BC 247
Type:  Banking Circular       
Subject:  Application of Securities Laws to Common Trust Funds
Date: September 12, 1990


TO:  Chief Executive Officers of National Banks, Deputy Comptrollers (District), 
Department and Division Heads and All Examining Personnel



PURPOSE

This issuance reminds national banks that under Securities and Exchange Commission 
Staff ("SEC" or "SEC staff") interpretations of the Securities Act of 1933, 15 U.S.C. § 
77a ("Securities Act" ) and the Investment Company Act of 1940, 15 U.S.C. § 80a-1 
("Investment Company Act"), national banks must register all common trust funds or 
similar funds where the underlying trust accounts are established solely or primarily 
for the purpose of investment in the common fund or lack a "bona fide fiduciary 
purpose."

REGISTRATION OBLIGATIONS UNDER THE FEDERAL SECURITIES LAWS

National banks that operate common trust funds must comply with the applicable 
provisions of the federal securities laws. Both the Securities Act and the Investment 
Company Act provide exemptions for common trust funds national banks maintain 
exclusively for the collective investment and reinvestment of assets they contribute as 
"trustee, executor, administrator or guardian." See Section 3(a) (2) of the Securities 
Act and Section 3(c) (3) of the Investment Company Act. However, the SEC has 
consistently interpreted the common trust fund exemptions in both of these statutes 
narrowly to apply only when the underlying trust relationships are created for "bona 
fide fiduciary purposes" rather than as "vehicles for general investment by the public." 
(See. e.g., SEC Release 33-6188 (February 1, 1980), reprinted in 1 Fed. Sec. L. Rep. 
(CCH)  1051; Commercial Bank, SEC No-Action Letter (February 24, 1988), 
reprinted in [1987-1988 Transfer Binder] Fed. Sec. L. Rep. (CCH)  78,684, 
reconsideration denied (July 13, 1988), Commission review declined (Jan. 11, 1989); 
Howard Savings Bank, SEC No-Action Letter (Aug. 13, 1979), reprinted in [1979-
1980 Transfer Binder] Fed. Sec. L. Rep. (CCH)  82,320).

In the above Commercial Bank No-Action Letter, for example, the SEC staff stated 
that the common trust fund exemption is available only where the common trust fund 
is operated for the administrative convenience of the bank in a manner incidental to a 
bank's traditional trust department activities and not primarily for investment in the 
common trust fund.

Even when the national bank has established funds that purport to provide certain 
traditional fiduciary services to individual beneficiaries in addition to the collective 
investment function, SEC staff may consider such services to be merely incidental to 
the money management purpose of the trusts and decline to issue a no-action position 
with respect to the bank's reliance on the common trust fund exemptions. (See Howard 
Savings Bank, supra; First Jersey National Bank, SEC No- Action Letter (November 
13, 1987)). The SEC Staff views advertisement of a common trust fund outside the 
promotion of the bank's general fiduciary services as an indication that the fund is 
established primarily as a vehicle for money management and, therefore, is not 
exempt from registration. (See Northern Trust Company, SEC No-Action Letter 
(March 1, 1989), on reconsideration (July 21, 1989)).

Whenever national banks are found to not be in compliance with the Investment 
Company Act or the Securities Act, the OCC will require corrective or remedial 
actions. In addition, the SEC may bring an action in federal district court to enjoin the 
activities of any bank which has violated those statutes. Such enforcement actions are 
public. The SEC also has authority to recommend that the Attorney General 
commence criminal proceedings in appropriate cases.

REMEDIAL ACTION

National banks that currently operate common trust funds that are not eligible for 
exemption under Section 3(a)(2) of the Securities Act and Section 3(c)(3) of the 
Investment Company Act and are not otherwise exempt from the registration 
requirements of either Act, must register those funds and the offerings of the 
participation in those funds and must comply with applicable provisions of these 
statutes. If a bank is uncertain as to whether a particular fund qualifies for the 
exemption from registration, the bank may request a no-action position from the SEC 
or take other steps to insure its compliance with the Investment Company Act and the 
Securities Act.

ORIGINATING OFFICE

Questions concerning this Banking Circular may be addressed to the Office of the 
Comptroller of the Currency, Securities &Corporate Practices Division, Washington, 
D.C. 20219, or by telephone at (202) 447-1954.








Ronald Lindhart
Deputy Comptroller
for Compliance Management