Collective Investment Funds

Board and Management Supervision

A bank’s board of directors must manage or direct a CIF’s administration. A board may assign fiduciary management authority to any director, officer, employee, or committee of the bank and may use the qualified personnel and facilities of its affiliates to fulfill its fiduciary responsibilities (see 12 CFR 9.4). Management must ensure that all aspects of a bank-administered CIF comply with applicable law. Management must take special precautions to ensure that procedures are in place to prevent a bank employee from investing ineligible assets in a CIF.

The board may purchase administrative services for a CIF from a third-party vendor. A bank that does so must ensure that it complies with the “exclusive management” requirement set forth at 12 CFR 9.18(b)(2), which allows for prudent delegation to others, as well as with applicable interpretations of the ’40 Act. Appendix F (“Guidelines for Selecting Investment Managers and Advisers”) in the “Investment Management Services” booklet of the Comptroller’s Handbook contains factors and criteria a bank should consider when selecting a CIF manager or adviser.

If the board uses the services of a third-party vendor, it must ensure that the vendor conducts its services in a safe and sound manner and in compliance with applicable law. The board and senior management must provide proper oversight of those given the authority to administer the CIF, including a third-party vendor. OCC Bulletin 2001-47, “Third-Party Relationships,” provides additional risk management guidance for these types of service arrangements. For example, when a bank relies upon a third-party financial intermediary to serve as a conduit between an EB plan and the bank, the bank must ensure that the third-party vendor has systems in place to ensure that only eligible assets are transferred by the third-party to the bank for admission to the bank’s CIFs.

In addition to ensuring that a vendor only refers eligible assets for admission to a CIF, a bank must ensure that appropriate documentation is in place between the bank and a third-party vendor and, when applicable, between that vendor and individual EB plans. The plan, either through the plan sponsor or the trustee, will generally enter into a written agreement with the third-party intermediary that authorizes the intermediary to act as agent for the plan. In that agent capacity, the third party could be authorized to make investment decisions for the plan. Separately, the CIF trustee will customarily have documentation in place with the third-party intermediary that details the parameters the third-party intermediary must adhere to concerning the acceptance of orders into the CIF and the responsibilities the third party is undertaking on behalf of the bank.

The board and senior management are responsible for ensuring that the CIF risk management system includes sound internal controls and an effective audit program. It is critical that the bank adhere to each provision of the CIF plan, particularly those provisions that govern admissions and withdrawals from the CIF and the fund’s investment powers and policies.

The board must also ensure that each CIF administered by the bank is audited at least once each 12-month period in accordance with 12 CFR 9.18(b)(6). If CIFs are a significant fiduciary activity for the bank, they must be included in the bank’s fiduciary audit program required by 12 CFR 9.9.

The “Asset Management” booklet of the Comptroller’s Handbook contains additional information on the OCC’s expectations for board and management supervision of a bank’s overall fiduciary activities.

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