OCC Mulls Fiduciary Regulations Similar to State Trust Laws

The OCC, as the proposal states, has the statutory authority to permit banks to act in certain fiduciary capacities, including fiduciary capacities that may be permitted for state banks, trust companies, or other corporations that compete with banks in the states in which they are located.

"Fiduciary capacity" is defined to mean "trustee, executor, administrator, registrar of stocks and bonds, transfer agent, guardian, assignee, receiver, or custodian under a uniform gifts to minors act; investment adviser, if the bank receives a fee for its investment advice," the OCC proposal states.

The OCC states that its proposal could be based on the following core elements of sound risk management, which are similar to those required in the current rules for fiduciary custody activities: separation and safeguarding of custodial assets; due diligence in selection and ongoing oversight of sub-custodians; disclosure in custodial contracts and agreements of the custodian's duties and responsibilities; and effective policies, procedures, and internal controls.

A non-fiduciary custody rule, Gerstein writes, could:

• eliminate any confusion that exists over a bank's obligations with respect to custody arrangements;
• impose minimal new responsibilities on well-managed banks, as the OCC would be codifying the OCC's guidance on custody service activities for banks; and
• complement regulations related to the custody of client assets issued by the Securities and Exchange Commission, Commodity Futures Trading Commission, Internal Revenue Service, various states, the United Kingdom, and the European Union.

NAIFA Takes on New York Regulation 187

Meanwhile, the National Association of Insurance and Financial Advisors for New York State is awaiting a decision in its case challenging the New York Department of Financial Services' Regulation 187, which requires insurance agents, brokers, and insurers "to establish standards and procedures" so that any transaction of such products are in the "best interest of the consumer."

In its lawsuit, NAIFA-NY argues that promulgating "unprecedented fiduciary obligations across all participants industry wide, DFS exceeded any statutory grant of rulemaking authority."

DFS's "best interest" standard "directly contradicts existing New York insurance law and statutes," NAIFA-NY argues.

NAIFA–NY also contends that the regulation "is unconstitutional and violates due process because DFS acted without any legislative mandates or adequate standards, and promulgated impermissibly vague and confusing terms that will lead to arbitrary enforcement."

DFS "acted solely on its own ideas of sound policy without any legislative or statutory guidelines," NAIFA-NY said.