Collective Investment Funds

Compliance Risk

A bank that does not comply with applicable law in operating a CIF may face lawsuits and regulatory supervisory action. The financial impact of litigation and regulatory action is difficult to estimate, but it could significantly diminish earnings and capital. In addition, such adverse situations may be highly publicized in the bank’s market area and could further damage a bank’s reputation.

A bank administering a CIF must comply with the terms of the plan document that specifies the manner in which the bank will operate the CIF. Failure to comply with the plan may result in a regulatory violation. The bank must ensure that only eligible account assets are allowed in CIFs and must also comply with a multitude of other federal laws, regulations, and interpretations. A bank’s failure to comply with all applicable federal securities and tax laws may lead to costly regulatory actions, as well as the CIF’s loss of favorable tax and securities law treatment, which could potentially affect individual account holders. In addition, a bank operating a CIF must ensure that it complies with applicable state trust investment laws.

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