Regulator panel firma 25 th annual risk management training conference
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Regulator Panel FIRMA 25 th Annual Risk Management Training Conference. April 19, 2011. Regulatory Consolidation. OCC/OTS Consolidation – July 21, 2011 Fiduciary Powers – Thrifts vs. National Banks OCC - about 30% of national banks have fiduciary powers.

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Regulator Panel FIRMA 25 th Annual Risk Management Training Conference

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Regulator PanelFIRMA 25th Annual Risk Management Training Conference

April 19, 2011


Regulatory Consolidation


OCC/OTS Consolidation – July 21, 2011

Fiduciary Powers – Thrifts vs. National Banks

OCC - about 30% of national banks have fiduciary powers.

OTS - about 10% of thrifts act as fiduciaries.

OTS Fiduciary Regulations:

In general, OTS regulations track OCC’s 12 CFR 9

One notable exception - certain fiduciary activities performed by a thrift do not require fiduciary powers. Examples: Acting as trustee of certain EB plans, or acting as an IRA trustee.

OTS Fiduciary Activities & Regulations


Where are all those Assets Invested?


Asset Management Statistics

Fiduciary and Related Assets - All Banks 12/31/2010

  • EB and retirement related accounts make up 50% of the fiduciary assets administered by banks.

Source: Preliminary 12/31/2010 Call Report data. Includes all national and state-chartered commercial banks and national trust banks.


Asset Management Statistics

Total Market Value of Collective Investment & Common Trust Funds Continues to Increase from 2008 lows.

Source: Preliminary 12/31/2010 Call Report data. Includes all national and state-chartered commercial banks and national trust banks.


Asset Management Statistics

Managed Assets held in Fiduciary Accounts - All Banks 12/31/2010

  • Nearly one third ($1.2 trillion) of total managed assets held in fiduciary accounts ($4.1 trillion) are invested in bank CIFs and CTFs.

  • Another $585 billion or 14% of managed assets are invested in mutual funds; $224 billion of that $585 billion is invested in proprietary mutual funds.

  • Chart does not include investments in real estate, real estate mortgages and deposits since these represented 1% or less of total managed assets

  • Source: Preliminary 12/31/2010 Call Report data. Includes all national and state-chartered commercial banks and national trust banks.


Asset Management Statistics

Collective Investment Fund Assets All Banks 12/31/2010

  • 57% or $1.3 trillion of total collective investment fund assets ($2.37 trillion) in 2010 were invested in domestic and international equities. This is up from the 55% of collective investment fund assets that were invested in domestic and international equities in 2009.

Source: Preliminary 12/31/2010 Call Report data. Includes all national and state-chartered commercial banks and national trust banks.


Regulatory Focus


Volcker Rule – organizing and offering hedge funds and private equity funds will face limits.

Other D-F provisions that are likely to impact AM world:

Money Market Funds/Shadow Banking

Use of rating agencies in regulations

Temporary FDIC insurance – transaction accounts

New FDIC assessment rules/custody banks

SEC “fiduciary standard”

RIA Custodian Information Requests – SEC

Study on RIA Custody

Derivatives

CFTC rules

Dodd-Frank and Related Issues


Recent Guidance

  • Asset Management Operations and Controls Handbook (January 2011)

    • Provides a single, comprehensive source for OCC Asset Management operations issues, as well as procedures to assist examiners as well as the industry determine where the risks are.


Rent-A-Trustee Concerns

  • OCC Bulletin #2011-11 “Collective Investment Funds and Outsourced Arrangements” requires banks to:

    • Perform due diligence on and periodically monitor your fund’s vendors

    • Ensure only eligible participants are admitted to bank funds

    • Include in any contract with a third party a requirement that the vendor will prominently identify the bank that sponsors the fund in any advertising and other materials.


Rent-A-Trustee Concerns

  • OCC Bulletin #2011-11

    • Principally applies to unaffiliated vendors such as RIAs

    • Does not expressly apply to affiliates as we assume banks and their affiliated RIAs have a common interest not to unnecessarily assume reputation, compliance, strategic or transaction (operational) risks

    • Continues to allow outsourcing of certain CIF functions to vendors, subject to longstanding OCC CIF and vendor management guidance.


Recent AM Group Guidance

  • OCC Bulletin 2010-37: “Self-Deposit of fiduciary funds”

    • “Awaiting investment or distribution” – 12 CFR 9.10

      • Authorized unless prohibited by applicable law

      • Rate must be consistent with applicable law

      • Sufficient qualifying collateral must be pledged at all times

      • Collateral must be controlled by two fiduciary employees

    • “Permanent investments” - 12 CFR 9.12

      • Not permitted unless authorized by applicable law

      • Pledge not permitted – heightens concern about credit risk


OCC Supervision Issues


Asset Management Exam Issues

  • Conflicts of Interest Issues

    • OCC Bulletin 2008-5 (Divestiture of Certain Asset Management Businesses)

    • Fee Arrangements

    • Affiliated/proprietary investments

    • Annual Review of Fiduciary Accounts

      • OCC Bulletin 2008-10 (12 CFR 9.6(c))


Risk Considerations

  • Investment Issues

    • Investment Objectives

    • Third Party Investment Managers

    • Unique Investment Products or Strategies

    • Investment Performance

    • Fixed Income Strategies


Risk Considerations

  • Other Supervision Issues

    • Impact of earnings pressure on internal controls

      • Staffing

      • Compliance/Risk Management functions

      • Audit Coverage

    • Regulation R

      • Recordkeeping regulations

      • Compensation and bonus plans


Comments and Questions


OCC Asset Management Handbooks

  • Asset Management

  • ***Asset Mgt. Operations & Controls***

  • Collective Investment Funds

  • Conflicts of Interest

  • Custody Services

  • Insurance Activities

  • Investment Management Services

  • Personal Fiduciary Services

  • Retail Non-deposit Investment Products

  • Retirement Plan Services

Handbooks and Bulletins are available at www.occ.gov


Contact information:

Joel Miller

Asset Management Group Leader

Phone: (202) 874-4493


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