On April 29, the Office of the Comptroller of the Currency (OCC) published an advance notice of proposed rulemaking (ANPR) inviting comment on possible revisions to the OCC’s fiduciary regulations, 12 CFR 9 and 150. Specifically, the ANPR requests comment on whether the OCC should update the regulatory definition of “fiduciary capacity” to make it more consistent with recent developments under state laws. The ANPR also requests comment on the potential addition of new provisions to OCC regulations to establish certain basic requirements for non-fiduciary custody activities of national banks, federal savings associations, and federal branches and agencies (collectively, banks), which are not currently addressed by specific OCC rules. The ANPR has a 60-day comment period, ending on June 28, 2019.
The OCC seeks comment on two possible revisions to the OCC’s regulations.
- Updating the definition of “fiduciary capacity” to include certain capacities that are based on the authority a bank has with respect to a trust, e.g., the power to make discretionary contributions, override the trustee, or select a new trustee. This change could
- remove ambiguity and confusion for banks because of differences between how OCC regulations and state laws define “fiduciary capacity,” and
- provide for the uniform application of OCC regulations to trust activities that state laws describe with different terminology.
- Codifying OCC guidance related to non-fiduciary custody activities. A proposed rule could be based on the following core elements of sound risk management, which are similar to those required in the current rules for fiduciary custody activities:
- Separation and safeguarding of custodial assets.
- Due diligence in selection and ongoing oversight of sub-custodians.
- Disclosure in custodial contracts and agreements of the custodian’s duties and responsibilities.
- Effective policies, procedures, and internal controls.
- The OCC believes that a non-fiduciary custody rule could
- eliminate any confusion that exists over a bank’s obligtions with respect to custody arrangements;
- impose minimal new responsibilities on well-managed banks, as the OCC would be codifying the OCC’s guidance on custody service activities for banks; and
- complement regulations related to the custody of client assets issued by the U.S. Securities and Exchange Commission, U.S. Commodity Futures Trading Commission, Internal Revenue Service, various states, the United Kingdom, and the European Union.
George Michael Gerstein advises financial institutions on the fiduciary and prohibited transaction provisions of ERISA. As co-chair of the fiduciary governance group, he assists clients with tracking, and understanding, the numerous fiduciary developments at the federal and state levels, including the rules and regulations of governmental plans. He also advises clients with respect to the fiduciary duty implications of ESG investing.