[Federal Register: July 2, 2001 (Volume 66, Number 127)]
[Rules and Regulations]
[Page 34792-34798]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr02jy01-3]
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DEPARTMENT OF THE TREASURY
Office of the Comptroller of the Currency
12 CFR Parts 5 and 9
[Docket No. 01-14]
RIN 1557-AB79
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
publishing its final rule regarding the authority and standards for
national banks to conduct multi-state trust operations. The purpose of
these changes is to provide enhanced guidance to national banks
engaging in fiduciary activities.
EFFECTIVE DATE: August 1, 2001.
FOR FURTHER INFORMATION CONTACT: Lisa Lintecum, Director, or Joel
Miller, Senior Advisor, Asset Management, (202) 874-4447; Richard
Cleva, Senior Counsel, Bank Activities and Structure Division, (202)
874-5300; Andra Shuster, Counsel, Legislative and Regulatory Activities
Division, (202) 874-5090; or William Dehnke, Assistant Director,
Securities and Corporate Practices Division, (202) 874-5210.
SUPPLEMENTARY INFORMATION: On December 5, 2000, the OCC published a
notice of proposed rulemaking (NPRM) in the Federal Register (65 FR 75872) to amend 12 CFR part 9 to add provisions addressing the
application of 12 U.S.C. 92a in the context of a national bank engaging
in fiduciary activities in more than one state. The purpose of the
rulemaking was to provide clarity and certainty for national banks'
multi-state fiduciary activities. The standards contained in the NPRM
reflected positions taken in three earlier OCC Interpretive Letters.\1\
Interpretive Letter No. 695 found that a national bank authorized to
engage in fiduciary activities may act in a fiduciary capacity in any
state that permits its own in-state fiduciaries to act in that
capacity, including at trust offices. Interpretive Letters Nos. 866 and
872 clarified that a national bank that acts in a fiduciary capacity in
one state may market its fiduciary services to customers in other
states, solicit business from them, and act as fiduciary for customers
located in other states. The NPRM and the final rule are based upon the
detailed analysis contained in these Interpretive Letters.
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\1\ OCC Interpretive Letter No. 872 (Oct. 28, 1999) reprinted in
[1999-2000 Transfer Binder] Fed. Banking L. Rep. (CCH) para.81-366
(IL 872); OCC Interpretive Letter No. 866 (Oct. 8, 1999) reprinted
in (1999-2000 Transfer Binder] Fed. Banking L. Rep. (CCH) para.81-
360 (IL 866); and OCC Interpretive Letter No. 695 (Dec. 8, 1995),
reprinted in [1995-1996 Transfer Binder] Fed. Banking L. Rep. (CCH)
para. 81-010 (IL 695).
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Along with the NPRM, we also published an advance notice of
proposed rulemaking (ANPR) inviting comments on whether the OCC should
establish uniform national standards for the conduct of fiduciary
activities by national banks. The ANPR invited comments on whether
uniform standards of care generally applicable to national bank
trustees' administration of private trusts and investment of private
trust property should be established.
We received comments on both the NPRM and the ANPR. As discussed
further below, comments on the NPRM predominantly were favorable.
Comments on the ANPR were more mixed, raising a significant number of
issues that will require additional analysis before any determination
is made concerning how to proceed. Rather than delay addressing the
issues covered by the OCC interpretations, we are issuing this final
rule, which covers only the matters included in the NPRM, and are
reserving a decision whether to proceed with a proposal to establish
uniform fiduciary standards pending completion of our analysis of the
issues raised by the commenters.
The OCC received 25 comments on the NPRM. These comments included 4
from state bank supervisors' offices, 1 from a state bank supervisors'
organization, 6 from banking trade associations, 13 from banks and bank
holding companies, and 1 from a law firm. Most of the commenters
supported the proposed changes, although several offered additional
suggestions for changes. The state bank supervisors disagreed with the
proposal and expressed concern about the effect the rule would have on
the application of state laws to national banks engaged in fiduciary
activities.
For the reasons discussed below, we have adopted the provisions of
the NPRM substantially as proposed, but have made a number of changes
in response to the comments received to clarify certain provisions.
Description of Proposal, Comments Received, and Final Rule
Definitions (Revised Sec. 9.2)
Proposed Sec. 9.2 defined ``trust office'' and ``trust
representative office'' in Secs. 9.2(j) and (k), respectively. A
``trust office'' was defined as an office of a national bank, other
than a main office or a branch, at which the bank acts in a fiduciary
capacity. A ``trust representative office'' was defined as an office of
a national bank, other than a main office, branch, or trust office, at
which the bank performs activities ancillary to its fiduciary business,
but does not act in a fiduciary capacity.
The final rule modifies the definition of trust office to clarify
that it includes all offices where the bank engages in one or more of
the key fiduciary activities specified in Sec. 9.7(d)--i.e., accepting
the fiduciary appointment, executing the documents that create the
fiduciary relationship, or making discretionary decisions regarding the
investment or distribution of fiduciary assets. The definition in the
proposal focused on where the bank acted in a fiduciary capacity (where
the key fiduciary activities were performed) and implicitly assumed
that all of the key fiduciary activities would be performed in one
state for each fiduciary relationship (so that ``acting in a fiduciary
capacity'' and performing the key activities were the same). However,
as discussed in detail below in connection with Sec. 9.7(d), in some
instances, the key activities may be performed at offices in different
states for some fiduciary relationships. In those instances, as
provided in Sec. 9.7(d)
[[Page 34793]]
a bank must determine one state in which it acts in a fiduciary
capacity for purposes of 12 U.S.C. 92a. That means that there will
remain other offices in other states in which the bank performs key
fiduciary activities that, under the definition in the proposal, would
not have been considered to be trust offices. However, our intention
was that because each of these key activities is significant standing
alone, all offices in which a bank engages in any of the key fiduciary
activities should be considered to be trust offices. Therefore, the
final rule clarifies the definition of ``trust office'' to be an office
of a national bank, other than a main office or a branch, at which the
national bank engages in one or more of the activities specified in
Sec. 9.7(d). A corresponding change has been made to Sec. 9.2(k). A
``trust representative office'' is defined as an office of a national
bank, other than a main office, branch, or trust office, at which the
bank performs activities ancillary to its fiduciary business, but does
not engage in any of the activities specified in Sec. 9.7(d).
Section 9.2(k) of the proposal listed the following examples of
ancillary activities: advertising, marketing, and soliciting for
fiduciary business; contacting existing or potential customers,
answering questions, and providing information about matters related to
their accounts; acting as a liaison between the trust office and the
customer (e.g., forwarding requests for distribution or changes in
investment objectives, or forwarding forms and funds received from the
customer); or simply inspecting or maintaining custody of fiduciary
assets.
A number of commenters suggested that various activities be added
to the list of examples of ancillary activities. The list of ancillary
activities set forth in Sec. 9.2(k) is illustrative only, however, and
not all-inclusive. While the OCC considers many of the suggested
activities to be ancillary activities, we have not included most of
them in the text of the final rule because the list set out in the
definition is not intended to be comprehensive. A national bank may
therefore identify additional activities as ancillary without seeking
the express concurrence of the OCC. To make this clear, we have added
to the text of the final rule an express statement that the items on
the list are illustrative and that other activities may also be
``ancillary'' for the purposes of the definition.\2\
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\2\ Classifying activities as ``ancillary'' in Secs. 9.2(j) and
(k) is meant only to assist in the determination of the state in
which the bank is acting in a fiduciary capacity for section 92a
purposes. Only the key fiduciary activities in Sec. 9.7(d) are
relevant for determining that state: all other activities are
``ancillary'' for this purpose. This classification does not affect
the importance of such activities or change in any way a bank's
fiduciary duty with respect to such activities.
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Two commenters urged that holding title to real property in any
state be added to the list of ancillary activities in Sec. 9.2(k),
because some state laws attempt to prohibit out-of-state entities from
taking title to real property without a state license or other
authorization. Because this appears to be a specific issue warranting
clarification, we have added holding title to real estate to the list
of ancillary activities in Sec. 9.2(k). The statutory authority for
national banks to exercise fiduciary powers, 12 U.S.C. 92a, does not
subject the exercise of a national bank's fiduciary powers to
restrictions or preconditions, such as licensing requirements, under
state law. State laws prohibiting out-of-state national banks from
taking title to real property have such an effect. For these reasons,
and because we believe that this activity is consistent with national
banks' exercise of their fiduciary powers, we have added holding title
to real property to the list of ancillary activities in the final
rule.\3\ Consistent with this change, we also have added language to
Sec. 9.7(b) to clarify that while acting in a fiduciary capacity in one
state, a bank may act as fiduciary for relationships that include
property located in other states.
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\3\ This is consistent with the Office of Thrift Supervision's
(OTS) position under its parallel statute. See OTS Chief Counsel
Opinion (August 8, 1996), reprinted in [1996-1997 Transfer Binder]
Fed. Banking L. Rep. (CCH) para.83-102 (OTS August 1996 Opinion)
(holding title to real property as trustee in a state would not
cause a federal savings association to be located in that state
because the activity is incidental and not discretionary).
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As we stated in the NPRM, neither a trust office nor a trust
representative office is a branch for purposes of the McFadden Act, 12
U.S.C. 36, which governs the location of national bank branches. In
order to be considered a branch under the McFadden Act, a bank facility
must perform at least one of the core branching functions of receiving
deposits, paying checks, or lending money. 12 U.S.C. 36(j). The
locational limitations of 12 U.S.C. 36 are not intended to reach all
activities in which national banks are authorized to engage, but only
core branching functions. See Clarke v. Securities Industry
Association, 479 U.S. 388 (1987) (considering securities brokerage
powers) (Clarke). Proposed Secs. 9.2(j) and (k) therefore stated that a
trust office or a trust representative office is not a branch unless it
is also an office at which deposits are received, or checks paid, or
money lent.\4\
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\4\ This final rule is consistent with the limitation, found in
12 U.S.C. 93a, which states that the general rulemaking authority
vested in the OCC by that section ``does not apply to section 36 of
[Title 12 of the United States Code].'' This limitation simply makes
clear that section 93a does not expand whatever authority the OCC
has pursuant to other statutes to adopt regulations affecting
national bank branching. Congress clearly contemplated that the OCC
would implement section 36, as is evidenced by the repeated
references to obtaining the OCC's approval throughout that section
(see, e.g., paragraphs (b)(1), (b)(2), (c), (g), and (i) of section
36). It would be illogical to conclude that the OCC, in implementing
the provisions requiring national banks to obtain the OCC's prior
approval under the sections cited, cannot interpret what the terms
of the statute mean or that the interpretation must be made on a
case-by-case basis. This rulemaking simply clarifies a situation
that falls outside the branching restrictions imposed by section 36.
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Several state bank supervisors disagreed with the OCC's conclusion
that fiduciary activities are not core branching functions and stated
their belief that trust offices should be considered to be branches.
They assert that the Clarke case held only that discount brokerage
activities are not core branching functions and should not be read to
conclude that any other activities are not core branching functions.
The OCC has carefully considered these comments, but remains of the
view that fiduciary activities under section 92a do not constitute core
branching functions and that a national bank office that provides only
fiduciary services would not be subject to the McFadden Act. In Clarke,
the Supreme Court held that the McFadden Act's locational limits do not
reach all activities in which national banks engage. This conclusion in
the Clarke case is reinforced by the recent decision in First National
Bank of McCook, Nebraska v. Fulkerson, et al., Civil Action No. 98-D-
1024, slip op. (D.C. Co. March 7, 2000), where the court held that the
combination of a deposit production office, a loan production office,
and an ATM do not constitute a branch because no core branching
functions are performed.\5\
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\5\ See also Bank One, Utah v. Guttau, 190 F. 3d 844 (8th Cir.
1999) (ATMs are excluded from the definition of ``branch'').
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Finally, the second sentence in current Sec. 9.2(g) provides that
the extent of fiduciary powers is the same for out-of-state national
banks as in-state national banks. We proposed to remove this sentence
as unnecessary in light of new Sec. 9.7, which sets forth the rules
concerning multi-state fiduciary operations. We received no comments on
this proposed change, and have adopted it as proposed.
[[Page 34794]]
Approval Requirements (revised Sec. 9.3)
Current Sec. 9.3(a) provides that ``[a] national bank may not
exercise fiduciary powers unless it obtains prior approval from the OCC
to the extent required under 12 CFR 5.26.'' Section 5.26(e)(5)
currently provides that a national bank that has obtained the OCC's
approval to exercise fiduciary powers does not need to obtain further
approval to ``commence fiduciary activities'' in a state in addition to
the state(s) described in the application for which it received OCC
approval to exercise fiduciary powers. Instead, the bank is required
only to provide written notice to the OCC within ten days after
commencing fiduciary activities in a new state.
Under the proposal, a bank that has received OCC approval to
exercise fiduciary powers does not need prior OCC approval each time it
seeks to act in a fiduciary capacity in a new state or to conduct
activities in a new state that are ancillary to its fiduciary business.
Proposed paragraph (b) also directs the bank to follow the notice
procedures in Sec. 5.26(e)(5) (discussed below) in order to emphasize
that revised Sec. 9.3(b) is consistent with Sec. 5.26(e)(5) and is not
intended to impose any additional or different procedures on national
banks. Current paragraph (b), which addresses the procedures for
organizing a limited purpose trust bank, would be redesignated as
paragraph (c).
We received one comment on this proposed change, suggesting that we
clarify in Sec. 9.3(b) that marketing and soliciting fiduciary business
are included in ancillary activities. Because this is made clear in
Sec. 9.2(k), it is unnecessary to repeat it in this provision. The
final rule has, however, been changed to reflect the modified
definition of ``trust office'' in Sec. 9.2(j). Consistent with
Sec. 5.26(e)(5) of the final rule, this provision now states that a
national bank granted fiduciary powers by the OCC is not required to
obtain the OCC's prior approval to engage in any of the activities
specified in Sec. 9.7(d) in a new state or to conduct ancillary
fiduciary activities in a new state.
Multi-State Fiduciary Operations (New Sec. 9.7)
The statutory authority for national banks to exercise fiduciary
powers is contained in 12 U.S.C. 92a(a) and (b). In IL 872, IL 866, and
IL 695, the OCC considered how the language of section 92a would be
applied in an interstate context.
Under section 92a, national banks may exercise fiduciary powers
with OCC approval. Section 92a(a) states:
The Comptroller of the Currency shall be authorized and
empowered to grant by special permit to national banks applying
therefor, when not in contravention of State or local law, the right
to act as trustee, executor, administrator, registrar of stocks and
bonds, guardian of estates, assignee, receiver, committee of estates
of lunatics, or in any other fiduciary capacity in which State
banks, trust companies, or other corporations which come into
competition with national banks are permitted to act under the laws
of the State in which the national bank is located. (Emphasis
added).
Section 92a(b) clarifies that, whenever state law permits state
banks, trust companies, or other corporations that compete with
national banks (State Fiduciaries) to exercise any of the fiduciary
powers in section 92a(a), a national bank's exercise of those powers is
deemed not to be in contravention of State or local law under section
92a.
Thus, ``when not in contravention of State or local law'' (the
Contravention Clause), a national bank may act in any of the fiduciary
capacities specified in section 92a(a). This statutory grant of
authority does not limit where a national bank may act in a fiduciary
capacity. Nor does it require that the customers for whom the bank may
act or the property involved in the fiduciary relationship be located
in the same state as the bank. A bank is free to act in a fiduciary
capacity in more than one state.
The Contravention Clause in section 92a(a) requires that a national
bank look to the laws of the state in which it acts, or proposes to
act, in a fiduciary capacity to determine what fiduciary capacities are
permissible.\6\ The state in which the bank acts in a fiduciary
capacity for each existing or proposed fiduciary relationship is the
state in which the bank performs the key fiduciary activities of
accepting fiduciary appointments, executing documents that create the
fiduciary relationship, or making decisions regarding the investment or
distribution of fiduciary assets. This state is also the state referred
to in other provisions in section 92a that refer to state law
(subsections 92a(b), (c), (f), (g) and (i)) (the Section 92a State).
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\6\ The last phrase in paragraph (a) of section 92a refers to
the state in which the national bank is ``located.'' The primary
reference to a state is in the Contravention Clause regarding the
right to act in fiduciary capacities (the language emphasized
above). That language was in the statute originally, before the
phrase using the term ``located'' was added. Thus, we believe that
the reference to the state in which a bank is located refers to the
state in which the bank is acting in a fiduciary capacity. We note
that the OTS construes its parallel statute in a similar way. The
OTS concludes that a federal savings association may exercise
fiduciary powers permitted for state fiduciaries in the states in
which it is located, but it is ``located'' for this purpose in the
state in which it performs key fiduciary functions. See, e.g., OTS
August 1996 Opinion.
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Section 9.7 of the proposed rule reflected this interpretation of
section 92a. In paragraph (a) of proposed Sec. 9.7, we stated that a
national bank may act in a fiduciary capacity in any state. Proposed
Sec. 9.7(a) went on to state that if a national bank acts, or proposes
to act, in a fiduciary capacity in a particular state, the bank may act
in any of the eight fiduciary capacities expressly listed in section
92a(a) unless the state affirmatively prohibits that capacity for its
own State Fiduciaries as well as any other capacity a state permits for
its own State Fiduciaries. This authority exists even if the state
purports to restrict it for national banks. If state law is silent with
respect to one (or more) of the eight capacities listed in section
92a(a), then that capacity is not in contravention of state law and a
national bank may act in that capacity.
These conclusions, along with a more complete explanation of their
underlying reasons, were stated in IL 695 and IL 872. As previously
noted, the proposal intended to reflect the conclusions reached in
those letters and is based on the reasoning stated therein.
Most of the comments on proposed Sec. 9.7(a) supported its
adoption. Of these, several requested that we clarify that the question
of where a national bank is located for purposes of section 92a is a
question of federal law. Comments from several state bank supervisors
objected to proposed Sec. 9.7(a), on the grounds that it would permit
national banks a competitive advantage by being able to expand their
fiduciary activities into states notwithstanding state limits on who
may act as fiduciary. These commenters maintained that section 92a
preserves for each state the right to establish such limits. They also
suggested that the determination of which state's laws govern the
permissible capacities should be resolved by whether a national bank
has its main office or a branch located in that state.
As set out above, we believe that section 92a imposes no
limitations on where a bank may act in a fiduciary capacity. Under the
Contravention Clause, a state may not prohibit or restrict national
banks (including out-of-state national banks) from acting in a
fiduciary capacity in the state in any manner, unless it also limits
its own State Fiduciaries.
Moreover, we disagree that ``location'' for purposes of section 92a
is appropriately determined by the presence of a main office or bank
branch. As previously discussed, the Contravention Clause of section
92a
[[Page 34795]]
requires that a bank look to the laws of the state in which it acts in
one or more fiduciary capacities in order to determine the limits on
those capacities.
For the reasons discussed above, we have adopted proposed
Sec. 9.7(a) as proposed, making only stylistic changes to improve the
readability of this provision.
Once the state in which a national bank is acting in a fiduciary
capacity is identified, the fiduciary services may be offered
regardless of where the fiduciary customers reside or where property
that is being administered is located. This point was incorporated in
proposed Sec. 9.7(b), which provided that a national bank may market
its services to customers in other states and solicit business from
them. It also may establish and use a trust representative office for
these purposes. Accordingly, a state may not prohibit or restrict out-
of-state national banks from marketing to, or performing fiduciary
functions for, customers in that state. Such state laws are not within
the powers reserved to the states by section 92a, and so they cannot
prohibit or restrict a national bank's exercise of its federally
granted powers.\7\ These conclusions are consistent with the
conclusions set out in IL 866 and IL 872.\8\
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\7\ See, e.g., Barnett Bank of Marion County v. Nelson, 517 U.S.
25 (1996).
\8\ The OTS has reached the same conclusions under its parallel
statute. See, e.g., OTS August 1996 Opinion (federal savings
association will not be deemed located in a state where its only
trust-related activities are marketing its trust services and
performing incidental duties pursuant to its appointment as
testamentary trustee or trustee holding real estate; and federal law
would preempt state laws that prohibit or restrict an out-of-state
federal thrift from engaging in these activities in the state); OTS
Chief Counsel Opinion No. 94/CC-13 (June 13, 1994), reprinted in
[1994 Transfer Binder] Fed. Banking L. Rep. (CCH) para. 82,814
(trust marketing and referral activities at affiliate's offices does
not make federal savings association located at those offices; state
laws that prohibit or restrict an out-of-state federal thrift from
engaging in these activities in the state are preempted).
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A few commenters asked that we clarify that Sec. 9.7(b) does not
require a national bank to establish a trust representative office in
order to market its fiduciary services to, or act as a fiduciary for,
customers in any state. We agree that a bank need not establish a trust
representative office; the reference to trust representative offices
was intended solely to illustrate one option available to national
banks who seek to market their fiduciary services. The final rule, like
the proposal, states that a national bank ``may'' use a trust
representative office to market its fiduciary services to and act as a
fiduciary for customers in any state, indicating that use of a trust
representative office is discretionary. As noted earlier, we also have
added language to Sec. 9.7(b) to clarify that while acting in a
fiduciary capacity in one state, a bank may act as fiduciary for
relationships that include property located in other states.
As previously discussed, section 92a imposes no geographic limit on
where a bank may act in a fiduciary capacity. Similarly, there is no
geographic limit on where a bank may offer services that are incidental
to acting in a fiduciary capacity. Accordingly, proposed Sec. 9.7(c)
reflected the conclusions stated in the Interpretive Letters that a
national bank with fiduciary powers may establish a trust office or
trust representative office in any state. We received no comments on
proposed Sec. 9.7(c) as such, and we have adopted it as proposed.
Proposed Sec. 9.7(d) clarified how national banks may determine the
state in which they are acting in a fiduciary capacity. In IL 866 and
IL 872, we concluded that a national bank is deemed to be ``acting in a
fiduciary capacity'' for purposes of section 92a in the state in which
the bank performs the key fiduciary functions of executing the
documents that create the fiduciary relationship, accepting the
fiduciary appointment, and making decisions regarding the investment or
distribution of fiduciary assets. As proposed, Sec. 9.7(d) incorporated
this position and further provided that, if with respect to a
particular fiduciary relationship these key fiduciary activities take
place in more than one state, then the state in which the bank acts in
a fiduciary capacity will be the state that the bank and customer
designate from among those states. We specifically invited comment on
ways to simplify the determination of where a bank with multi-state
operations is acting in a fiduciary capacity.
We received several comments relating to the determination of where
a bank acts in a fiduciary capacity when the key fiduciary activities
take place in more than one state. One commenter asked us to clarify
whether it was our intent to have the choice of law clause in the
trust's governing instrument be used to designate where the bank acted
in a fiduciary capacity. Similarly, two commenters suggested that we
look to the governing instrument to make the determination. A few
commenters suggested that, where the designation could not be made by
the governing instrument or the customer has not or cannot otherwise
make the designation, the bank be permitted to do so alone. A few
commenters also noted the importance of the meaning of the term
``customer,'' noting that if defined too broadly, it could be quite
burdensome for a bank to consult with customers to make the
designation.
We agree with those commenters who pointed out the potential
problems, in situations where a bank performs the key fiduciary
activities in more than one state, of requiring a bank to obtain
customer agreement concerning the state in which the bank will be
deemed to be acting in a fiduciary capacity. For instance, a bank could
be forced to obtain the agreement of many different people residing in
several different locations. To avoid these problems, we have revised
Sec. 9.7(d) to provide that a bank performing the key fiduciary
activities in more than one state for any particular fiduciary
relationship may designate from among these states which state's laws
are made applicable by operation of section 92a for that relationship.
We have also made some minor changes intended to improve the
readability of Sec. 9.7(d), including a change in its heading.
Many of the commenters indicated some confusion over the
significance of the determination of the Section 92a State. Section 92a
directs the application of state law for purposes of determining a
national bank's permissible fiduciary capacities (referred to in
sections 92a(a) and (b)); for purposes of setting certain operational
requirements for national banks as corporate fiduciaries (referred to
in sections 92a(f), (g) & (i)); and for purposes of granting state
banking authorities limited access to OCC examination reports relating
to national bank trust departments (referred to in section 92a(c)).
Proposed Sec. 9.7(d) provided a means to identify which state's laws
apply for purposes of section 92a when a bank is conducting multi-state
fiduciary activities. As discussed more fully below, this determination
is separate from the selection of the substantive law that governs
matters affecting the exercise of the fiduciary appointment, such as
standards of care.
Proposed Sec. 9.7(e) provided a direct statement of how state law
applies to a national bank engaging in fiduciary activities. As set out
in the proposal, the state laws that apply to a national bank's
fiduciary activities by operation of section 92a are the laws of the
state in which the bank acts in a fiduciary capacity.
Two commenters suggested that we clarify that state laws may not
impose operational requirements on national banks that engage only in
limited trust operations. In both IL 866 and IL 872 we stated that
section 92a does not ``condition the exercise of fiduciary
[[Page 34796]]
powers on compliance with state laws that purport to impose licensing
or operating requirements on national banks.'' \9\ This point is
incorporated in Sec. 9.7(e)(2) of the final rule, which provides that,
with the exception of those state laws specifically referenced in
section 92a, national banks' exercise of fiduciary powers is not
subject to restrictions or preconditions under state law. Such
restrictions and preconditions include, but are not limited to, state
licensing requirements. This principle applies to the fiduciary
activities of full service national banks as well as national banks
that engage only in limited trust operations.
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\9\ See IL 866 p. 9; IL 872 p. 10.
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Section 9.7(e) does not affect the applicability of state
substantive laws that govern the fiduciary relationship, such as the
standard of care to be exercised by the fiduciary, or ability of a
grantor to designate which state's laws govern the trust itself. A
grantor is free to designate which state laws apply for all other
purposes or to have the applicable law determined by choice-of-law
rules. For example, if the bank acting in a fiduciary capacity in State
A is trustee for a trust whose grantor and beneficiaries are located in
State B and the trust, by its terms, is governed by the laws of State
C, then the laws of State C will govern the administration of the
trust. The choice of law clause in a trust instrument does not,
however, determine where a bank is acting in a fiduciary capacity or
the laws that apply by operation of section 92a. That determination is
a matter of federal law pursuant to section 92a. It cannot be altered
by agreement of the parties.
Several state bank supervisors objected to the conclusion that a
national bank is not subject to state laws that restrict the activities
of out-of-state fiduciaries. However, as discussed above, the
Contravention Clause in section 92a only serves to limit national banks
from engaging in fiduciary capacities that are not permitted for State
Fiduciaries but does not otherwise limit a national bank's ability to
exercise its federal authority in any state. State laws that are
outside the ambit of the Contravention Clause, and so not authorized by
Congress to apply to national banks, may not restrict or interfere with
the exercise of permissible federal power. See, e.g., Barnett Bank,
supra.
The state supervisors also pointed to discussion in earlier OCC
interpretive letters, in particular IL 525, that suggested that all
aspects of state law governing state fiduciary institutions applied to
national banks. However, IL 525 was concerned primarily with the
substantive fiduciary standards that would apply to national banks in
certain trust contexts. As noted above, the substantive law governing a
trust is a different matter than the law made applicable to national
banks by operation of section 92a. Moreover, the discussion of state
law in IL 525 did not involve an interstate situation and was focused
on the issue of the substantive fiduciary law governing the fiduciary
appointment. The OCC's analysis of the application of section 92a in
the interstate context, including the manner in which it incorporates
state law, is clearly set forth in ILs 872, 866, and 695, the NPRM, and
this final rule. Any contrary implications in IL 525 do not represent
the position of the agency.
Deposit of Securities with State Authorities (Revised Sec. 9.14)
Under section 92a(f) and current Sec. 9.14 of our regulations, a
national bank must comply with state laws that require corporations
that act in a fiduciary capacity to deposit securities with state
authorities for the protection of private or court trusts. The proposal
made a technical amendment to Sec. 9.14 to conform to the terminology
used in proposed Sec. 9.7. The proposal replaced the phrase
``administers trust assets'' in paragraph (b) of that section with the
phrase ``acts in a fiduciary capacity.'' No substantive change was
intended by this amendment.
The proposal also added a second sentence to Sec. 9.14(b) to
clarify how a bank that conducts fiduciary operations on a multi-state
basis pursuant to proposed Sec. 9.7 should compute the amount of
deposit required by a state law that requires a deposit of securities
on a basis other than assets (such as an amount equal to a percentage
of capital). Pursuant to the proposal, in such a state, the bank may
compute the amount of deposit required on a pro-rated basis, according
to the proportion of fiduciary assets for which the bank is acting in a
fiduciary capacity at offices located in that state.
A few commenters requested clarification of how the rule would
apply to them, suggesting that sample calculations be included in the
regulation. We believe that specific questions are better addressed by
consultation with agency staff or in interpretive letters. Accordingly,
we are adopting the proposal for this section without change.
Fiduciary Powers (Revised Sec. 5.26)
Consistent with the proposed changes discussed above, we also
proposed an amendment to 12 CFR 5.26(e) to clarify that a national bank
that plans to act in a fiduciary capacity in a state in addition to the
state described in the application for fiduciary powers that the OCC
has approved need only give notice of commencing to act in a fiduciary
capacity in a new state. The proposal would revise current
Sec. 5.26(e)(5) so that it reflects the distinction between acting in a
fiduciary capacity and conducting activities ancillary to the bank's
fiduciary business. The ten-day, after-the-fact notice requirement
would apply only to acting in a fiduciary capacity.
The final rule has been changed to reflect the modified definition
of ``trust office'' in Sec. 9.2(j). This provision now states that no
application is required when a national bank with fiduciary powers
plans to engage in any of the fiduciary activities specified in
Sec. 9.7(d) or conduct ancillary activities in a new state. The final
rule provides that, instead, the ten-day, after-the-fact notice to the
OCC is required when a bank begins to engage in any of the key
fiduciary activities specified in Sec. 9.7(d) in a new state.
We received six comments requesting that we clarify that there is
no need for prior approval or subsequent notice for establishing trust
representative offices. As discussed above, a national bank that has
received OCC approval to exercise fiduciary powers does not need to
make any further application to the OCC when it plans to engage in any
of the fiduciary activities specified in Sec. 9.7(d) or conduct
ancillary activities in a new state, but does need to provide notice to
OCC within 10 days after it begins to engage in any of the fiduciary
activities specified in Sec. 9.7(d) in a new state. Since engaging in
ancillary activities does not constitute engaging in any of the key
fiduciary activities specified in Sec. 9.7(d), and since only ancillary
activities are undertaken at a trust representative office, a national
bank is not required to get prior approval or give subsequent notice in
order to establish a trust representative office. We have added a new
sentence to clarify this point in the final rule.
Regulatory Flexibility Act
Pursuant to section 605(b) of the Regulatory Flexibility Act, 5
U.S.C. 605(b) (RFA), the regulatory flexibility analysis otherwise
required under section 604 of the RFA is not required if the agency
certifies that the rule will not have a significant economic impact on
a substantial number of small entities and publishes its certification
and a short, explanatory statement in the Federal Register along with
its rule.
Pursuant to section 605(b) of the RFA, the OCC hereby certifies
that this
[[Page 34797]]
rulemaking will not have a significant economic impact on a substantial
number of small entities. The final rule codifies case law and OCC
interpretations, but adds no new requirements. Accordingly, a
regulatory flexibility analysis is not needed.
Executive Order 12866
The OCC has determined that this final rulemaking is not a
significant regulatory action under Executive Order 12866.
Unfunded Mandates Act of 1995
Section 202 of the Unfunded Mandates Reform Act of 1995, 2 U.S.C.
1532 (Unfunded Mandates Act), requires that the agency prepare a
budgetary impact statement before promulgating any rule likely to
result in a Federal mandate that may result in the expenditure by
State, local, and tribal governments, in the aggregate or by the
private sector, of $100 million or more in any one year. If a budgetary
impact statement is required, section 205 of the Unfunded Mandates Act
also requires the agency to identify and consider a reasonable number
of regulatory alternatives before promulgating the rule. For the
reasons outlined above, 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, the OCC has not prepared a budgetary impact
statement or specifically addressed any regulatory alternatives.
Executive Order 13132
Executive Order 13132 requires Federal agencies, including the OCC,
to certify their compliance with that Order when they transmit to the
Office of Management and Budget any draft final regulation that has
Federalism implications. Under the Order, a regulation has Federalism
implications if it has ``substantial direct effects on the States, on
the relationship between the national government and the States, or on
the distribution of power and responsibilities among the various levels
of government.'' In the case of a regulation that has Federalism
implications and that preempts State law, the Order imposes certain
consultation requirements with State and local officials; requires
publication in the preamble of a Federalism summary impact statement;
and requires the OCC to make available to the Director of the Office of
Management and Budget any written communications submitted to us by
State and local officials. By the terms of the Order, these
requirements apply to the extent that they are practicable and
permitted by law and, to that extent, must be satisfied before the OCC
promulgates a final regulation.
In our proposal relating to this final rule, we noted that certain
provisions in the proposal may have Federalism implications, as that
term is used in the Order, or may be found by a Federal court to
preempt State law. The concern regarding Federalism was primarily
directed to the advance notice, according to which the OCC proposed to
establish uniform federal standards governing fiduciary activities that
would be generally applicable to national bank trustees' administration
of private trusts and investment of private trust property. A
discussion of the Federalism issues arising from any uniform federal
standard of fiduciary activities will be provided in any subsequent
rulemaking document on that issue.
This final rule contains provisions that determine which States'
laws apply to a national bank for purposes of 12 U.S.C. 92a, a Federal
law. The determination of which State's rules apply for purposes of
section 92a is governed, for the reasons set out above, by a
determination of the State in which a national bank is acting in a
fiduciary capacity. Once that determination is made, then, by operation
of section 92a, other States' laws governing the operation of a
national bank's fiduciary activities do not apply.
We note that there has been consultation with State officials on
the issues addressed herein, both through this rulemaking and through
other documents published in the Federal Register on which comment was
invited. See 60 FR 66163 (December 21, 1995), 61 FR 68543 (December 30,
1996), 62 FR 19172 (April 18, 1997), and 62 FR 19173 (April 18, 1997).
As discussed in this preamble, we received and considered a number of
comments from states, and will make them available to the Director of
the OMB.
List of Subjects
12 CFR Part 5
Administrative practice and procedure, National banks, Reporting
and recordkeeping requirements, Securities.
12 CFR Part 9
Estates, Investments, National banks, Reporting and recordkeeping
requirements, Trusts and trustees.
Authority and Issuance
For the reasons set forth in the preamble, parts 5 and 9 of chapter
I of title 12 of the Code of Federal Regulations are amended as
follows:
PART 5--RULES, POLICIES, AND PROCEDURES FOR CORPORATE ACTIVITIES
1. The authority citation for part 5 continues to read as follows:
Authority: 12 U.S.C. 1 et seq., 93a; and section 5136A of the
Revised Statutes (12 U.S.C. 24a).
Subpart B--Initial Activities
2. Paragraph (e)(5) of Sec. 5.26 is revised to read as follows:
Sec. 5.26 Fiduciary powers.
* * * * *
(e) * * *
(5) Notice of fiduciary activities in additional states. No further
application under this section is required when a national bank with
existing OCC approval to exercise fiduciary powers plans to engage in
any of the activities specified in Sec. 9.7(d) of this chapter or to
conduct activities ancillary to its fiduciary business, in a state in
addition to the state described in the application for fiduciary powers
that the OCC has approved. Instead, unless the bank provides notice
through other means (such as a merger application), the bank shall
provide written notice to the OCC no later than ten days after it
begins to engage in any of the activities specified in Sec. 9.7(d) of
this chapter in the new state. The written notice must identify the new
state or states involved, identify the fiduciary activities to be
conducted, and describe the extent to which the activities differ
materially from the fiduciary activities that the bank was previously
authorized to conduct. No notice is required if the bank is conducting
only activities ancillary to its fiduciary business through a trust
representative office or otherwise.
* * * * *
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. Sec. 9.2 is amended by removing the second sentence in paragraph
(g) and adding new paragraphs (j) and (k) as follows:
Sec. 9.2 Definitions.
* * * * *
(j) Trust office means an office of a national bank, other than a
main office or a branch, at which the bank engages in one or more of
the activities specified
[[Page 34798]]
in Sec. 9.7(d). Pursuant to 12 U.S.C. 36(j), a trust office is not a
``branch'' for purposes of 12 U.S.C. 36, unless it is also an office at
which deposits are received, or checks paid, or money lent.
(k) Trust representative office means an office of a national bank,
other than a main office, branch, or trust office, at which the bank
performs activities ancillary to its fiduciary business, but does not
engage in any of the activities specified in Sec. 9.7(d). Examples of
ancillary activities include advertising, marketing, and soliciting for
fiduciary business; contacting existing or potential customers,
answering questions, and providing information about matters related to
their accounts; acting as a liaison between the trust office and the
customer (e.g., forwarding requests for distribution or changes in
investment objectives, or forwarding forms and funds received from the
customer); inspecting or maintaining custody of fiduciary assets or
holding title to real property. This list is illustrative and not
comprehensive. Other activities may also be ``ancillary activities''
for the purposes of this definition. Pursuant to 12 U.S.C. 36(j), a
trust representative office is not a ``branch'' for purposes of 12
U.S.C. 36, unless it is also an office at which deposits are received,
or checks paid, or money lent.
3. Sec. 9.3 is amended by revising paragraph (b) and adding
paragraph (c) to read as follows:
Sec. 9.3 Approval requirements.
* * * * *
(b) A national bank that has obtained the OCC s approval to
exercise fiduciary powers is not required to obtain the OCC s prior
approval to engage in any of the activities specified in Sec. 9.7(d) in
a new state or to conduct, in a new state, activities that are
ancillary to its fiduciary business. Instead, the national bank must
follow the notice procedures prescribed by 12 CFR 5.26(e).
(c) A person seeking approval to organize a special-purpose
national bank limited to fiduciary powers shall file an application
with the OCC pursuant to 12 CFR 5.20.
4. A new Sec. 9.7 is added to read as follows:
Sec. 9.7 Multi-state fiduciary operations.
(a) Acting in a fiduciary capacity in more than one state. Pursuant
to 12 U.S.C. 92a and this section, a national bank may act in a
fiduciary capacity in any state. If a national bank acts, or proposes
to act, in a fiduciary capacity in a particular state, the bank may act
in the following specific capacities:
(1) Any of the eight fiduciary capacities expressly listed in 12
U.S.C. 92a(a), unless the state prohibits its own state banks, trust
companies, and other corporations that compete with national banks in
that state from acting in that capacity; and
(2) Any other fiduciary capacity the state permits for its own
state banks, trust companies, or other corporations that compete with
national banks in that state.
(b) Serving customers in other states. While acting in a fiduciary
capacity in one state, a national bank may market its fiduciary
services to, and act as fiduciary for, customers located in any state,
and it may act as fiduciary for relationships that include property
located in other states. The bank may use a trust representative office
for this purpose.
(c) Offices in more than one state. A national bank with fiduciary
powers may establish trust offices or trust representative offices in
any state.
(d) Determination of the state referred to in 12 U.S.C. 92a. For
each fiduciary relationship, the state referred to in section 92a is
the state in which the bank acts in a fiduciary capacity for that
relationship. A national bank acts in a fiduciary capacity in the state
in which it accepts the fiduciary appointment, executes the documents
that create the fiduciary relationship, and makes discretionary
decisions regarding the investment or distribution of fiduciary assets.
If these activities take place in more than one state, then the state
in which the bank acts in a fiduciary capacity for section 92a purposes
is the state that the bank designates from among those states.
(e) Application of state law. (1) State laws used in section 92a.
The state laws that apply to a national bank's fiduciary activities by
virtue of 12 U.S.C. 92a are the laws of the state in which the bank
acts in a fiduciary capacity.
(2) Other state laws. Except for the state laws made applicable to
national banks by virtue of 12 U.S.C. 92a, state laws limiting or
establishing preconditions on the exercise of fiduciary powers are not
applicable to national banks.
5. Section 9.14(b) is revised to read as follows:
Sec. 9.14 Deposit of securities with state authorities
* * * * *
(b) Acting in a fiduciary capacity in more than one state. If a
national bank acts in a fiduciary capacity in more than one state, the
bank may compute the amount of securities that are required to be
deposited for each state on the basis of the amount of assets for which
the bank is acting in a fiduciary capacity at offices located in that
state. If state law requires a deposit of securities on a basis other
than assets (e.g., a requirement to deposit a fixed amount or an amount
equal to a percentage of capital), the bank may compute the amount of
deposit required in that state on a pro-rated basis, according to the
proportion of fiduciary assets for which the bank is acting in a
fiduciary capacity at offices located in that state.
Dated: June 21, 2001.
John D. Hawke, Jr.,
Comptroller of the Currency.
[FR Doc. 01-16329 Filed 6-29-01; 8:45 am]
BILLING CODE 4810-33-P