Collective Investment Funds

Regulatory Overview

When the Federal Reserve Act was enacted in 1913, national banks were, for the first time, provided statutory authority to act in the same fiduciary capacities as state banks operating in the same state. Consistent with common law at the time, Federal Reserve regulations adopted in 1915 prohibited national banks from commingling trust funds.

The first CIF was organized under state law in 1927. In 1936, Congress amended the Internal Revenue Code (IRC) to provide tax-exempt status to certain CIFs maintained by a bank. In 1937, the Federal Reserve promulgated Regulation F that authorized banks to establish common trust funds. In 1938, the National Conference of Commissioners of Uniform State Laws approved the Uniform Common Trust Fund Act and recommended that each state adopt it. Despite the existence of this uniform act, many states crafted their own CIF statutory language resulting in a broad range of CIF statutes. In 1955, the Federal Reserve authorized banks to pool pension, profit-sharing, and stock bonus plans, and the IRS subsequently ruled that such funds could be tax exempt.

In 1962, Congress transferred supervisory responsibility for the fiduciary activities of national banks from the Federal Reserve to the OCC. The OCC’s adoption of 12 CFR part 9 in 1962 authorized national banks to collectively invest funds held as fiduciary in CIFs “where not in contravention of local law.” The OCC’s adoption of a rule that established standards for CIFs operated by national banks served as a model for subsequently enacted state statutes, many of which cross-reference section 9.18. The OCC’s rule has also facilitated compliance by banks with the IRC for A1 funds. The IRC specifically requires funds to conform with OCC rules and regulations in this area if they are to qualify for favorable tax treatment under IRC section 584.

In 1996, the OCC substantially revised part 9. Among the changes is a modification to section 9.18 that now authorizes a national bank to collectively invest assets into A1 and A2 funds “where consistent with applicable law.”

The OCC has approved a variety of national bank proposals for the establishment of CIFs to collectively invest assets such as IRA funds and other tax-exempt accounts for which the bank serves as trustee. However, as discussed further in the “Federal Securities Laws” section and appendices C and D, banks offering these funds must be familiar with guidance issued by both the OCC and the Securities and Exchange Commission (SEC) in this area.

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