United States: OCC Issues Updated Guidance On Collective Investment Funds

Last Updated: June 12 2014
Article by Charles Horn and Melissa Hall

The update to the Comptroller's Handbook highlights the Office of the Comptroller of the Currency's enhanced expectations regarding the overall risk management of collective investment fund activity and provides insight into areas of current regulatory concern.

The Office of the Comptroller of the Currency (OCC) recently released a long-awaited update to the Asset Management series of its Comptroller's Handbook on collective investment funds (CIF Handbook).1 The CIF Handbook revises the 2005 version and provides detailed guidance on the expectations of the OCC regarding the offering and administration of collective investment funds (CIFs)—including common trust funds for fiduciary assets, employee benefit plan collective funds, and other pooled investment funds operated under the OCC's fiduciary activities regulations—by national banks and federal savings associations. The CIF Handbook is drafted as guidance to examiners, but it is an essential reference tool for banks that offer and manage CIFs as it sets out, in detail, both the OCC's revised and enhanced expectations and the checklists and evaluation criteria that the OCC's examiners will use.

Consistent with the OCC's general emphasis on risk management, the CIF Handbook devotes substantial and significantly more detailed attention to CIF risk identification and management issues. The OCC will expect banks to have more robust and active management and board oversight of CIF activity as well as substantive and clear documentation of various decisions and calculations that are required in the course of managing a CIF. The CIF Handbook revises the examination procedures for CIFs and establishes two broad categories of inquiry for examiners, with detailed guidance regarding questions to ask and materials to request: (1) quantity of risk (i.e., low, moderate, high) and (2) quality of risk management (strong, satisfactory, weak).

The OCC identifies the primary risks associated with offering and managing CIFs as compliance, operational, strategic, and reputation. In addition, the OCC expresses concern about investment risks to which CIF sponsor banks are exposed, especially liquidity risk. The OCC notes that a manager of a CIF must balance ensuring adequate liquidity to meet customer redemption needs with the need to ensure that the fund meet its benchmarks and provides a competitive return. Stress testing, including regular testing of any contingency financing sources, is expected.

Risk Management Expectations

The CIF Handbook establishes the expectation that a bank will have effective risk management processes that specifically

  • establish strategic direction, risk appetite, and an ethical culture consistent with the bank's strategic goals and objectives for its funds;
  • establish an appropriate organizational structure for bank CIFs, with clear delineation of authority, responsibility, and accountability through all levels of the organization;
  • develop and implement a comprehensive and effective risk management system; and
  • monitor the implementation of investment management risk strategies and the adequacy and effectiveness of risk management processes for the bank's CIFs.

Furthermore, administrative processes established by the bank should ensure that the bank

  • establishes and maintains funds in accordance with a written plan;
  • maintains CIF documents in a central repository;
  • has a formal process through the bank's board of directors, or a committee appointed by the board, to approve or terminate CIFs;
  • uses qualified counsel;
  • evaluates fees to ensure they are reasonable; and
  • maintains adequate board and committee oversight.

The CIF Handbook references and incorporates previous OCC guidance on a variety of matters, including third-party investment advisory and other outsourcing arrangements.2 The OCC emphasizes that banks may not "rent their charters" to third parties that wish to engage in offering CIFs and that there must be clear disclosures that the CIF is offered and managed by the sponsoring bank. The OCC cautions that it will "closely scrutinize" third-party arrangements to ensure compliance and the presence of a strong risk management system.

The CIF Handbook also discusses new detailed expectations regarding asset allocation, benchmarks, valuation, and securities lending. The OCC expects banks offering and managing a CIF to determine the appropriateness of fund investments and to have a well-defined process for evaluating the potential performance of the proposed fund portfolios to ensure they follow the fund's documented risk limits. If the CIF uses leverage to enhance returns, the bank must have processes in place to calculate the leverage risk in the fund's portfolio, and the bank must monitor and manage that leverage risk.

Furthermore, a bank is expected to have detailed policies that set out the decision-making process for selecting the most appropriate benchmark for the CIF. The bank is expected to document its process for selecting the benchmark for the CIF, and it must have policies and procedures in place, including specific risk-adjusted return measures, for monitoring the performance of the CIF against its benchmark.

The process of assigning asset value should be subject to well-defined management oversight and management information reporting; well-delineated policies, procedures, and processes; and a well-articulated system of internal controls. The CIF Handbook states that it is "critical" that valuations and the calculation of a CIF's net asset value be made by persons independent of those with investment management responsibilities for the CIF. Asset values for assets that are difficult to price should be obtained from an unaffiliated provider when possible.

Securities lending by a CIF to certain creditworthy borrowers should be evaluated for not only operational risk, but also for investment risk. The OCC is particularly concerned with the risks presented by the nature of collateral accepted by the bank in exchange for the lent security. Illiquid collateral could result in the bank being forced to sell the collateral at "fire sale prices" in order to have sufficient cash to take back the lent security. The OCC notes that bank CIF sponsors experienced losses during the 2008 financial crisis because of illiquid collateral.

Updates to Administrative Requirements Under 12 C.F.R. 9.18(b) (CIF Regulations)

The CIF Handbook updates the OCC's commentary and guidance on the various administrative requirements imposed on banks with respect to offering and managing CIFs. Although the CIF Handbook does not contain material departures from prior OCC guidance, some notable revisions include the following:

  • Stable Value Fund (SVF) Withdrawals: Certain SVFs may transact withdrawals at different prices on the same day—employee-directed benefit-responsive withdrawals at one price (amortized cost) and employer-directed withdrawals at another price (market value)—provided that there are adequate disclosures, the differential in withdrawal prices is expressly authorized by the SVF's plan, and wrap protection is otherwise unavailable at a reasonable price to the fund.
  • Conflicts of Interest: If a CIF invests in deposit products of its offering bank, the bank must (1) have a process to ensure the fund receives a competitive interest rate and (2) periodically retain an independent third party to evaluate the bank's process for setting rates to ensure that the rates offered to the CIF are competitive.
  • Management Fees and Expenses: Under very limited circumstances, and with express OCC approval, a fund plan may authorize the sponsoring bank to pass through to all fund participants certain brokerage, transaction, and other fees associated with the admission or withdrawals of accounts.


Since the 2008 financial crisis, the OCC has focused its supervision efforts, in large part, on ensuring that banks have in place risk management frameworks that the OCC deems adequate and appropriate for the level of risk faced by the bank. Accordingly, the new CIF Handbook represents a natural extension of the OCC's overall supervisory emphasis on national bank risk management activities and, in this respect, contains few major surprises for national bank collective fund managers. At the same time, the new CIF Handbook is materially more detailed as to the nature of and the risks presented by CIF activities as well as the policies and processes a bank is expected to have in place to manage these risks.

Some of the specific topics addressed in the CIF Handbook, including CIF liquidity management, conflicts of interest, valuations, and securities lending activities, reflect some of the problems that bank CIFs encountered during the financial crisis, and it is not surprising that the OCC would choose to address, in some detail, these issues. Similarly, the OCC devotes materially more attention to the issue of third-party service provider retention and oversight and sets forth, in considerable detail, its expectations and requirements for bank managers. The OCC, however, also continues to focus on recurring regulatory issues, such as CIF admission and withdrawal activities, compliance with bank and securities regulatory requirements for common and collective fund management activities, and participant eligibility requirements, albeit again with a greater degree of detail.

OCC examiners will use the CIF Handbook as a core reference tool and checklist in their examinations of national bank CIF activities, and national banks that sponsor and administer CIFs therefore must pay careful attention to the revised expectations and examiner guidance set out in the CIF Handbook. The OCC will look for clear documentation, processes, and policies that demonstrate adherence to guidelines and expectations set out in the CIF Handbook, and national banks that fail to adhere to these standards could face examiner criticism or worse. Furthermore, as the revised expectations in the CIF Handbook are implemented, banks should expect any CIF activity to be a source of inquiry during their next OCC examination.

The CIF Handbook is also important for state banks and trust companies that engage in CIF activities. Although state banking organizations are not directly subject to OCC regulatory requirements or OCC examination and supervision, OCC supervisory guidance on CIF activities is given significant weight by numerous state regulatory authorities as well as by the Federal Reserve Board and the Federal Deposit Insurance Corporation at the federal level. In addition, a number of state fiduciary laws either incorporate or reference OCC fiduciary and collective investment fund regulations, as does section 584 of the Internal Revenue Code in the case of tax-qualified common trust funds. In turn, OCC regulatory guidance in this area becomes all the more relevant for affected bank CIF managers of all charters.


1. The Collective Investment Funds handbook is available here.

2. OCC Bulletin 2013-29, Third-Party Relationships: Risk Management Guidance, available here; OCC Bulletin 2011-11, Collective Investment Funds and Outsourced Arrangements, available here.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions