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November 20, 1990
TO: INSTITUTIONAL FUNDS COMMITTEE NO. 5-90
RE: RECENT OCC LETTERS ON ACCEPTANCE OF BENEFITS
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Attached are three interpretive letters recently issued by
the Office of the Comptroller of the Currency concerning
acceptance of benefits by bank trust departments.
Interpretive Letter No. 519 (January 12, 1990) addressed
the granting of credits by a fund sponsor to customers, including
national banks, for the investment of custodial funds. No
credits would be available for the investment of fiduciary
assets. The OCC staff stated, however, that a conflict may still
exist because the bank may be tempted to invest discretionary
fiduciary assets in order to provide the minimum investment
necessary to warrant establishment of the fund ( i.e., to "seed"
the fund) or to maintain a contractual relationship with the fund
sponsor. The staff stated that the conflict was not cured by
prospectus disclosure.
Interpretive Letter No. 520 (January 30, 1990) discussed
the permissibility of certain activities under Banking Circular
No. 233, Acceptance of Benefits by Bank Trust Departments
(February 3, 1989). The letter concerned a bank trust department
that leased unused computer capacity, primarily for word
processing, at below-market rates. (The OCC has permitted use
of free automated order entry systems by trust departments
provided the availability of these systems is not dependent on
the investment of trust assets in particular investments.) The
letter stated that even if the leasing arrangement was not
inconsistent with Banking Circular 233, it still could be
violative of OCC regulations if the benefits might affect
adversely the ability of the trustee to make investment decisions
based exclusively on the best interest of its customers.
Interpretive Letter No. 521 (January 30, 1990) also
concerned the practice of providing computer hardware and
software for purposes other than order entry. Although the bank
represented that the availability of the service (which was
provided by an investment company sponsor) was not contingent
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upon investment of trust assets in shares of any investment
company sponsored by that firm, the OCC stated that the practice
created a conflict of interest.
In each letter, the OCC staff stated that the practice in
question was impermissible unless authorized by the underlying
trust document, court order or local law.
Craig S. Tyle
Associate General Counsel
Attachment