National banks will find it easier to manage, invest, and distribute trust funds under a rule approved Monday by the Office of the Comptroller of the Currency.
The rule, effective Jan. 29, knocks down several restrictions in Part 9 of the OCC's rulebook, which governs national bank fiduciary activities.
"This section of our rulebook has not been reviewed in 33 years, and the trust business has changed significantly," OCC chief counsel Julie L. Williams said in an interview Monday. "Fiduciary activities have become more diverse and more complex."
Bankers said the OCC has successfully updated its rules governing national bank trust activities.
"The OCC has recognized that micromanagement through regulation just isn't necessary in today's trust environment," said David D. Butler, senior vice president and trust officer at First National Bank and Trust Co., Asheboro, N.C. "This is going to allow much more flexibility in conducting fiduciary business."
The new rules drop several restrictions on collective investment funds, which allow banks to pool trust accounts rather than invest the money in each account separately. Gone is a ban on an individual trust account making up more than 10% of a collective investment fund. The agency also eliminated a provision barring banks from sinking more than 10% of a fund into one investment.
Individual trust accounts are not covered by these strict limits; instead, trust managers are simply required to exercise "prudence" to ensure the accounts are diversified. The industry has long argued the leeway they are given on individual accounts should cover collective funds, said James D. McLaughlin, the American Bankers Association's director of regulatory and trust affairs.
"You can't put a number on prudence," he said. "These strict limits were imposing real difficulties on fund managers."
The OCC also eased a requirement governing what national trust banks may do with a fiduciary's money while waiting to invest it. Currently, a national bank may keep the funds in a deposit account if they are secured by bank assets. Though the bank may deposit these funds in a holding company affiliate, the affiliate may not provide the security assets. The new rule abolishes this requirement.
This provision will be especially helpful to institutions like U.S. Trust of California. Before this change, the national bank's state- chartered affiliate, U.S. Trust Co. of New York, was unable to secure funds that the California bank was waiting to invest.
"It is going to be much easier for our two affiliates to work together," said Jeffrey S. Maurer, president of U.S. Trust Corp., the holding company, which manages $50 billion in trust accounts.
Among other changes, the new rule allows national trust banks to decide how they will pay customers wishing to withdraw from collective investment funds. Currently, banks must pay a proportional share of the investments in the fund, which forced some banks to sell illiquid investments such as real estate to satisfy an investor's demands.
The rule also codifies a December 1995 interpretive ruling in which the OCC ruled that a national bank in a particular state has the same powers as a state-chartered fiduciary.
These changes wrap up a three-year rewrite of the agency's regulations. The effort affected 29 sections of the OCC rulebook.
