OCC Proposes Clarifying Authority of Trust Banks
Commentary by Tim Byrne
The Office of the Comptroller of the Currency ("OCC") proposed amending its rules to clarify the authority of national trust banks to engage in non-fiduciary activities.
In its proposed rulemaking, the OCC explained that the amendment would revise its chartering rule, 12 CFR 5.20 ("Organizing a national bank or Federal savings association") to make clear that a national trust bank may engage in activities that are not purely fiduciary. The OCC said the current rule may be misinterpreted to prohibit these banks from engaging in non-fiduciary activities—such as custody services—unless they also perform core banking functions like lending or taking deposits.
The OCC said the amendments were needed because: (i) the current regulatory language, which was amended in 2003 to address other types of special purpose banks, created potential confusion regarding the scope of permissible activities for national trust banks; (ii) adopting the specific phrasing "operations of a trust company" mirrors the express statutory authority granted by Congress in 12 U.S.C. 27(a) ("Certificate of authority to commence banking"); (iii) the amendment clarifies that national trust banks may engage in non-fiduciary activities, such as custody and safekeeping, without being subject to the "core banking function" requirements applied to other special purpose banks; and (iv) the revision reinforces the agency’s historical practice and long-held interpretation that national trust banks are authorized to conduct business beyond strictly fiduciary roles.
The OCC also proposed a conforming amendment to 12 CFR 5.20(I) to ensure consistent terminology throughout the regulation. The agency asserted that the proposal neither expands nor contracts the OCC's existing chartering authority.
Comments on the proposal must be submitted on or before 30 days after the date of publication in the Federal Register.
Commentary
The OCC’s proposed rulemaking appears to be intended to address potential court challenges to the OCC’s authority to charter limited-purpose trust banks based on the activities in which such banks engage (or do not engage). The applications that OCC has acted on have drawn comments, basically saying that the OCC does not have authority to approve the applications. (See previous coverage.)
The provision at issue in the proposed rule and the changes made are both a matter of a very few words. However, the OCC is seeking to clarify that its regulation is following the authority given to the OCC by the National Bank Act. In this regard, the OCC also appears to be reacting to the repeal of the Chevron doctrine (in which agencies are given deference in interpreting ambiguous statutes) by positioning its regulation as more closely following the relevant statutory language.