Collective Investment Funds

Fund Management – 9.18(b)(2)

A bank administering a CIF must have exclusive management of that fund, except as a prudent person might delegate responsibilities to others. Section 9.18(b)(2) allows a bank to delegate CIF responsibilities to others if prudent to do so.

The delegation standard is derived from the American Law Institute’s Restatement (Third) of Trusts (1992), section 171, Duty with Respect to Delegation, and section 227, General Standard of Prudent Investment (Prudent Investor Rule). The “Investment Management Services” booklet of the Comptroller’s Handbook (appendix B, “Trust Investment Law”) provides a detailed review of the prudent investor rule.

Delegation decisions are matters of fiduciary judgment and discretion. A bank must exercise care, skill, and caution in selecting agents and in negotiating and establishing terms of delegation, including investment responsibilities. In deciding whether to delegate responsibilities, the bank should balance the anticipated benefits against the costs of delegation. See discussion of “Expenses” under 9.18(b)(10) below. OCC Bulletin 2001-47, “Third-Party Relationships,“ provides additional risk management guidance for these types of service arrangements.

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