OCC Issues New Guidance on Unique and Hard-to-Value Assets Held In Fiduciary Accounts

On August 24, 2012, the Office of the Comptroller of the Currency ("OCC") issued new guidance to examiners and banks concerning the management of unique and hard-to-value assets, the risks associated with investing or holding these assets, and the fiduciary’s role in managing these assets. Banks often accept these assets into trust accounts and manage them as trustee for the benefit of the bank’s customer and the designated beneficiaries of the account. The guidance, however, is equally applicable to custodial accounts.

The new Comptroller’s Handbook titled Unique and Hard-to-Value Assets provides guidance to a bank regarding holding these assets for the benefit of a customer in a fiduciary account or custodial account. Such unique and hard-to-value assets include marketable securities (not traded in public financial markets), real estate, commercial leases, mineral assets, timber interests, shares of closely held private companies, life insurance policies, and collectibles.

The new Handbook addresses the following issues:

• Analysis of the types of unique and hard-to-value assets and the specific characteristics of each;
• Asset review guidance, including pre-acceptance, post-acceptance, and annual investment reviews;
• Management, valuation, ownership, and reporting risks and issues for each class of asset; and
• Appendixes of examples and worksheets related to the management and reporting of the assets.

Because many of these assets require specialized expertise, controls, and valuation methods, a bank managing these assets face certain challenges and risks, including unique operational, compliance, reputational, and strategic risks. The new guidance describes certain risk mitigation techniques and emphasizes developing specialized policies and procedures for these assets. For example, the guidance specifically states "while not required by regulation, the OCC does view the triennial real estate appraisal as a safe and sound banking practice," thereby affirming a position many national banks will recognize from recent exams.

With this new guidance from the OCC, you should carefully review your bank’s asset management policies and procedures related to these unique and hard-to-value assets.