550.10 Self-dealing.

550.11 Custody of investments.

550.12 Compensation of association.

550.13 Collective investment.

550.14 Surrender of trust powers.

550.15 Effect on trust accounts of appointment of conservator or receiver or voluntary dissolution of association. 550.16 Revocation of trust powers.

AUTHORITY: Sec. 403 of the Depository Institutions Deregulation and Monetary Control Act of 1980, Pub. L. 96-221, 94 Stat. 132, 12 U.S.C. 1464(n); secs. 402, 403, and 407 of the National Housing Act, 48 Stat. 1256, 1257, 1260, as amended, 12 U.S.C. 1725, 1726, 1730; Reorg. Plan No. 3 of 1947, 12 FR 4981, 3 CFR, 1943-1948 Comp., p. 1071).

SOURCE: 45 FR 82164, Dec. 15, 1980, unless otherwise noted.

(a) "Account" means the trust, estate or other fiduciary relationship which has been established with an association;

(b) "Custodian under a uniform gifts to minors act" means an account established pursuant to a state law which is substantially similar to the Uniform Gifts to Minors Act As published by the American Law Institute and with respect to which the associa tion operating such account has established to the satisfaction of the Secretary of the Treasury that it has duties and responsibilities similar to the duties and responsibilities of a trustee or guardian.

(c) “Fiduciary” means an association undertaking to act alone, through an affiliate, or jointly with others primarily for the benefit of another in all matters connected with its undertak ing and includes trustee, executor, administrator, guardian, receiver, manag. ing agent, registrar of stocks and bonds, escrow, transfer, or paying agent, trustee of employee pension, welfare and profit sharing trusts, and any other similar capacity;

(d) "Fuduciary records" means all matters which are written, transcribed, recorded, received or otherwise come into the possession of an association and are necessary to preserve information concerning the actions and events relevant to the fiduciary activities of an association;

(e) "Guardian" means the guardian, conservator, or committee by whatever name employed by local law, of the estate of an infant, an incompetent individual, an absent individual, or a competent individual over whose estate a court has taken jurisdiction, other than under bankruptcy or insolvency laws:

(f) "Investment authority" means the responsibility conferred by action of law or a provision of an appropriate governing instrument to make, select or change investments, review investment decisions made by others, or to provide investment advice or counsel to others;

(g) "Local law" means the law of the state or other jurisdiction governing the fiduciary relationship;

(h) "Managing agent” means the fiduciary relationship assumed by an as

sociation upon the creation of an account which names the association as agent and confers investment discretion upon the association;

(i) "State-chartered corporate fiduciary" means any state bank, trust company, or other corporation which comes into competition with associations and is permitted to act in a fiduciary capacity under the laws of the state in which the association is located;

(j) "Trust department” means that group or groups of officers and employees of an association or of an affiliate of an association to whom are assigned the performance of fiduciary services by the association;

(k) "Trust powers” means the power to act in any fiduciary capacity authorized by section 403 of the Depository Institutions Deregulation and Monetary Control Act of 1980, Pub. L. 96-221, 94 Stat. 132, 12 U.S.C. 1464(n). Under the Act, a Federal association may be authorized to act, when not in contravention of local law, as trustee, executor, administrator, guardian, receiver, managing agent, registrar of stocks and bonds, escrow, transfer, and paying agent, trustee of employee pension, welfare, and profit-sharing trusts, or in any other fiduciary capacity which State-chartered corporate fiduciaries exercise under local law: Provided, That the granting to, and exercise of, such powers shall not be deemed to be in contravention of State or local law whenever the laws of such State authorize or permit the exercise of any or all of the foregoing powers by State banks, trust companies, or other corporations which compete with Federal associations.

§ 550.2 Applications.

(a) An association desiring to exercise fiduciary powers, either through a trust department or through an affiliate, shall file with the Supervisory Agent an application indicating which trust services it wishes to offer and providing the information necessary to make the determinations under paragraph (b).

(b) In addition to any other facts or circumstances deemed proper, the Board, in passing upon an application

to exercise trust powers, will give consideration to the following:

(1) The financial condition of the association, provided that in no event shall trust powers be granted to an association if its financial condition is such that the association does not meet the financial standards required by state laws of State-chartered corporate fiduciaries;

(2) The needs of the community for fiduciary services and the probable volume of such fiduciary business available to the association;

(3) The general character and ability of the management of the association;

(4) The nature of the supervision to be given to the fiduciary activities, including the qualifications, experience and character of the proposed officer or officers of the trust department; and

(5) Whether the association has available legal counsel to advise and pass upon fiduciary matters wherever necessary.

(c) Board approval of applications filed under this section may be given by the Principal Supervisory Agent, provided that all of the following conditions are met:

(1) The application does not raise any significant issues of law or policy on which the Board has not taken a formal position;

(2) The financial condition of the association meets the financial standards prescribed for State-chartered corporate fiduciaries by the laws of each state in which the association has offices from which it will offer the fiduciary services (the Principal Supervisory Agent may consider the regulatory capital of a mutual association as equivalent to capital stock and surplus when state law prescribes minimum capital stock and surplus requirements) and the Principal Supervisory Agent has determined that the financial condition of the association is sufficient to support the proposed trust operations;

(3) The association has submitted a legal opinion from independent counsel certifying that the proposed trust powers are authorized for State-chartered corporate fiduciaries by the laws of each State in which the association

has offices from which it will offer fiduciary services;

(4) The association's regulatory capital meets the Board's minimum requirements for that association under § 563.13 of this chapter;

(5) Based on the most recent examination of the association and any other available information, the Principal Supervisory Agent determines that any deficiencies with respect to the association's management are

minor;

(6) Based on the most recent examination of the association and any other available information, the Principal Supervisory Agent determines that the overall performance of the association is satisfactory;

(7) The proposed trust officer(s) who would be in charge of the trust operations must (i) have been responsible for trust operations or fiduciary matters comparable to those proposed, for a period of at least two years during the previous five years; or (ii) have had two years of such experience prior to the last five years and successfully completed, during the previous year, an intensive course on trust operations comparable to those proposed;

(8) The Principal Supervisory Agent determines, based on the information available, that the proposed trust officer(s) is trustworthy and competent (the person's experience, education and other relevant factors may be considered) to be in charge of the proposed trust operations;

(9) The proposed trust department or service corporation has legal counsel available to provide advice with respect to fiduciary matters;

(10) The Principal Supervisory Agent has determined that there is sufficient need for the proposed trust activities in the communities to be served; and

(11) The approval of the appropriate Federal or State authorities has been obtained if the proposed fiduciary services are to be exercised through a state or Federally chartered service corporation.

(d) Approval by the Board or its Principal Supervisory Agent of an application under this section authorizes the applicant to exercise only those trust powers specified in the approval.

Unless otherwise provided by the approval, fiduciary services based on those trust powers may be offered only in those offices listed in the application.

[45 FR 82164, Dec. 15, 1980, as amended at 47 FR 19115, May 4, 1982]

§ 550.3 Consolidation or merger of two or more Federal associations.

Where two or more Federal associations consolidate or merge, and any one of such associations has, prior to such consolidation or merger, received a permit from the Board to exercise trust powers which permit is in force at the time of the consolidation or merger, the rights existing under such permit pass to the resulting association, and the resulting association may exercise such trust powers in the same manner and to the same exent as the association to which such permit was originally issued; and no new application to continue to exercise such powers is necessary. However, when the name or charter number of the resulting association differs from that of the association to which the right to exercise trust powers was originally granted, the Board or the Principal Supervisory Agent will issue a certifi cate to that association showing its right to exercise the trust powers theretofore granted to any of the associations participating in the consolidation or merger.

[45 FR 82164, Dec. 15, 1980, as amended at 47 FR 19116, May 4, 1982]

§ 550.4 Deposit of securities with state authorities.

Whenever local law requires corporations acting as fiduciary to deposit securities with State authorities for the protection of private or court trusts, associations in that state authorized to exercise trust powers shall, before undertaking to act in any fiduciary capacity, make a similar deposit with the state authorities. If the state authorities refuse to accept such a deposit, the Securities shall be deposited with the Federal Home Loan Bank of which the association is a member, and such securities shall be held for the protection of private or court trusts with like effect as though the

securities had been deposited with the state authorities.

§ 550.5 Administration of trust powers.

(a)(1) Responsibility of the board of directors. The board of directors is responsible for the proper exercise of fiduciary powers by the association. All matters pertinent thereto, including the determination of policies, the investment and disposition of property held in a fiduciary capacity, and the direction and review of the actions of all officers, employees, and committees utilized by the association in the exercise of its fiduciary powers, are the responsibility of the board. In discharging this responsibility, the board of directors may assign, by action duly entered in the minutes, the administration of such of the association's trust powers as it may consider proper to assign to such director(s), officer(s), employee(s), or committee(s) as it may designate.

(2) Administration of accounts. No fiduciary account shall be accepted without the prior approval of the board, or of the director(s), officer(s), or committee(s) to whom the board may have assigned the performance of that responsibility. A written record shall be made of such acceptances and of the relinquishment or closing out of all fiduciary accounts. Upon the acceptance of an account for which the association has investment responsibilities, a prompt review of the assets shall be made. The board shall also ensure that at least once during every calendar year thereafter, and within 15 months of the last review, all the assets held in or held for each fiduciary account for which the association has investment responsibilities are reviewed to determine the advisability of retaining or disposing of such assets. The board of directors should act to ensure that all investments have been made in accordance with the terms and purposes of the governing instrument.

(b) Use of other association personnel. The trust department may utilize personnel and facilities of other departments of the association, and other departments of the association may utilize personnel and facilities of

the trust department only to the extent not prohibited by law.

(c) Compliance with Federal securities laws. Every Federal association exercising trust powers shall adopt written policies and procedures to ensure that the Federal securities laws are complied with in connection with any decision or recommendation to purchase or sell any security. Such policies and procedures, in particular, shall ensure that the association's trust departments shall not use material inside information in connection with any decision or recommendation to purchase or sell any security.

(d) Legal counsel. Every association exercising fiduciary powers shall designate, employ, or retain legal counsel who shall be readily available to pass upon fiduciary matters and to advise the association and its trust department.

(e) Bonding. In addition to the minimum bond coverage required by § 563.19 of this chapter, directors, officers, and employees of an association engaged in the operation of a trust department shall acquire such additional bond coverage as the Board may require.

§ 550.6 Books and accounts.

(a) General. Every association exercising trust powers shall keep its fiduciary records separate and distinct from other records of the association. All fiduciary records shall be so kept and retained for such time as to enable the association to furnish such information or reports with respect thereto as may be required by the Board. The fiduciary records shall contain full information relative to each account.

(b) Record of pending litigation. Every association shall keep an adequate record of all pending litigation to which it is a party in connection with its exercise of trust powers.

§ 550.7 Audit of trust department.

At least once during each calendar year, the association's trust department shall be audited by auditors in a manner consistent with § 563.17-1 of this Chapter. A copy of the report of the audit shall be promptly filed with

the District Director-Examinations of the Federal Home Loan Bank District in which the home office of the association is located. Trust department audits may be made as part of the annual audits required by § 563.17-1.

§ 550.8 Funds awaiting investment or distribution.

(a) General. Funds held in a fiduciary capacity by an association awaiting investment or distribution shall not be held uninvested or undistributed any longer than is reasonable for the proper management of the account.

(b) Use by association in regular business. (1) Funds held in trust by an association, including managing agency accounts, awaiting investment or distribution may, unless prohibited by the instrument creating the trust or by local law, be deposited in other departments of the association, provided that the association shall first set aside under control of the trust department as collateral security:

(i) Direct obligations of the United States, or other obligations fully guaranteed by the United States as to principal and interest;

(ii) Readily marketable securities of the classes in which state-chartered corporate fiduciaries are authorized or permitted to invest trust funds under the laws of the state in which such association is located; or

(iii) Other readily marketable securities as the Board may determine.

(2) Collateral securities or securities substituted therefor as collateral shall at all times be at least equal in face value to the amount of trust funds so deposited, but such security shall not be required to the extent that the funds so deposited are insured by the Federal Savings and Loan Insurance Corporation. The requirements of this paragraph are met when qualifying assets of the association are pledged to secure a deposit in compliance with local law, and no duplicate pledge shall be required in such case.

(3) Any funds held by an association as fiduciary awaiting investment or distribution and deposited in other departments of the association shall be made productive.

§ 550.9 Investment of funds held as fiduciary.

(a) Private trusts. Funds held by an association in a fiduciary capacity shall be invested in accordance with the instrument establishing the fiduciary relationship and local law. When such instrument does not specify the character or class of investments to be made and does not vest in the association, its directors, or its officers investment discretion in the matter, funds held pursuant to such instrument shall be invested in any investment in which state-chartered corporate fiduciaries may invest under local law.

(b) Court trusts. If, under local law, corporate fiduciaries appointed by a court are permitted to exercise discretion in investments, or if an association acting as fiduciary under appointment by a court is vested with discretion in investments by an order of such court, funds of such accounts may be invested in any investments which are permitted by local law. Otherwise, an association acting as fiduciary under appointment by a court must make all investments of funds in such accounts under an order of that court. Such orders in either case shall be preserved with the fiduciary records of the association.

(c) Collective investment of trust funds. The collective investment of funds received or held by an association as fiduciary is governed by § 550.13 of this part.

§ 550.10 Self-dealing.

(a) Purchase of obligations, etc., from association. Unless lawfully authorized by the instrument creating the relationship, or by court order or local law, funds held by an association as fiduciary shall not be invested in stock or obligations of, or property acquired from, the association or its directors, officers, or employees, or individuals with whom there exists such a connection, or organizations in which there exists such an interest, as might affect the exercise of the best judgment of the association in acquiring the property, or in stock or obligations of, or property acquired from, affiliates of the association or their directors, officers or employees.