As a general matter, the Unfunded Mandates Act of 1995 (UMRA), 2 U.S.C. 1531 et seq., requires the preparation of a budgetary impact statement before promulgating a rule that includes a Federal mandate that may result in the expenditure by State, local, and tribal governments, in the aggregate, or by the private sector, of $100 million or more in any one year. However, the UMRA does not apply to final rules for which a general notice of proposed rulemaking was not published. See 2 U.S.C. 1532(a). Therefore, because the OCC found good cause to dispense with notice and comment for this final rule, the OCC concludes that the requirements of UMRA do not apply. List of Subjects in 12 CFR Part 9 Estates, Investments, National banks, Reporting and recordkeeping requirements, Trusts and trustees. Authority and Issuance Accordingly, for the reasons set forth in the preamble, the interim final rule amending 12 CFR part 9 that was published at 85 FR 49229 on August 13, 2020, is adopted as final with the following change: PART 9—FIDUCIARY ACTIVITIES OF NATIONAL BANKS Authority: 12 U.S.C. 24 (Seventh), 92a, and 93a; 15 U.S.C. 78q, 78q–1, and 78w. 2. Section 9.18 is amended by revising paragraph (b)(5)(iii)(C)(4) to read as follows: ■ Collective investment funds. * * (b) * * * (5) * * * (iii) * * * 14 12 * * U.S.C. 4809. VerDate Sep<11>2014 18:33 May 25, 2021 [FR Doc. 2021–11130 Filed 5–25–21; 8:45 am] BILLING CODE 4810–33–P NATIONAL CREDIT UNION ADMINISTRATION Jkt 253001 RIN 3133–AF29 Derivatives National Credit Union Administration (NCUA). ACTION: Final rule. AGENCY: The NCUA Board (Board) is amending the NCUA’s Derivatives rule. The Board issued a proposed Derivatives rule at its October 2020 meeting. This final rule will modernize the NCUA’s Derivatives rule and make it more principles-based, while retaining key safety and soundness components. The changes contained herein will provide more flexibility for federal credit unions (FCUs) to manage Interest Rate Risk (IRR) through the use of Derivatives. The Board is finalizing the rule largely as proposed, except for a few changes to various sections based on comments received. Such changes include permitting written options that comply with this final rule and amending the collateral requirements for cleared Derivatives. In addition, the Board is not finalizing a proposed change that would have required all Counterparties to be domiciled in the United States. DATES: This rule is effective June 25, 2021. SUMMARY: FOR FURTHER INFORMATION CONTACT: 1. The authority citation for part 9 continues to read as follows: ■ * Michael J. Hsu, Acting Comptroller of the Currency. 12 CFR Parts 701, 703, 741 and 746 G. Unfunded Mandates Act § 9.18 (C) * * * (4) The bank’s board of directors, or a committee authorized by the board of directors, represents that the bank will act upon any withdrawal request as soon as practicable and consistent with its fiduciary duties; and * * * * * Policy: Tom Fay, Director of Capital Markets, Office of Examination and Insurance or Rick Mayfield, Senior Capital Markets Specialist, Office of Examination and Insurance. Legal: Justin M. Anderson, Senior Staff Attorney, Office of General Counsel, 1775 Duke Street, Alexandria, VA 22314–3428. Tom Fay can be reached at (703) 518–1179, Rick Mayfield can be reached at (703) 518–6501, and Justin Anderson can be reached at (703) 518– 6540. SUPPLEMENTARY INFORMATION: PO 00000 Frm 00005 Fmt 4700 Sfmt 4700 28241 I. Proposed Rule At its October 2020 meeting, the Board issued a proposed rule intended to modernize the NCUA’s Derivatives rule at subpart B to 12 CFR part 703 by moving to a principles-based approach.1 The proposed rule included, among other things, amendments to: • Streamline the application process and exempt certain FCUs from the requirement to submit an application; • remove regulatory limits on the amount of Derivatives an FCU can enter into; • remove permissible Derivatives types in favor of a characteristic-based approach; and • reorganize rules related to loan pipeline management. As discussed later in this preamble, the Board is finalizing the rule largely as proposed. However, in response to comments received, the Board is making a few regulatory changes and clarifying several items. II. Final Rule and Public Comments on the Proposed Rule The Board received 17 comments from a variety of sources, including: Natural person credit unions, a financial advisor, credit union trade associations and leagues, brokers and introducing agents, and one anonymous source. All of the comments received by the Board supported the proposal and the NCUA’s proposed principles-based approach to Derivatives. Most commenters, however, did request at least one change or clarification. The following is a summary of the requested changes and clarifications, organized by topic, and responses to the same. A. Requirement To Submit an Application Eight commenters addressed various aspects of the proposed application and notification structure. For ease of reference, each topic is discussed separately. 1. Asset Threshold Three commenters disagreed with the proposed $500 million asset size threshold required to qualify for an exemption from the requirement to submit an application for Derivatives authority. These commenters argued that an asset threshold is an arbitrary number that does not accurately reflect an FCU’s ability to safely engage in Derivatives. One commenter stated that it is possible that FCUs below the NCUA’s proposed threshold may have the requisite infrastructure to safely engage in Derivatives. Two of the 1 85 FR 68487, 68495 (Oct. 29, 2020). E:\FR\FM\26MYR1.SGM 26MYR1

Agencies

[Federal Register Volume 86, Number 100 (Wednesday, May 26, 2021)]
[Rules and Regulations]
[Pages 28238-28241]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-11130]


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DEPARTMENT OF TREASURY

Office of the Comptroller of the Currency

12 CFR Part 9

[Docket ID OCC-2020-0031]
RIN 1557-AE99


Collective Investment Funds: Prior Notice Period for Withdrawals

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

ACTION: Final rule.

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SUMMARY: The OCC is adopting as final, with one minor change, the 
interim final rule published in the Federal Register on August 13, 
2020, that codifies and creates an exception to the standard withdrawal 
period for a bank administering a collective investment fund invested 
primarily in real estate or other assets that are not readily 
marketable (a covered CIF). Pursuant to the interim final rule, a bank 
administering a covered CIF may request OCC approval to extend the 
standard withdrawal period under limited circumstances and if certain 
conditions are met. The final rule adopts as final the changes made by 
the interim final rule and introduces a minor revision to one of the 
conditions necessary for the extension.

DATES: The interim final rule is effective May 26, 2021.

FOR FURTHER INFORMATION CONTACT: Beth Kirby, Assistant Director, Asa 
Chamberlayne, Counsel, or Daniel Perez, Counsel, Chief Counsel's 
Office, (202) 649-5490; or David Stankiewicz, Technical Expert for 
Asset Management Policy, Market Risk Policy Division, Bank Supervision 
Policy, 202-649-6360, Office of the Comptroller of the Currency, 400 
7th Street SW, Washington, DC 20219.

SUPPLEMENTARY INFORMATION:

I. Background

    A collective investment fund (CIF) is a bank-managed fiduciary fund 
that holds pooled assets. A national bank or Federal savings 
association (collectively, a bank) that establishes and operates a CIF 
must do so in accordance with the criteria established under the 
fiduciary activities regulation of the Office of the Comptroller of the 
Currency (OCC) at 12 CFR 9.18.\1\ A CIF is funded through contributions 
by the CIF's participants, which are the beneficial owners of the 
fund's assets. A bank admitting a CIF participant or withdrawing all or 
part of its participating interest (that is, allowing the participant 
to, in effect, redeem a proportionate interest in the assets of the 
CIF) must do so on the basis of a valuation of the CIF's assets.\2\
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    \1\ Pursuant to 12 CFR 150.260, the terms ``bank'' and 
``national bank'' as used in 12 CFR 9.18 are deemed to include a 
Federal savings association.
    \2\ 12 CFR 9.18(b)(5)(i).
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    A bank administering a C IF invested primarily in real estate or 
other assets that are not readily marketable (a covered CIF) may 
require a prior notice period of up to one year for withdrawals.\3\ The 
OCC previously interpreted this notice period requirement as requiring 
the bank to withdraw an account within the prior notice period or, if 
permissible under the CIF's written plan, within one year after prior 
notice was required (standard withdrawal period).\4\ The OCC also 
recognized, however, that there were circumstances when a longer 
withdrawal period was appropriate. For example, during the 2009 
financial crisis, the OCC permitted a bank to extend the time period 
for withdrawals, subject to certain conditions.\5\
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    \3\ 12 CFR 9.18(b)(5)(iii).
    \4\ See, e.g., OCC Interpretive Letter No. 1121 (Aug. 2009) 
(Interpretive Letter 1121).
    \5\ Id.
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    During normal market conditions, a bank can typically satisfy 
withdrawal requests within the standard withdrawal period. However, in 
the event of unanticipated and severe market conditions, a bank may be 
faced with an increased number of withdrawal requests and reduced 
market liquidity. In such conditions, a bank that is required to sell 
CIF assets to satisfy withdrawals within the standard withdrawal period 
could have difficulty realizing a fair value for those assets. This 
could compel ``fire sales'' of CIF assets and lead to avoidable 
economic harm for CIF participants, which would be contrary to general 
fiduciary principles that require a CIF trustee to act in the best 
interests of CIF participants.

II. Interim Final Rule

    On August 13, 2020, the OCC published an interim final rule in the 
Federal Register that codified the standard withdrawal period for a 
bank administering a covered CIF and established a limited exception to 
that withdrawal period. The exception was intended to enable a bank to 
preserve the value of a CIF's assets for the benefit of fund 
participants during unanticipated and severe market conditions, such as 
those resulting from the current national health emergency concerning 
the coronavirus disease (COVID-19) outbreak.
    Under the interim final rule, to satisfy the standard withdrawal 
period requirement, a bank administering a covered CIF that requires a 
prior notice period for withdrawals generally must withdraw an account 
within the prior notice period or, if permissible under the CIF's 
written plan, within one year after prior notice was required.
    Under the exception established by the interim final rule, a bank 
may withdraw an account from a CIF up to one year beyond the standard 
withdrawal period with OCC approval and if certain conditions are met. 
Namely, the fund's written plan (including its notice and withdrawal 
policy) must authorize an extended withdrawal period and be fully 
disclosed to fund participants. In addition, the bank's board of 
directors, or a committee authorized by the board of directors, must 
determine that (1) due to unanticipated and severe market conditions 
for specific assets held by the fund, an extended withdrawal period is 
necessary in order to preserve the value of the fund's assets for the 
benefit of fund participants; and (2) the extended withdrawal period is 
consistent with 12 CFR part 9 and applicable law. The bank's board of 
directors, or a committee authorized by the board of directors, must 
also commit that the bank will act upon any withdrawal request as soon 
as practicable. Finally, the rule provides discretion for the OCC to 
impose additional conditions if the OCC determines that the conditions 
are necessary or appropriate to protect the interests of fund 
participants. The conditions established by this interim final rule 
were intended to ensure that the exception is only granted if it is 
consistent with fiduciary principles, applicable law, and the CIF's 
written plan.\6\ To ensure that the exception is consistent with these 
principles and requirements, and as described above, the OCC may impose 
additional conditions, such as requiring periodic progress reports from 
the bank.
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    \6\ See 12 CFR 9.18(b)(1) (written plan requirements).
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    In addition to the above, the interim final rule provided that if, 
due to

[[Page 28239]]

ongoing severe market conditions, a bank has been unable to satisfy 
withdrawal requests during the one-year extension period without 
causing harm to participants, the bank may request OCC approval for up 
to two additional one-year extensions. The OCC may only approve each 
additional one-year extension if the OCC determines that the bank has 
made a good faith effort to satisfy withdrawal requests during the 
original extension period and the bank has been unable to satisfy such 
requests without causing harm to participants due to ongoing severe 
market conditions. The bank must also continue to satisfy the 
conditions described above.
    By creating a limited exception to the standard withdrawal period, 
the IFR permits a bank administering a covered CIF to take appropriate 
steps to satisfy account withdrawal requests during severe market 
conditions, while permitting an orderly liquidation of sufficient 
assets to raise cash through prudent and appropriate sales, as the 
return of more normal market conditions permit.

III. Comments Received

    The OCC received comment letters from two commenters--a trade 
association and a law firm--that were relevant to the scope of the 
rulemaking.
    Both commenters requested that the OCC revise the interim final 
rule to accommodate state-chartered banks that are required to comply 
with the OCC's regulations under 12 CFR 9.18, either by reason of the 
Internal Revenue Code, state law, or a CIF's written plan. In 
particular, the commenters expressed concern that state-chartered banks 
that are required to comply with 12 CFR 9.18 would be unable to comply 
with the requirement for OCC approval. Accordingly, commenters 
suggested that the exception to the standard withdrawal period be 
revised to allow for notice or disclosure instead of requiring 
approval, provided the interim final rule's enumerated conditions were 
satisfied. Alternatively, the commenters suggested the OCC clarify the 
application of the interim final rule to state-chartered banks.
    The OCC uses the review and approval process to assess, among other 
things, current market conditions, the number and dollar amount of 
account withdrawals received, whether the bank satisfies the enumerated 
conditions, whether additional conditions are necessary or appropriate, 
and the bank's efforts to satisfy withdrawal requests. Accordingly, and 
because the OCC does not determine requirements for non-OCC-regulated 
institutions, the OCC is not revising the approval requirement in this 
final rule. However, the OCC clarifies that it would not expect a 
state-chartered bank to request OCC approval to extend its withdrawal 
period, nor does the OCC have the authority to approve a request 
received from a state-chartered bank.
    Commenters also objected to the requirement that, in order for a 
bank to receive an exception to the standard withdrawal period, the 
bank's board of directors, or a committee authorized by the board of 
directors, must ``commit that the bank will act upon any withdrawal 
request as soon as practicable.'' In particular, commenters raised 
concerns that the term ``commit'' in this context was ambiguous and 
raised compliance concerns. In response to this comment, the OCC is 
revising this condition, as described in the subsequent section.
    One commenter raised concerns with the requirement that the bank's 
board of directors, or a committee authorized by the board of 
directors, ``determine that, due to unanticipated and severe market 
conditions for specific assets held by the fund, an extended withdrawal 
period is necessary in order to preserve the value of the fund's assets 
for the benefit of fund participants.'' The commenter argued that the 
conditions set by the interim final rule should be aligned with past 
OCC guidance and that a bank should be able to avail itself of the 
exception to the standard withdrawal period if it has ``valid reasons'' 
or if the extension is in the best interest of the fund's participants, 
rather than having to prove that the exception is necessary to 
``preserve the value of the fund's assets.'' The OCC believes that a 
narrower and more specific requirement is necessary to avoid ambiguity 
and that it provides more concrete support for the conclusion that an 
extension to the standard withdrawal period would be in the interest of 
fund participants. Accordingly, the OCC is not revising this 
requirement.
    This commenter also requested that the OCC clarify the number of 
submissions to the OCC required for the exception to the withdrawal 
period. Namely, the commenter suggested that the OCC clarify that a 
bank may submit a single approval request to the OCC for a one-year 
extension to the standard withdrawal period that would cover any and 
all account withdrawal requests that the bank has received or may 
receive in the future in the given year. The commenter suggested that a 
bank should be able to request additional extensions even if it has not 
yet received additional redemption requests.
    In response to this comment, the OCC is clarifying that a bank may 
submit a single request for OCC approval covering any account 
withdrawal requests that were received prior to the bank's submission 
to the OCC. A bank is not required to prepare different submissions for 
every account withdrawal request received. However, the OCC would not 
approve an application to extend the withdrawal period in connection 
with account withdrawal requests that have not yet been received by the 
bank. Under the standard withdrawal period, a bank may withdraw an 
account from a CIF up to one year after the date on which notice was 
required, if permitted by the CIF's written plan. Approving an 
application with respect to future withdrawal requests would require 
the OCC to make a determination, using incomplete information, as to an 
extended time horizon over which conditions may change.

IV. Final Rule

    This final rule adopts as final the changes made by the interim 
final rule, but revises, in response to comments received, one of the 
enumerated conditions for extending the standard withdrawal period. As 
described above, in order to receive an exception to the standard 
withdrawal period, a bank's board of directors (or a committee 
authorized by the board of directors) must commit that the bank will 
act upon any withdrawal request as soon as practicable. Pursuant to 
this final rule, the OCC is revising this condition to read, ``The 
bank's board of directors, or a committee authorized by the board of 
directors, represents that the bank will act upon any withdrawal 
request as soon as practicable and consistent with fiduciary duties.'' 
The OCC believes that the revised condition accomplishes its intended 
purpose without imposing unintended legal and compliance risk.

V. Administrative Law Matters

A. Administrative Procedure Act

    Under 5 U.S.C. 553(b)(B) of the Administrative Procedure Act (APA), 
an agency may, for good cause, find (and incorporate the finding and a 
brief statement of reasons therefore in the rules issued) that notice 
and public procedure thereon are impracticable, unnecessary, or 
contrary to the public interest. The OCC issued the August 13, 2020, 
interim final rule without notice and comment based on concerns that 
the disruption and stress in the real estate markets and other markets 
for not readily marketable assets resulting from the outbreak of the 
COVID-19

[[Page 28240]]

emergency, coupled with requiring a bank to withdraw an account within 
the standard withdrawal period, could undermine the ability of a bank 
to realize an appropriate value for CIF assets and be harmful in 
preserving the value of the CIF's assets for the benefit of fund 
participants. Accordingly, the OCC found that the public interest was 
best served by implementing the interim final rule immediately upon 
publication in the Federal Register.
    The effective date of these corrections is May 26, 2021. Under 5 
U.S.C. 553(d)(3) of the APA, the required publication or service of a 
substantive rule shall be made not less than 30 days before its 
effective date, except, among other things, as provided by the agency 
for good cause found and published with the rule. This final rule 
implements one change relative to the August 13, 2020, interim final 
rule. The change is being made in response to a commenter and is 
intended to reduce ambiguity and compliance risks for banks seeking an 
exception under the rule. Because the severe market conditions related 
to the COVID-19 outbreak are ongoing as of the date of issuance of this 
final rule, the OCC finds that notice and public procedure is contrary 
to the public interest and that good cause exists for dispensing with 
the delayed effective date requirement.

B. Congressional Review Act

    For purposes of the Congressional Review Act, the Office of 
Management and Budget (OMB) makes a determination as to whether a final 
rule constitutes a ``major'' rule.\7\ If a rule is deemed a ``major 
rule'' by the OMB, the Congressional Review Act generally provides that 
the rule may not take effect until at least 60 days following its 
publication.\8\
---------------------------------------------------------------------------

    \7\ 5 U.S.C. 801 et seq.
    \8\ 5 U.S.C. 801(a)(3).
---------------------------------------------------------------------------

    The Congressional Review Act defines a ``major rule'' as any rule 
that the Administrator of the Office of Information and Regulatory 
Affairs of the OMB finds has resulted in or is likely to result in (A) 
an annual effect on the economy of $100,000,000 or more; (B) a major 
increase in costs or prices for consumers, individual industries, 
Federal, State, or local government agencies or geographic regions; or 
(C) significant adverse effects on competition, employment, investment, 
productivity, innovation, or on the ability of United States-based 
enterprises to compete with foreign-based enterprises in domestic and 
export markets.\9\
---------------------------------------------------------------------------

    \9\ 5 U.S.C. 804(2).
---------------------------------------------------------------------------

    As required by the Congressional Review Act, the agencies will 
submit the final rule and other appropriate reports to Congress and the 
Government Accountability Office for review.

C. Paperwork Reduction Act

    The Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3521) (PRA) 
states that no agency may conduct or sponsor, nor is the respondent 
required to respond to, an information collection unless it displays a 
currently valid OMB control number. The interim final rule contained 
reporting requirements under the Paperwork Reduction Act. With the 
OCC's approval, and if certain conditions are satisfied, a bank may 
withdraw an account from a collective investment fund up to one year 
after the end of the standard withdrawal period. In addition, a bank 
may request that the OCC approve an extension beyond the one-year 
extension period, if certain conditions are satisfied. Extensions past 
the initial one-year extension must be requested and approved annually, 
for a maximum of two years after the initial one-year extension period. 
OMB provided emergency PRA approval for the interim final rule. Renewal 
of the emergency approval is currently underway.
    Title of Information Collection: Fiduciary Activities.
    OMB Control No.: 1557-0140.
    Frequency: On occasion.
    Affected Public: Businesses or other for-profit.
    Estimated number of respondents: 4.
    Total estimated annual burden: 220 burden hours.
    Comments continue to be invited on:
    a. Whether the collections of information are necessary for the 
proper performance of the OCC' including whether the information has 
practical utility;
    b. The accuracy or the estimate of the burden of the information 
collections, including the validity of the methodology and assumptions 
used;
    c. Ways to enhance the quality, utility, and clarity of the 
information to be collected;
    d. Ways to minimize the burden of the information collections on 
respondents, including through the use of automated collection 
techniques or other forms of information technology; and
    e. Estimates of capital or startup costs and costs of operation, 
maintenance, and purchase of services to provide information.

D. Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA) \10\ requires an agency to 
consider whether the rules it proposes will have a significant economic 
impact on a substantial number of small entities.\11\ The RFA applies 
only to rules for which an agency publishes a general notice of 
proposed rulemaking pursuant to 5 U.S.C. 553(b). As discussed 
previously, consistent with section 553(b)(B) of the APA, the OCC 
determined for good cause that general notice and opportunity for 
public comment is impracticable and contrary to the public's interest, 
and therefore the OCC did not issue a notice of proposed rulemaking 
prior to issuing the August 13, 2020, interim final rule. Because the 
agency did not publish a notice of proposed rulemaking, the OCC 
concludes that the RFA's requirements relating to initial and final 
regulatory flexibility analysis do not apply to this final rule. 
Nevertheless, when issuing the August 13, 2020, interim final rule, the 
OCC requested feedback on ways that the OCC could reduce any potential 
burden of the interim final rule on small entities. No comments were 
received in response to this request.
---------------------------------------------------------------------------

    \10\ 5 U.S.C. 601 et seq.
    \11\ Under regulations issued by the Small Business 
Administration, a small entity includes a depository institution, 
bank holding company, or savings and loan holding company with total 
assets of $600 million or less and trust companies with total assets 
of $41.5 million or less. See 13 CFR 121.201.
---------------------------------------------------------------------------

E. Riegle Community Development and Regulatory Improvement Act of 1994

    Pursuant to section 302(a) of the Riegle Community Development and 
Regulatory Improvement Act (RCDRIA),\12\ in determining the effective 
date and administrative compliance requirements for new regulations 
that impose additional reporting, disclosure, or other requirements on 
insured depository institutions (IDIs), each Federal banking agency 
must consider, consistent with the principle of safety and soundness 
and the public interest, any administrative burdens that such 
regulations would place on depository institutions, including small 
depository institutions, and customers of depository institutions, as 
well as the benefits of such regulations. In addition, section 302(b) 
of RCDRIA requires new regulations and amendments to regulations that 
impose additional reporting, disclosures, or other new requirements on 
IDIs generally to take effect on the first day of a calendar quarter 
that begins on or after the date on which the regulations are published 
in final form, with certain exceptions, including for good cause.\13\ 
For the reasons described above, the OCC finds good cause exists under 
section 302 of

[[Page 28241]]

RCDRIA to publish the final rule with an immediate effective date.
---------------------------------------------------------------------------

    \12\ 12 U.S.C. 4802(a).
    \13\ 12 U.S.C. 4802.
---------------------------------------------------------------------------

F. Use of Plain Language

    Section 722 of the Gramm-Leach-Bliley Act \14\ requires the Federal 
banking agencies to use ``plain language'' in all proposed and final 
rules published after January 1, 2000. In light of this requirement, 
the OCC has sought to present the final rule in a simple and 
straightforward manner. The OCC invited comment at the interim final 
rule stage on whether there were additional steps the OCC could take to 
make the rule easier to understand. No comments were received in 
response to this request.
---------------------------------------------------------------------------

    \14\ 12 U.S.C. 4809.
---------------------------------------------------------------------------

G. Unfunded Mandates Act

    As a general matter, the Unfunded Mandates Act of 1995 (UMRA), 2 
U.S.C. 1531 et seq., requires the preparation of a budgetary impact 
statement before promulgating a rule that includes a Federal mandate 
that may result in the expenditure by State, local, and tribal 
governments, in the aggregate, or by the private sector, of $100 
million or more in any one year. However, the UMRA does not apply to 
final rules for which a general notice of proposed rulemaking was not 
published. See 2 U.S.C. 1532(a). Therefore, because the OCC found good 
cause to dispense with notice and comment for this final rule, the OCC 
concludes that the requirements of UMRA do not apply.

List of Subjects in 12 CFR Part 9

    Estates, Investments, National banks, Reporting and recordkeeping 
requirements, Trusts and trustees.
    Authority and Issuance
    Accordingly, for the reasons set forth in the preamble, the interim 
final rule amending 12 CFR part 9 that was published at 85 FR 49229 on 
August 13, 2020, is adopted as final with the following change:

PART 9--FIDUCIARY ACTIVITIES OF NATIONAL BANKS

0
1. The authority citation for part 9 continues to read as follows:

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

0
2. Section 9.18 is amended by revising paragraph (b)(5)(iii)(C)(4) to 
read as follows:


Sec.  9.18  Collective investment funds.

* * * * *
    (b) * * *
    (5) * * *
    (iii) * * *
    (C) * * *
    (4) The bank's board of directors, or a committee authorized by the 
board of directors, represents that the bank will act upon any 
withdrawal request as soon as practicable and consistent with its 
fiduciary duties; and
* * * * *

Michael J. Hsu,
Acting Comptroller of the Currency.
[FR Doc. 2021-11130 Filed 5-25-21; 8:45 am]
BILLING CODE 4810-33-P

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