AARP/CFA/USPIRG LETTER TO OCC CONCERNING POSSIBLE AMENDMENTS TO COMMON TRUST FUND REGULATION

February 9, 1994 TO: BOARD OF GOVERNORS NO. 16-94 INSTITUTIONAL FUNDS COMMITTEE NO. 4-94 RE: AARP/CFA/USPIRG LETTER TO OCC CONCERNING POSSIBLE AMENDMENTS TO COMMON TRUST FUND REGULATION __________________________________________________________ The American Association of Retired Persons, the Consumer Federation of America, and the U.S. Public Interest Research Group recently wrote a letter to Comptroller of the Currency Eugene A. Ludwig concerning possible amendments to OCC Regulation 9.18, governing common trust funds. A copy of the letter is attached. As you may recall, in 1990 the OCC proposed to amend Regulation 9.18 to permit national banks to advertise their common trust funds to the public; to determine for themselves whether each participating trust account had been established for a bona fide fiduciary purpose; and to charge a fee to the common trust fund in addition to fees already assessed against the beneficiaries. The proposed amendments are still awaiting final action by the OCC. In their letter, the three organizations state that the proposed amendments to Regulation 9.18 "fly in the face" of recent OCC initiatives aimed at protecting investors and distributors. The letter asserts, "The vast majority of consumers do not understand that mutual funds and annuities sold in bank lobbies are not insured. We believe the proposal to deregulate common trust funds will only exacerbate this confusion. We strongly recommend that the proposed amendments be withdrawn." The letter further characterizes the proposed amendments as creating an "inherent conflict of interest" with respect to costs and fees paid by common trust fund participants. It also argues that the amendments would "allow banks to market funds under their own names . . . thereby generating confusion as to the nature and insured status of the product." We will keep you informed of further developments concerning the proposed amendments of the OCC's common trust fund regulations. Paul Schott Stevens General Counsel Attachment