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Regulator Panel
FIRMA 25th Annual Risk Management Training
Conference
April 19, 2011
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Regulatory Consolidation
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OTS Fiduciary Activities & Regulations
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.
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Where are all those Assets Invested?
5Source: Preliminary 12/31/2010 Call Report data. Includes all national and state-chartered commercial banks and national trust banks.
Fiduciary and Related Assets - All Banks 12/31/2010
Asset Management Statistics
FIDUCIARY AND RELATED ASSETS ($000s) Managed Non-Managed Total Assets % of Fid AssetsPersonal trust and agency accounts $ 667,493,826 $ 268,188,714 $ 935,682,540 5%Employee benefit and retirement related trust and agency Employee benefit - Defined contribution $ 650,877,773 $ 1,974,384,839 $ 2,625,262,612 13% Employee benefit - Defined benefit $ 972,523,527 $ 4,561,055,911 $ 5,533,579,438 27% Other employee benefit & retirement related $ 221,011,369 $ 1,527,799,616 $ 1,748,810,985 9%Corporate trust and agency accounts $ 20,219,820 $ 3,885,101,206 $ 3,905,321,026 19%Investment management & investment advisory $ 1,157,544,060 $ 26,016,163 $ 1,183,560,223 6%Foundation and endowment $ 188,330,728 $ 184,595,013 $ 372,925,741 2%Other fiduciary accounts $ 189,001,140 $ 3,779,464,147 $ 3,968,465,287 20%
Total Fiduciary Accounts $ 4,067,002,243 $ 16,206,605,609 $ 20,273,607,852 100%
Custody and safekeeping accounts $ 67,610,853,883 $ 67,610,853,883 Total Fiduciary & Custody/Safekeeping Accounts $ 87,884,461,735
EB and retirement related accounts make up 50% of the fiduciary assets administered by banks.
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Asset Management
Statistics
Source: Preliminary 12/31/2010 Call Report data. Includes all national and state-chartered commercial banks and national trust banks.
$1.64$1.75
$1.67
$2.29
$2.51
$2.68
$2.94 $3.00
$2.00
$2.37
$1.47
$0.85$0.90
$1.33
$1.51
$1.74
$2.01 $2.02
$1.26
$2.32
$0.00
$0.50
$1.00
$1.50
$2.00
$2.50
$3.00
$3.50
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
$ t
rillio
n
National Banks
All Banks
Total Market Value of Collective Investment & Common Trust Funds Continues to Increase from
2008 lows.
7• 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
StatisticsManaged Assets held in Fiduciary Accounts - All Banks 12/31/2010 U.S. Treasury/Government Agency
Obligations, 3%
Money Market Mutual Funds, 3%
Unregistered Funds and Private Equity Funds, 4%
Municipal Obligations, 5%
Other Short-term Obligations, 5%
Equity Mutual Funds, 6%
Other Mutual Funds, 5%
Other Notes and Bonds, 9%
Misc Assets, 7%Common and Preferred Stock, 22%
Common Trust Funds and Collective Investment Funds, 29%
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.
8Source: Preliminary 12/31/2010 Call Report data. Includes all national and state-chartered commercial banks and national trust banks .
Collective Investment Fund Assets All Banks 12/31/2010
Asset Management
Statistics
Domestic Equity, 35%
International Equity, 22%
Stock/Bond Blend, 6%
Taxable Bond, 18%
Municipal Bond, 1%
STIF/MM, 14%
Specialty/Other, 5%
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.
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Regulatory Focus
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Dodd-Frank and Related Issues
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
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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.
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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
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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.
Rent-A-Trustee Concerns
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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
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OCC Supervision Issues
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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))
Asset Management Exam Issues
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Risk Considerations Investment Issues
Investment Objectives Third Party Investment Managers Unique Investment Products or
Strategies Investment Performance Fixed Income Strategies
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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
Risk Considerations
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Comments and Questions
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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
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Contact information:
Joel MillerAsset Management Group LeaderPhone: (202) 874-4493