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BANKING ISSUANCE
Comptroller of the Currency
Administrator of National Banks
Type:  Banking Circular
Subject:  Sweep Fees

TO:  Chief Executive Officers of National Banks Authorized to Exercise
     Fiduciary Powers, Deputy Comptrollers (District), and Examining
     Personnel

PURPOSE

This issuance cautions national banks concerning certain trust department
uses of "sweep" cash management programs under circumstances in which
banks receive supplemental fees for participation of fiduciary accounts in
the programs.

BACKGROUND

As a means to meet their responsibility to obtain the maximum return for
fiduciary cash balances which are awaiting investment or distribution, a
number of national banks have acquired or established programs for the
systematic investment of such balances in various short-term investment
media commonly referred to as "sweep" systems. Some of these banks
directly or indirectly have imposed additional or supplemental fees on
fiduciary accounts for performing this cash management function.

A.	"Sweep Fees"

It is not clear whether under the laws of the various states governing
trusts a fiduciary may charge an additional fee beyond that specified by
the governing instrument for performing what is now recognized as being
one of its basic responsibilities. While it is recognized that additional
fees may be taken where the trustee renders professional or other services
not usually performed by trustees in the administration of a trust, it is
uncertain whether, in the case of national banks, a sweep fee generally
falls into this category. See 12 C.F.R. § 9.10. Thus, this Office cautions
that the laws of the various states governing trusts may prohibit a
fiduciary from charging sweep fees unless specific authority to impose
such a charge exists in the appropriate governing instrument, court order,
or valid consents are obtained after full disclosure from all parties in
interest. See, generally, Restatement (Second) of Trusts §§ 242(d),
(f),(h) and (i)(1957). We note that the staff of the Board of Governors of
the Federal Reserve System ("Board"), in an opinion dated March 20, 1985,
has concluded that the imposition of a sweep fee raises a conflict of
interest issue where the fiduciary has investment discretion. The Board
advised fiduciaries to obtain appropriate authorization after proper
disclosure.

This Office encourages national banks to obtain a reasoned opinion of
counsel as to the permissibility of the practice of charging sweep fees
under applicable local law. To the extent that the practice is not
prohibited under local law, the Office will accept that sweep fees are
compensation for separate trust services. Therefore, the reasonableness of
a sweep fee is governed by 12 C.F.R. 9.15(a). That rule provides in
pertinent part that

[i]f the amount of compensation for acting in a fiduciary capacity is not
regulated by local law or provided for in the instrument creating the
fiduciary relationship or otherwise agreed to by the parties, a national
bank acting in such capacity may charge or deduct a reasonable
compensation for its services.

12 C.F.R. 9.15(a).

With respect to the legality of this practice for accounts subject to
ERISA, banks are encouraged to seek the prior advice of the Department of
Labor. We observe in this regard that in a letter dated August 1, 1986,
the Department of Labor concluded that section 408(b) (2) of ERISA does
not exempt from the prohibition in section 406(b) sweeps into in-house
funds when a bank uses its fiduciary authority over plan funds to increase
the amount of its compensation by determining the timing or amount of plan
funds to be transferred into the sweep fund. The August 1, 1986 letter
states, however, that under appropriate circumstances sweeps into in-house
funds may constitute "ancillary services" under section 408(b) (6) of
ERISA for which bank fiduciaries may charge additional fees.

B.	Disclosure

As a matter of prudent banking practice, national banks are encouraged to
disclose fully fees taken in their periodic statements to fiduciary
account parties in interest. Such disclosure normally would be made at
least annually, and should be in a separate line item which states in
dollars and cents the total amount of such fees charged or attributed to
the account since the previous report.


ORIGINATING OFFICE

Questions regarding this issuance may be directed to the Trust
Examinations Division (202) 874-4447.


Robert J. Herrmann
Senior Deputy Comptroller of the Currency

Date:  October 31, 1986