[Federal Register Volume 85, Number 132 (Thursday, July 9, 2020)]
[Notices]
[Pages 41265-41266]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-14749]
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SECURITIES AND EXCHANGE COMMISSION
[SEC File No. 270-259, OMB Control No. 3235-0269]
Submission for OMB Review; Comment Request
Upon Written Request, Copies Available From: Securities and Exchange
Commission, Office of FOIA Services, 100 F Street NE, Washington, DC
20549-2736
Extension:
Rule 17f-5
Notice is hereby given that, pursuant to the Paperwork Reduction
Act of 1995 (44 U.S.C. 350l-3520), the Securities and Exchange
Commission (``Commission'') has submitted to the Office of Management
and Budget (``OMB'') requests for extension of the previously approved
collections of information discussed below.
Rule 17f-5 (17 CFR 270.17f-5) under the Investment Company Act of
1940 [15 U.S.C. 80a] (the ``Act'') governs the custody of the assets of
registered management investment companies (``funds'') with custodians
outside the United States. Under rule 17f-5, a fund or its foreign
custody manager (as delegated by the fund's board) may maintain the
fund's foreign assets in the care of an eligible fund custodian under
certain conditions. If the fund's board delegates to a foreign custody
manager authority to place foreign assets, the fund's board must find
that it is reasonable to rely on each delegate the board selects to act
as the fund's foreign custody manager. The delegate must
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agree to provide written reports that notify the board when the fund's
assets are placed with a foreign custodian and when any material change
occurs in the fund's custody arrangements. The delegate must agree to
exercise reasonable care, prudence, and diligence, or to adhere to a
higher standard of care. When the foreign custody manager selects an
eligible foreign custodian, it must determine that the fund's assets
will be subject to reasonable care if maintained with that custodian,
and that the written contract that governs each custody arrangement
will provide reasonable care for fund assets. The contract must contain
certain specified provisions or others that provide at least equivalent
care. The foreign custody manager must establish a system to monitor
the performance of the contract and the appropriateness of continuing
to maintain assets with the eligible foreign custodian.
The collection of information requirements in rule 17f-5 are
intended to provide protection for fund assets maintained with a
foreign bank custodian whose use is not authorized by statutory
provisions that govern fund custody arrangements,\1\ and that is not
subject to regulation and examination by U.S. regulators. The
requirement that the fund board determine that it is reasonable to rely
on each delegate is intended to ensure that the board carefully
considers each delegate's qualifications to perform its
responsibilities. The requirement that the delegate provide written
reports to the board is intended to ensure that the delegate notifies
the board of important developments concerning custody arrangements so
that the board may exercise effective oversight. The requirement that
the delegate agree to exercise reasonable care is intended to provide
assurances to the fund that the delegate will properly perform its
duties.
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\1\ See section 17(f) of the Act. 15 U.S.C. 80a-17(f).
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The requirements that the foreign custody manager determine that
fund assets will be subject to reasonable care with the eligible
foreign custodian and under the custody contract, and that each
contract contain specified provisions or equivalent provisions, are
intended to ensure that the delegate has evaluated the level of care
provided by the custodian, that it weighs the adequacy of contractual
provisions, and that fund assets are protected by minimal contractual
safeguards. The requirement that the foreign custody manager establish
a monitoring system is intended to ensure that the manager periodically
reviews each custody arrangement and takes appropriate action if
developing custody risks may threaten fund assets.\2\
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\2\ The staff believes that subcustodian monitoring does not
involve ``collection of information'' within the meaning of the
Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520) (``Paperwork
Reduction Act'').
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Commission staff estimates that each year, approximately 90
registrants \3\ could be required to make an average of one response
per registrant under rule 17f-5, requiring approximately 2.5 hours of
board of director time per response, to make the necessary findings
concerning foreign custody managers. The total annual burden associated
with these requirements of the rule is up to approximately 225 hours
(90 registrants x 2.5 hours per registrant). The staff further
estimates that during each year, approximately 15 global custodians \4\
are required to make an average of 4 responses per custodian concerning
the use of foreign custodians other than depositories. The staff
estimates that each response will take approximately 270 hours,
requiring approximately 1,080 total hours annually per custodian (270
hours x 4 responses per custodian). The total annual burden associated
with these requirements of the rule is approximately 16,200 hours (15
global custodians x 1,080 hours per custodian). Therefore, the total
annual burden of all collection of information requirements of rule
17f-5 is estimated to be up to 16,425 hours (225 + 16,200). The total
annual cost of burden hours is estimated to be $4,779,225 ((225 hours x
$4,465/hour for board of director's time + (16,200 hours x $233/hour
for a trust administrator's time)).\5\ Compliance with the collection
of information requirements of the rule is necessary to obtain the
benefit of relying on the rule's permission for funds to maintain their
assets in foreign custodians.
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\3\ This figure is an estimate of the number of new funds each
year, based on data reported by funds for 2017, 2018, and 2019. In
practice, not all funds will use foreign custody managers. The
actual figure therefore may be smaller.
\4\ This estimate is based on staff research.
\5\ Based on fund industry representations, the staff estimated
in 2014 that the average cost of board of director time, for the
board as a whole, was $4,000 per hour. Adjusting for inflation, the
staff estimates that the current average cost of board of director
time is approximately $4,465 per hour. The $233/hour figure for a
trust administrator is from SIFMA's Management & Professional
Earnings in the Securities Industry 2013, modified by Commission
staff to account for an 1800-hour work-year and inflation, and
multiplied by 5.35 to account for bonuses, firm size, employee
benefits, and overhead.
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The estimate of average burden hours is made solely for the
purposes of the Paperwork Reduction Act. The estimate is not derived
from a comprehensive or even a representative survey or study of the
costs of Commission rules and forms.
The public may view background documentation for this information
collection at the following website: www.reginfo.gov. Find this
particular information collection by selecting ``Currently under 30-day
Review--Open for Public Comments'' or by using the search function.
Written comments and recommendations for the proposed information
collection should be sent within 30 days of publication of this notice
to (i) www.reginfo.gov/public/do/PRAMain and (ii) David Bottom,
Director/Chief Information Officer, Securities and Exchange Commission,
c/o Cynthia Roscoe, 100 F Street NE, Washington, DC 20549, or by
sending an email to: [email protected].
Dated: July 2, 2020.
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-14749 Filed 7-8-20; 8:45 am]
BILLING CODE 8011-01-P