October 16, 1990
TO: BOARD OF GOVERNORS NO. 75-90
SEC RULES COMMITTEE NO. 56-90
RE: INSTITUTE TESTIMONY ON OCC COMMON TRUST FUND PROPOSAL
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On October 4, the Institute testified before the
Telecommunications and Finance Subcommittee of the House
Committee on Energy and Commerce on proposed amendments to the
Office of the Comptroller of the Currency's rules governing bank
common trust funds.
In its testimony, the Institute stated that the proposed
changes, which would allow banks to publicly advertise common
trust funds, would convert these funds from administrative
devices into publicly offered mutual funds. The Institute also
stated that, since the proposal would grant banks mutual fund
powers without imposing necessary safeguards, it raises many
potential abuses from an investor protection standpoint. The
Institute's testimony also emphasized that allowing banks to
unilaterally assess additional management fees on common trust
funds would greatly increase possibilities for breaches of
fiduciary duty.
SEC Chairman Breeden testified that funds established by
banks pursuant to the proposed increased authority would be the
"functional equivalent of public investment companies" and
indicated that these funds would be required to register under
both the Securities Act and Investment Company Act. In addition,
Chairman Breeden called for legislation to (1) require banks that
conduct investment company activities to conduct these activities
in separate affiliates subject to SEC regulation and (2) amend
the Investment Company Act to eliminate conflicts of interest
posed by bank sponsorship of investment companies.
Comptroller of the Currency Clarke testified that no final
decision had been reached on the proposal, although he argued
that the revisions would not expand bank powers.
Also testifying at the hearing were the Attorney General of
Alabama, and representatives of NASAA, the Consumer Federation of
America and the Community Bankers Association of Illinois (each
of whom opposed the proposal) and representatives of two banking
trade associations (who supported the proposal).
A copy of the Institute's testimony is attached. We will
keep you informed of developments.
Craig S. Tyle
Associate General Counsel
Attachment