ABA Letter to OCC on Collective Investment Funds

Chief Counsel's Office
Office of the Comptroller of the Currency
400 7th Street SW, Suite 3E-218
Washington, DC 20219

Dear Ladies and Gentlemen:

The American Bankers Association (ABA) appreciates this opportunity to comment on the Office of the Comptroller of the Currency's (OCC) interim final rule (IFR) amending the rules governing prior notice periods for withdrawals from collective investment funds that are primarily invested in real estate or other assets that are not readily marketable. The OCC issued the Release to "[clarify] the standard withdrawal period and [establish] a limited exception to that withdrawal period" when a bank is unable to satisfy redemption requests during "ongoing severe market conditions."

On behalf of ABA members that sponsor and maintain collective investment funds invested primarily in real estate and other assets not readily marketable, we appreciate the OCC's effort to codify a modified version of the guidance provided in Interpretive Letter 1121. Our letter raises concerns about some of the new concepts introduced in the IFR and offers suggested changes to facilitate the ability of banks to manage these funds in the best interest of their fiduciary clients.

Background on Withdrawal Periods for Real Estate and Similar Funds

The IFR amends the existing regulation in 9.18(b)(5)(iii) on prior notice periods for withdrawals from 9.18(a)(2) funds that are primarily invested in real estate or other assets that are not readily marketable. The standard withdrawal period for these funds is one year. In 2009, the OCC issued Interpretive Letter 1121 outlining the following conditions in order to extend, beyond the standard period, the period for acting upon requests to withdraw from a fund:

1. The fund's written plan must contain language authorizing an extended redemption period, which must be fully disclosed to the participants.
2. "The Bank must have valid reasons for an extended redemption period, and the extended redemption period must be necessary given the nature of the assets."
3. "The Bank must determine that an extended redemption period is consistent with fiduciary principles and in the best interests of all participants – both withdrawing and remaining."
4. Fund participation is limited to "institutional investors" that are tax-exempt retirement, profit sharing or stock bonus plans, and administered by trustee(s) required to act solely in the interest of plan participants and their beneficiaries.
5. The Bank must provide quarterly status reports to the Examiner-in-Charge detailing efforts to satisfy pending redemption requests.

Under the IFR, the OCC modified the Letter's approach by narrowing the circumstances under which the additional one-year extension would be available and requiring commitment to a specific course of action, by adding the following additional conditions:

1. "The bank's board of directors, or a committee authorized by the board directors, determines that, due to unanticipated and severe market conditions for specific assets held by the fund, an extended withdrawal period is necessary in order to preserve the value of the fund's assets for the benefit of fund participants."
2. "The bank's board of directors, or a committee authorized by the board of directors, commits that the bank will act upon any withdrawal request as soon as practicable."
3. "Extensions under this paragraph must be requested and approved annually, for a maximum of two years after the initial one-year extension period."

Download the comment letter to read the full text.