Possible changes to fiduciary activities rules of the Office of the Comptroller of the Currency (OCC) are laid out in an advance notice of proposed rulemaking (ANPR) that is out for public comment until June 28.
The OCC is considering an amendment to its fiduciary rule to update the definition of “fiduciary capacity” as well as issuance of a rule on basic requirements for non-fiduciary custody activities of national banks and federal savings associations (FSAs).
The agency says it’s contemplating changes in the fiduciary capacity definition to make the term more consistent with how the role of bank fiduciaries has developed under state law. Specifically, it is considering the inclusion of any activity based on the authority a national bank or FSA has with respect to a trust, such as the power to make discretionary distributions, override the trustee, or select a new trustee. This change “could reduce ambiguity and confusion” for national banks and FSAs, the OCC says, and provide for uniform application of OCC regulations to trust activities that state laws describe with different terminology.
On the second issue, the OCC says a regulation that sets basic requirements for non-fiduciary activities of national banks and FSAs 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;
(3) disclosure in custodial contracts and agreements of the custodian’s duties and responsibilities; and
(4) effective policies, procedures, and internal controls.
“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,” according to the notice of ANPR. “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.”
The ANPR is out for a 60-day public comment period.
Reg lookup: Fiduciary Capacity; Non-Fiduciary Custody Activities