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FFIEC Guidance Concerning Fiduciary Services and Year 2000 Readiness
October 20, 1998
|Circular No. 11102|
To the Chief Executive Officers of All State Member Banks, Bank Holding
The Federal Financial Institutions Examinations Council (FFIEC) has issued the tenth in a series of policy statements addressing safety and soundness issues pertaining to the Year 2000. The purpose of this guidance is to remind financial institutions of the potential for increased risk of Year 2000 problems associated with fiduciary services. The guidance describes controls and actions that institutions should use to manage these risks.
This additional guidance is not intended to introduce additional expectations for institutions, but rather to clarify expectations already discussed in previous FFIEC policy statements. It is expected that organizations offering fiduciary services would already have considered - in the course of their overall Year 2000 preparations - the potential problems associated with Year 2000 in this business activity.
The following is from a statement by the FFIEC:
The FFIEC has issued guidance that addresses the Year 2000 risks associated with fiduciary services. The guidance stresses fiduciaries's obligations to protect the assets of all account beneficiaries and manage all client assets solely in those beneficiaries' best interest. It emphasizes particular areas that may affect fiduciary services.
FFIEC member agencies expect that financial institutions will act to mitigate and manage Year 2000 exposures by reviewing their fiduciary services and fiduciary account assets. Directors and senior management are expected to take an active role in this process.
The action a financial institution takes to manage fiduciary risks depends on the types of fiduciary services it offers and the types of assets it manages for account beneficiaries. Areas of potential concern include account and asset administration, third-party risk, counterparty risk, transfer agent services, and client disclosures. The guidance addresses each of these areas.
A financial institution's lack of response to fiduciary Year 2000 issues may be interpreted by beneficiaries and other interested parties as a failure to fulfill its fiduciary duties and to observe the standards of prudence set by the Employee Retirement Income Security Act of 1974 (ERISA) and other applicable laws and regulations.
The FFIEC agencies expect each financial institution to address Year 2000 problems it identifies in fiduciary relationships in order to protect account beneficiaries and limit potential risks to the institution.
Available is a copy of the guidance. If you have any questions, please contact, at this Bank, Sarah Dahlgren, Vice President, Bank Supervision Group, or Ira Adler, William Francis, or Joseph Galati, Examining Officers, Advisory and Technical Services Function (respectively). For questions relating to fiduciary activities in general, please contact Barbara Yelcich, Examining Officer, Advisory and Technical Services.