Collective Investment Funds - Office of the Comptroller of the Currency

AM-CIF Comptroller of the Currency Administrator of National Banks Collective Investment Funds Comptroller’s Handbook October 2005 AM Asset Management As of January 6, 2012, this guidance applies to federal savings associations in addition to national banks.* Collective Investment Funds Table of Contents Overview Background.............................................................................................1 Regulatory Overview...............................................................................2 12 CFR 9.18.......................................................................................3 Federal Tax Laws................................................................................4 Federal Securities Laws ......................................................................5 ERISA .................................................................................................6 Risks …………..........................................................................................7 Risk Management..................................................................................10 Board and Management Supervision ................................................10 Policies and Procedures ...................................................................12 Fund Administration.........................................................................12 Examination Procedures Planning Activities.................................................................................21 Quantity of Risk ....................................................................................24 Quality of Risk Management .................................................................27 Examination Conclusions ......................................................................41 Appendices A. Types of Collective Investment Funds...............................................44 B. 12 CFR 9.18(b), Administrative Requirements ..................................48 C. Collective Investment Funds and the ’40 Act ....................................59 D. Specialized Collective Investment Funds .........................................61 References ...............................................................................................63

Comptroller’s Handbook i Collective Investment Funds As of January 6, 2012, this guidance applies to federal savings associations in addition to national banks.* Collective Investment Funds Overview This booklet provides an overview of collective investment funds (CIFs), outlines their associated risks, and establishes a framework for managing those risks. It applies to CIFs administered by a national bank pursuant to 12 CFR 9.18 and supplements the “Investment Management Services” booklet of the Comptroller’s Handbook. This booklet also provides expanded examination procedures that supplement the minimum core assessment standards in the “Large Bank Supervision” and “Community Bank Supervision” booklets of the Comptroller’s Handbook. The use of the expanded procedures is optional; they are designed to be used when the risks posed by a CIF warrant review beyond the standard core assessment. Background A CIF is a bank-administered trust that holds commingled assets that meet specific criteria established by 12 CFR 9.18. Each CIF is established under a “plan” that details the terms under which the bank manages and administers the fund’s assets. The bank acts as a fiduciary for the CIF and holds legal title to the fund’s assets. Participants in a CIF are the beneficial owners of the fund’s assets. While each participant owns an undivided interest in the aggregate assets of a CIF, a participant does not directly own any specific asset held by a CIF. CIFs are designed to enhance investment management by combining assets from different accounts into a single fund with a specific investment strategy. By commingling, or pooling, fiduciary assets, a bank may lower the operational and administrative expenses associated with investing fiduciary assets and enhance risk management and investment performance for the participating accounts. A fiduciary account’s investment in a CIF is called a “participating interest.” Like other fiduciary assets, participating interests in a CIF are not FDIC- insured and are not subject to potential claims by a bank’s creditors. In addition, a participating interest in a CIF cannot be pledged or otherwise encumbered in favor of a third party. Many banks establish CIFs as an investment vehicle for their smaller personal trusts or for employee benefit (EB) accounts. By using a CIF, a smaller trust may obtain investment diversification that would otherwise be difficult to Comptroller’s Handbook 1 Collective Investment Funds As of January 6, 2012, this guidance applies to federal savings associations in addition to national banks.* achieve. From the bank’s perspective,...

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