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OCC Update BDUG Annual Meeting September 24, 2013

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OCC Update BDUG Annual Meeting September 24, 2013 Tish Dalton, Risk Specialist Asset Management Group Office of the Comptroller of the Currency Washington, DC * – PowerPoint PPT presentation

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Title: OCC Update BDUG Annual Meeting September 24, 2013


1
OCC Update BDUG Annual Meeting September 24, 2013
  • Tish Dalton, Risk Specialist
  • Asset Management Group
  • Office of the Comptroller of the Currency
  • Washington, DC

2
Disclosure
  • The views and opinions expressed in this
    presentation are my own, and do not necessarily
    represent those of the Office of the Comptroller
    of the Currency.
  • Ill refer frequently to national bank and
    Federal savings association regulations and
    guidance while similar in principle, you should
    refer to the regulations and guidance of your
    primary regulator.

3
Overview
  • OCC Asset Management Supervision
  • OCC Asset Management Regulation and Guidance
  • Key Risks/Asset Management Supervisory Focus
  • Asset Management Examination Findings
  • Discussion Topics
  • AM Operations Training
  • AM Operations Best Practices
  • DTC Initiatives
  • Appendix I OCC Asset Management Guidance
  • Appendix II

4
The Mission of the OCC
  • assuring the safety and soundness of, and
    compliance with laws and regulations, fair access
    to financial services, and fair treatment of
    customers by, the institutions and other persons
    subject to its jurisdiction.
  • From Title III of the Dodd-Frank Act

5
OCC Asset Management Supervision
  • Statistics and Structure

6
OCC Supervision
  • The OCC regulates over 1,250 national banks and
    more than 500 Federal savings associations.
  • They range from large complex banks with global
    footprints to local community banks.
  • Includes 63 limited purpose national trust banks
    and 15 trust only thrifts.
  • Approximately 42 of all national banks and 28
    of Federal savings associations have Asset
    Management (AM) activities, which include
  • Fiduciary services including trust and investment
    management services
  • Institutional custody and securities lending
    activities and,
  • Retail brokerage activities.

7
OCC Asset Management
  • Over 150 examiners with specialized Asset
    Management expertise perform ongoing supervision
    both on and off bank premises.
  • Large Banks Resident Examiner Program
  • Midsize/Community Banks Field Office Staff
    Program
  • National Trust Banks Focus on limited purpose
    trust companies
  • OCC AM Policy Group in D.C. works extensively
    with OCCs examiners on policy guidance for the
    industry, internal training, and addressing
    specific bank issues, including potential
    violations and matters requiring attention.
  • AM Policy also works closely with OCC Legal and
    other internal and external groups on matters
    including Dodd Frank (Volcker Rule) FSOC issues
    (including identification of systemically
    important entities and MMF risks) and
    interpretations of Regs 9 and 12.

8
Fiduciary Related Assets June 30, 2013 (all
national banks, insured state banks, and FSAs)
FIDUCIARY AND RELATED ASSETS (000s) Managed Non-Managed Total Assets of Fid Assets
Personal trust and agency accounts 670,208,418 297,069,107 967,277,525 5
Employee benefit retirement related trust agency        
Employee benefit - Defined contribution 823,287,554 2,785,112,124 3,608,399,678 19
Employee benefit - Defined benefit 962,910,032 3,701,054,536 4,663,964,568 24
Other employee benefit and retirement related 285,668,463 2,521,958,161 2,807,626,624 14
Corporate trust and agency accounts 36,243,554 2,581,792,141 2,618,035,695 13
Investment management and investment advisory 1,304,064,214 65,161,690 1,369,225,904 7
Foundation and endowment 210,046,205 114,457,925 324,504,130 2
Other fiduciary accounts 426,449,786 2,625,213,596 3,051,663,382 16
Total Fiduciary Accounts 4,718,878,226 14,691,819,280 19,410,697,506 100
Custody and Safekeeping Accounts   75,903,948,250 75,903,948,250  
Total Fiduciary Custody/Safekeeping Accounts     95,314,645,756  
9
OCC Asset Management Guidance
  • Recent and Upcoming OCC AM Group Guidance

10
AM Group Guidance
  • OCCs objective to integrate and consolidate OTS
    and OCC regulations. Consolidated regulations
    are still in development. As with most Federal
    rulemakings, there will be opportunities for
    industry comment.
  • Handbook update project OCCs AM Policy Group
    publishes ten booklets in the Comptrollers HB
    series. We are working on re-issuing each of
    these starting with Retirement Plan Products
    and Services Collective Investment Funds
    Conflicts of Interest and Retail Non-Deposit
    Products.
  • Where possible, older guidance (such as the
    remaining Trust Banking Circular and certain AM
    Banking Circulars) will be rescinded and
    incorporated into revised HBs.

11
AM Group Guidance
  • OCC Revised Short-Term Investment Fund (STIF)
    Regulation
  • Revises 12 CFR 9.18(b)(4)(ii)(B) filing
    requirements described in OCC Bulletin 2013-8
    (March 2013)
  • Became effective July 1, 2013
  • Objectives Enhanced safeguards designed to
    address potential risk of loss to a participants
    principal achieve a level of consistency with
    regulation of comparable MMFs (Rule 2a-7)
  • STIF Final Rule requirements include
  • Measures governing the nature of a STIFs
    investments
  • Ongoing monitoring of a STIFs amortized cost and
    mark-to-market values
  • Assessment of potential changes in STIFs
    mark-to-market value under adverse market
    conditions
  • Greater transparency and reporting of STIFs
    holdings
  • Procedures to protect fiduciary accounts from
    undue dilution in the event that the STIF loses
    ability to maintain a stable NAV.
  • Fund level portfolio information disclosures to
    OCC and STIF participants within five business
    days of month end.

12
Key Risks Asset Management Examination Focus
13
Key Risks
  • Market Volatility
  • Impact on earnings
  • Investment Management Liquidity Risks
  • Product selection, suitability, and potential
    conflicts of interest
  • Regulatory Change
  • Resources to manage regulatory change and
    implement necessary platform and process changes.

14
Key Risks
  • Investment Management Risk
  • AM Governance Risk
  • AM Operations Risk
  • Regulatory Reform Risk

15
Key Risks
  • Investment Management Risk
  • Market influences
  • Government policies and politics
  • Economic uncertainty
  • Interest rates Investment Opportunities/Risks
  • Use of increasingly complex products
  • Reaching for yield
  • Potential conflicts of interest
  • Need for Heightened Investment Risk Management
  • Initial and ongoing due diligence
  • Investment selection, retention and disposition
    process
  • Analytical tools and systems, with an emphasis on
    credit and interest rate risk
  • Valuation practices

16
Key Risks
  • Investment Management Risk Examination Focus
  • New product approval processes
  • Increasing complexity/increasing need for due
    diligence
  • Focus on conflicts of interests
  • Review of Investment models/analytical tools
  • Refer to OCC Bulletin 2011-12 Sound Practices
    for Model Risk Management
  • Initial and ongoing due diligence
  • Should accurately evaluate risk on an individual
    security and portfolio basis.
  • Pre-purchase and ongoing credit analysis of fixed
    income securities
  • Emphasis on analytical tools, and particularly
    fixed income credit analytics.
  • Investment portfolio performance
  • Under or over performance
  • Risk management and controls.

17
Key Risks
  • AM Governance Risk
  • Committee and Management Structures
  • Management, Board, and Committee Reporting
  • Control Infrastructure Evolution
  • Conflicts of Interest
  • Metrics
  • Supervisory Focus
  • New product due diligence and approval
  • Internal and third party vendor management
  • Staffing levels and expertise
  • Conflicts of interest

18
Key Risks
  • AM Operations Risks
  • Core Operational Processes Capability/Capacity
    of Legacy Systems
  • System capabilities new products, regulations,
    industry infrastructure changes
  • Manual Processes/Work-Arounds/User Developed
    Tools
  • Internal Controls
  • Money Movement
  • Asset Custody
  • Reconciliations
  • Oversight of Internal and Third Party Vendors
  • Fraud

19
Key Risks
  • Regulatory Reform Risk
  • Significant Regulatory Change
  • Dodd-Frank Implementation Continues
  • SEC and DOL proposals (money market reform, muni
    advisor, fiduciary standard, etc.)
  • CFPBs Involvement in AM Activities Remains
    Uncertain
  • Increased focus on Financial Market Utilities
  • Resources and Infrastructure to Analyze and
    Implement Change
  • Oversight
  • Project teams
  • Reporting
  • Legal, Audit, Compliance, Risk Management
    involvement

20
Examination Issues and Findings
  • Review of fiduciary accounts failure to comply
    with 12 CFR 9.6 - pre-acceptance, initial
    post-acceptance, annual review
  • Inadequate account acceptance
  • Not including all assets in review
  • Adequacy of assets in meeting investment
    objective
  • Not meeting requirements of OCC Bulletin 2008-10
  • Audit requirements failure to comply with 12
    CFR 9.9
  • Inadequate scope of audit
  • Not including all significant fiduciary
    activities
  • Ineffective audit program
  • Majority of audit committee members are involved
    in day-to-day oversight of trust area

21
Examination Issues and Findings
  • Account Administration
  • Adequacy of administrative review process
  • Discretionary distribution process
  • Self-directed IRAs
  • Asset/Money Movement
  • Free deliveries
  • Disbursement controls
  • Vendor Management
  • Inadequate monitoring of 3rd party providers

22
Examination Issues and Findings
  • Pledge Requirements of 12 CFR 9.10
  • Expiration of TAG increase in self-deposits gt
    FDIC coverage
  • Fiduciary control of collateral
  • Computation of required collateral
  • Discretionary and non-discretionary funds
    awaiting investment/distribution
  • Sweep vehicles/short term deposits
  • Suspense accounts
  • Outstanding checks
  • Requirements of 12 CFR 9.12
  • Confirms - Notification by agreement
  • Requirements for fixed income securities
  • Officer and employee personal securities
    transaction reports
  • Portfolio Accounting P I allocation/cash
    management
  • Fraud disbursement controls

23
Discussion Topics
24
AM Operations - Training
  • Discussion Topic Operations Training
  • Systems training
  • Internal process training
  • Regulatory compliance training
  • Line of business/product knowledge training
  • Securities Industry Training
  • Risk assessment
  • Challenges
  • Keeping current
  • Time constraints
  • Costs

25
AM Operations - Best Practices
  • AM Operations Best Practices
  • Effective front-end controls
  • Straight through automated processing
  • Workflows and procedures that focus on
    hand-offs from one business group to another,
    including to service providers
  • Well thought out system access profiles, ongoing
    due diligence
  • Effective exception reporting/aging/escalation
  • Procedures that take processes full-circle to
    ensure completion
  • Third party servicer oversight/in-house expertise
  • Management and staff expertise including
    specialized products and services

26
AM Operations DTC Initiatives
  • DTC Initiatives
  • DTC Reduction of RAD limits
  • Settlement Finality Initiatives
  • Settlement Web
  • OCC focus
  • Impact on systemic risk (FSOC perspective)
  • Impact on participant banks risk profiles
  • Bank due diligence and oversight
  • Systems/risk analysis
  • Process Updates
  • Front-end controls
  • Employee training

27
Appendix I
  • Selected OCC Asset Management Guidance

OCC Bulletins, Banking Circulars, Interpretive
Letters and Booklets of the Comptrollers
Handbook for Asset Management are available at
www.occ.gov OCC Capital Markets Asset
Management
28
OCC AM Guidance
  • Comptrollers Handbook for Asset Management
    Booklets
  • Asset Management (2000)
  • Asset Management Operations Controls (2011)
  • Collective Investment Funds (2005)
  • Conflicts of Interest (2000)
  • Custody Services (2002)
  • Investment Management Services (2001)
  • Personal Fiduciary Services (2002)
  • Retirement Plan Services (2007)
  • Unique and Hard to Value Assets (2012)

29
OCC AM Guidance
  • Comptrollers Handbook for Selected Safety and
    Soundness Selected Booklets
  • Community Bank Supervision (2010)
  • Large Bank Supervision (2010)
  • Bank Supervision Process (2007)
  • Internal and External Audits (2003)
  • Internal Control (2001)
  • Insurance Activities (2002)
  • Retail Nondeposit Investment Sales (1994)

30
Selected OCC Bulletins
  • OCC 2013-8, Short-term Investment Funds Reporting
    Requirements
  • OCC 2012-31, Short-Term Investment Funds
  • OCC 2011-11, Risk Management Elements Collective
    Investment Funds and Outsourced Arrangement
  • OCC 2011-12, Supervisory Guidance on Model Risk
    Management
  • OCC 2010-37, Self-Deposit of Fiduciary Funds
  • OCC 2009-19, New Notice Requirements for Sweep
    Accounts
  • OCC 2008-10, Fiduciary Activities of National
    Banks Annual Reviews of Fiduciary Accounts
    Pursuant to 12 CFR 9.6(c)
  • OCC 2008-5, Conflicts of Interest Risk
    Management Guidance Divestiture of Certain
    Asset Management Businesses
  • OCC 2007-42, Bank Securities Activities SEC's
    and Federal Reserve's Final Regulation R
  • OCC 2007-21, Supervision of National Trust Banks
    Revised Guidance Capital and Liquidity

31
Selected OCC Bulletins
  • OCC 2007-7, Soft Dollar Guidance Use of
    Commission Payments by Fiduciaries
  • OCC 2007-6, Registered Transfer Agents Transfer
    Agent Registration, Annual Reporting, and
    Withdrawal from Registration
  • OCC 2006-24, Interagency Agreement on ERISA
    Referrals
  • OCC Bulletin 2004-20, Risk Management of New,
    Expanded, or Modified Bank Products or Services
    Risk Management Process
  • OCC 2004-2, Banks/Thrifts Providing Financial
    Support to Funds Advised by the Banking
    Organization or its Affiliates
  • OCC Bulletin 2002-16, Bank Use of Foreign-Based
    Third-Party Service Providers
  • OCC Bulletin 2001-47, Third-Party Relationships
    Risk Management Principles
  • OCC Bulletin 2001-35, Examination Procedures to
    Evaluate Compliance with the Guidelines to
    Safeguard Customer Information

32
Appendix II Asset Management Statistics
33
Total Fiduciary Assets
  • All Banks and FSAs 2006 1Q2013

34
Total Custody Assets
  • All Banks and FSAs 2006 1Q2013

35
Managed Assets Fiduciary Accts
  • All Banks and FSAs 2009 - 2012

36
CIFs CTFs
  • All Banks and FSAs 2001 1Q 2013

37
CIFs CTFs
  • All Banks and FSAs 4Q 2011 1Q 2013

4Q2011 Amount of Funds Domestic Equity International Equity Stock/Bond Blend Taxable Bond Municipal Bond STIF/Money Market Specialty/ Other Total
All FDIC-insured State Banks (48) 239,462,434 109,605,198 86,687,952 36,934,801 1,682,485 168,284,562 43,389,037 686,046,469
All National Banks (57) 430,704,299 362,048,074 66,153,193 386,968,517 4,714,422 111,534,622 58,863,573 1,420,986,700
All Federal Savings Banks (4) 1,562,627 715,588 1,854,124 1,077,871 35,750 0 8,206,552 13,452,512
Total (109) 671,729,360 472,368,860 154,695,269 424,981,189 6,432,657 279,819,184 110,459,162 2,120,485,681


1Q2013 Amount of Funds Domestic Equity International Equity Stock/Bond Blend Taxable Bond Municipal Bond STIF/Money Market Specialty/ Other Total
All FDIC-insured State Banks (35) 291,764,349 137,417,418 94,065,448 44,126,388 1,571,467 145,460,201 42,235,774 756,641,045
All National Banks (53) 545,500,938 500,861,642 105,044,565 326,236,184 4,116,110 119,479,357 67,366,104 1,668,604,900
All Federal Savings Banks (5) 2,255,560 7,726,692 4,812,360 3,373,368 28,609 0 0 18,196,589
Total (93) 839,520,847 646,005,752 203,922,373 373,735,940 5,716,186 264,939,558 109,601,878 2,443,442,534
38
Fiduciary Related Svcs Revenue
  • All Banks and FSAs 2002 1Q 2013

39
OCC Contact Information
  • Tish Dalton
  • Asset Management Group
  • Credit Market Risk Division
  • Patricia.Dalton_at_OCC.treas.gov
  • 202 649-6401
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