DEFINITION of Regulation 9
Regulation 9 is a policy that allows national banks to open and operate trust departments in-house and function as fiduciaries. The regulation allows national banks to manage and administrate investment-related activities. They can register stocks, bonds and other securities and act as trustees for them.
BREAKING DOWN Regulation 9
Although Regulation 9 gives banks permission to engage in trust-related activities at a federal level, banks must still adhere to state statutes as well. This regulation was issued by the comptroller of the Currency Department. Regulation 9 only applies to national banks and not regional or local entities. National banks are permitted to operate in multiple states and serve in fiduciary capacities in any state unless that state prohibits its own local banks from those particular activities.
Ways Regulation 9 Allows Banks to Serve as Fiduciaries
A national bank that wishes to exercise fiduciary functions and powers through Regulation 9, which allows the bank to make investments on behalf others, must adhere to written policies that ensure its activities as a fiduciary are within compliance. The policies in place should cover the bank’s brokerage placement practices, as well as ways to ensure fiduciary officers and employees of the bank do not use insider information in the decision making or recommendations on the sale or purchase of securities. The banks policies must also establish methods to prevent self-dealing and conflicts of interest.
These banks should also retain legal counsel that can advise the bank, its officers and staff on fiduciary matters. The banks will make investments of funds held as fiduciary. That includes short-term investments and funds that are to be invested.
There are further restrictions under Regulation 9 regarding the investment of funds by banks. Unless an applicable authorizes such actions, national banks cannot invest funds from a fiduciary account that the banks hold investment discretion into the stock, obligations of, or in assets acquired from certain sources. Those sources include the bank itself, its directors, officers, and employees. This also applies to organizations and individuals who have interests that could influence the bank’s judgment. In other words, those who serve in a fiduciary role cannot use those funds to make investments into assets under their own control or influence.
Such stipulations also apply to the lending, sale, or transfer of assets of fiduciary accounts the banks has investment discretion over. This is to ensure the actions of the bank do not conflict with the best interests of the clients they service.