[Federal Register Volume 63, Number 26 (Monday, February 9, 1998)]
[Rules and Regulations]
[Pages 6472-6473]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-3191]


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DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

12 CFR Part 9

[Docket No. 98-02]
RIN 1557-AB63


Fiduciary Activities of National Banks

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

ACTION: Final rule.

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SUMMARY: The Office of the Comptroller of the Currency (OCC) is 
amending its rules governing national banks' fiduciary activities by 
issuing an interpretive ruling to clarify the types of investment 
advisory activities that come within the scope of these rules. This 
action will assist banks in determining the extent to which their 
investment advisory activities are subject to the OCC's fiduciary 
rules.

EFFECTIVE DATE: March 11, 1998.

FOR FURTHER INFORMATION CONTACT: Andrew Gutierrez, Senior Attorney, 
Legislative and Regulatory Activities Division, (202) 874-5090; Lisa 
Lintecum, Director, Asset Management, (202) 874-5419; Dean Miller, 
Special Advisor, Fiduciary Activities, (202) 874-4852; Laurie Edlund, 
National Bank Examiner, Fiduciary Activities, (202) 874-3828; Donald 
Lamson, Assistant Director, Securities and Corporate Practices 
Division, (202) 874-5210, Office of the Comptroller of the Currency, 
250 E Street, SW, Washington, DC 20219.

SUPPLEMENTARY INFORMATION:

Background

1996 Revision of 12 CFR Part 9

    On December 30, 1996, the OCC issued a final rule revising 12 CFR 
part 9, effective January 29, 1997 (61 FR 68543). Among other changes, 
the final rule revised the terms that specify the types of activities 
governed by part 9. In particular, the final rule replaced the former 
regulation's terms ``fiduciary'' and ``managing agent'' with the term 
``fiduciary capacity,'' found at Sec. 9.2(e). Under the revised part 9, 
if a national bank acts in a fiduciary capacity while engaging in an 
activity, then part 9 governs that activity.
    One of the fiduciary capacities set forth in Sec. 9.2(e) is 
``investment adviser, if the bank receives a fee for its investment 
advice.'' The concept of investment adviser for a fee is new to part 9, 
and the OCC's addition of this term to the list of fiduciary capacities 
raised questions from the banking industry about what activities entail 
providing investment advice for a fee.

Interpretive Letter #769

    In response to these inquiries, the OCC issued Interpretive Letter 
#769 (January 28, 1997). In that interpretive letter, the OCC clarified 
that ``investment adviser'' generally means a national bank that is 
providing advice or recommendations concerning the purchase or sale of 
specific securities, such as a national bank engaged in portfolio 
advisory and management activities (including acting as investment 
adviser to a mutual fund). Moreover, the OCC explained that the 
qualifying phrase ``if the bank receives a fee for its investment 
advice'' excludes from part 9's coverage those activities in which 
investment advice is merely incidental to other services. Generally, if 
a national bank receives a fee for providing services, and a 
significant portion of that fee is attributable to the provision of 
investment advice (i.e., advice or recommendations concerning the 
purchase or sale of specific securities), then part 9 governs that 
activity. In effect, the OCC explained, the new term ``fiduciary 
capacity'' generally includes those activities that the former 
regulation covered and does not capture additional lines of business.
    In the interpretive letter, the OCC indicated that it generally 
will consider full-service brokerage services to involve investment 
advice for a fee only if a non-bank broker engaged in that activity is 
considered an investment adviser under the Investment Advisers Act of 
1940 (Advisers Act) (15 U.S.C. 80b-1 et seq.).1 The Advisers 
Act, at section 202(a)(11)(C) (15 U.S.C. 80b-2(a)(11)(C)), excludes 
from its definition of investment adviser any broker or dealer whose 
performance of investment advisory services is solely incidental to the 
conduct of its business as a broker or dealer and who receives no 
special compensation for providing investment advice.
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    \1\ Banks are excluded from the Advisers Act's definition of 
investment adviser. 15 U.S.C. 80b-2(a)(11)(A).
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    The OCC also addressed in the interpretive letter whether certain 
other activities came within the scope of part 9.

Proposed Rule

    On July 9, 1997, the OCC proposed to add a new interpretation to 
part 9, at Sec. 9.101, codifying the clarification contained in 
Interpretive Letter #769 (62 FR 36746). The OCC invited comments on any 
aspect of that proposal, including suggestions on whether any specific 
activities should be added to or removed from the list of activities 
that do not generally entail providing investment advice for a fee, 
found at proposed Sec. 9.101(b)(2) (the ``list of excluded 
activities'').

Summary of Comments and Final Rule

    The OCC received seven comment letters in response to the July 9, 
1997, proposal. Six of the seven commenters explicitly supported the 
proposal, and no commenter opposed it. Several of the commenters 
suggested minor modifications to the list of excluded activities.

[[Page 6473]]

    One commenter recommended that the OCC modify three of the items on 
the list of excluded activities, proposed Sec. 9.101(b)(2) (ii), (iv), 
and (v), to mirror the more specific language in OCC Bulletin 97-22 
(May 15, 1997) (the OCC's Q&As on revised 12 CFR part 9). The OCC 
agrees the additional detail in the OCC Bulletin is helpful, and thus 
is following that recommendation.
    Another commenter recommended that the OCC add to the list of 
excluded activities, advice or information with respect to an employee 
benefit plan governed by the Employee Retirement Income Security Act of 
1974 (ERISA) that is not deemed ``investment advice'' under ERISA. The 
OCC agrees that, with respect to employee benefit plans, ERISA should 
govern whether or not an activity involves ``investment advice'' and, 
more generally, whether or not an activity is fiduciary in nature. 
Thus, with respect to employee benefit plans, whether a national bank 
is considered a fiduciary under ERISA determines whether it is a 
fiduciary under part 9. The OCC believes that this principle is 
understood generally, and thus is not addressing the issue in this 
final rule.
    A third commenter recommended that the OCC add estate planning and 
retirement counseling services to the list of excluded activities. The 
OCC believes that estate planning and retirement counseling can vary 
widely in the types of advice and services offered and, in some cases, 
may involve investment advice within the scope of part 9. Consequently, 
the OCC is not including the recommended exemption, but rather will 
address these activities on a case-by-case basis as questions arise.
    A fourth commenter recommended that the OCC modify proposed 
Sec. 9.101(b)(2)(ii)--the paragraph that excludes investment advice 
authorized under 12 U.S.C. 24(Seventh) as an incidental power necessary 
to carry on the business of banking--to limit that exclusion to 
situations that do not involve the exercise of substantial investment 
discretion. However, under part 9, if a bank exercises investment 
discretion, it is acting in a fiduciary capacity, as defined at 
Sec. 9.2(e). Whether or not the bank is also providing investment 
advice for a fee does not affect the fact that it is acting in a 
fiduciary capacity. Consequently, the OCC believes that the recommended 
modification is not necessary.

Regulatory Flexibility Act

    Pursuant to section 605(b) of the Regulatory Flexibility Act, the 
OCC certifies that this final rule will not have a significant economic 
impact on a substantial number of small entities in accord with the 
spirit and purposes of the Regulatory Flexibility Act (5 U.S.C. 601 et 
seq.). Accordingly, a regulatory flexibility analysis is not required. 
This final rule merely clarifies the scope of the 12 CFR part 9, and 
does not add any new requirements.

Executive Order 12866

    The Office of Management and Budget has concurred with the OCC's 
determination that this final rule is not a significant regulatory 
action under Executive Order 12866.

Unfunded Mandates Reform Act of 1995

    The OCC has determined that this final rule will not result in 
expenditures by state, local, and tribal governments, or by the private 
sector, of $100 million or more in any one year. Accordingly, a 
budgetary impact statement is not required under section 202 of the 
Unfunded Mandates Reform Act of 1995. This final rule merely clarifies 
the scope of 12 CFR part 9 and does not add any new requirements.

List of Subjects in 12 CFR Part 9

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

Authority and Issuance

    For the reasons set out in the preamble, chapter I of title 12 of 
the Code of Federal Regulations is amended as follows:

PART 9--FIDUCIARY ACTIVITIES OF NATIONAL BANKS

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

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

    2. A new Sec. 9.101 is added under the undesignated centerheading 
``Interpretations'' to read as follows:


Sec. 9.101  Providing investment advice for a fee.

    (a) In general. The term ``fiduciary capacity'' at Sec. 9.2(e) is 
defined to include ``investment adviser, if the bank receives a fee for 
its investment advice.'' In other words, if a bank is providing 
investment advice for a fee, then it is acting in a fiduciary capacity. 
For purposes of that definition, ``investment adviser'' generally means 
a national bank that provides advice or recommendations concerning the 
purchase or sale of specific securities, such as a national bank 
engaged in portfolio advisory and management activities (including 
acting as investment adviser to a mutual fund). Additionally, the 
qualifying phrase ``if the bank receives a fee for its investment 
advice'' excludes those activities in which the investment advice is 
merely incidental to other services.
    (b) Specific activities--(1) Full-service brokerage. Engaging in 
full-service brokerage may entail providing investment advice for a 
fee, depending upon the commission structure and specific facts. Full-
service brokerage involves investment advice for a fee if a non-bank 
broker engaged in that activity is considered an investment adviser 
under the Investment Advisers Act of 1940 (15 U.S.C. 80b-1 et seq.).
    (2) Activities not involving investment advice for a fee. The 
following activities generally do not entail providing investment 
advice for a fee:
    (i) Financial advisory and counseling activities, including 
strategic planning of a financial nature, merger and acquisition 
advisory services, advisory and structuring services related to project 
finance transactions, and providing market economic information to 
customers in general;
    (ii) Client-directed investment activities (i.e., the bank has no 
investment discretion) where investment advice and research may be made 
available to the client, but the fee does not depend on the provision 
of investment advice;
    (iii) Investment advisory activities incidental to acting as a 
municipal securities dealer;
    (iv) Real estate management services provided to other financial 
institutions;
    (v) Real estate consulting services, including acting as a finder 
in locating, analyzing, and making recommendations regarding the 
purchase of property, and making recommendations concerning the sale of 
property;
    (vi) Advisory activities concerning bridge loans;
    (vii) Advisory activities for homeowners' associations;
    (viii) Advisory activities concerning tax planning and structuring; 
and
    (ix) Investment advisory activities authorized by the OCC under 12 
U.S.C. 24(Seventh) as incidental to the business of banking.

    Dated: February 3, 1998.
Eugene A. Ludwig,
Comptroller of the Currency.
[FR Doc. 98-3191 Filed 2-6-98; 8:45 am]
BILLING CODE 4810-33-P