[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]
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Proposed Rules
Federal Register
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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.
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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.
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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\
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\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.
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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\
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\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.
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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\
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\6\ See 12 U.S.C. 92a; 12 U.S.C. 1464(n).
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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\
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\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).
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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.
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\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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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.
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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.
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\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.
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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\
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\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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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.
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\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).
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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.
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\18\ Id.
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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
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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 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.
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\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), http://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