Collective Investment Funds

Risks

This section addresses risk from the perspective of the OCC’s risk assessment system. In most cases, the risks that apply to CIFs are compliance, transaction, strategic, and reputation. Each risk is defined in the “Large Bank Supervision” and “Community Bank Supervision” booklets of the Comptroller’s Handbook.

The establishment and administration of a CIF creates various types of risk that the bank must effectively manage. The bank must manage the risks associated with operating the CIF and must manage the risks associated with serving as the fiduciary for the participating interests. The bank, as fiduciary with investment discretion, makes the decision to invest a fiduciary account’s assets in a CIF, and the bank is subject to conflict of interest restrictions applicable to any fiduciary relationship.

Investment risk is inherent in the individual portfolios and assets that a bank fiduciary manages, or advises, for account principals and beneficiaries. These parties are the actual owners of the assets and assume the associated investment risk. A bank’s failure to manage investment risk prudently and in the best interest of a CIF’s participants can increase the bank’s level of transaction, compliance, reputation, and strategic risk and can have an adverse impact on earnings and capital.

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