February 7, 1990
TO: BOARD OF GOVERNORS NO. 11-90
SEC RULES COMMITTEE NO. 11-90
RE: COMPTROLLER PROPOSES REMOVING RESTRICTIONS ON
BANK COMMON TRUST FUNDS
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The Office of the Comptroller of the Currency has proposed
amendments to its regulations governing common trust funds
managed by national banks. The proposed amendments would
eliminate current restrictions on advertising of common trust
funds. The proposed amendments also would remove other
restrictions on common trust funds.
The Comptroller had sought comment on proposed amendments
to its common trust fund regulations in 1982, but suspended
consideration of them in 1984, as a result of the Institute's
legal challenge to its approval of national bank collective IRA
funds. The Office of the Comptroller subsequently announced its
intent, in light of the "favorable resolution" of those cases
(which held that the operation of such funds by national banks
did not violate the Glass-Steagall Act), to remove advertising
and other restrictions on bank common trust funds.
In proposing the removal of the prohibition on advertising,
the Comptroller states that banks and trust companies manage
significant amounts of trust assets and that the proposal would
"increase the quantity and quality of financial information
available". The Comptroller also states that the Glass-Steagall
Act does not require restrictions on advertising and claims that
a bank offering fudiciary services otherwise permissible under
state and federal law "may advertise such service without
restriction and without violating the Glass-Steagall Act." The
Comptroller notes that the SEC has taken the position that the
promotion or advertising of a common trust fund "seriously
jeopardizes" its ability to meet the exemptions for such funds
under the Securities Act and the Investment Company Act.
However, the Comptroller states that the SEC's criteria "need not
be employed to determine whether the trust activity is
permissible."
The proposal also would codify the court decisions with
respect to collective IRA funds by expressly authorizing the
establishment of funds for the investment of assets of IRAs,
Keogh or H.R. 10 Accounts, or other tax-deferred retirement
accounts under Sections 401 and 408 of the Internal Revenue Code.
Such funds that are registered under the Investment Company Act
would be exempt from the Comptroller's regulations concerning
exclusive management and audit requirements, which conflict with
corresponding requirements under the Investment Company Act.
The proposal also would, among other things, (1) eliminate
the requirement for prior specific approval of common trust funds
by a bank's board of directors and the requirement to file fund
plans with the OCC, (2) broaden the authority to establish
"closed end" common trust funds, (3) eliminate limitations on
charging fees and expenses to a collective investment fund and
(4) eliminate certain investment restrictions.
Comments on the proposal are due 90 days after publication
in the Federal Register. We will keep you informed of
developments.
Craig S. Tyle
Associate General Counsel