District Circular Letters
March 31, 1998
BANKING SUPERVISION AND REGULATION:
INTERAGENCY TRUST RATING SYSTEM
To State Member Banks, Trust Companies,
and Others Concerned
in the Twelfth Federal Reserve District
Proposed Revisions to Uniform Interagency Trust Rating System
On February 17, 1998, the Federal Financial Institutions Examination
Council (FFIEC) published in the Federal Register a notice and
request for comment regarding proposed revisions to the Uniform Interagency
Trust Rating System (UITRS). In an effort to ensure that you are aware
of the proposed changes and the opportunity for comment, the Federal Reserve
Bank of San Francisco is sending each state member bank the enclosed copy
of the FFIEC notice as it appeared in the Federal Register. Comments
to the FFIEC are due by April 20, 1998.
The major elements of the proposed revisions to the rating system are
as follows:
- A realignment of the UITRS rating definitions to bring them in line
with the language and tone of the Uniform Financial Institutions Rating
System (UFIRS) rating definitions, or CAMELS.
- An increased emphasis on the quality of risk-management processes
in each of the rating components, particularly the management component.
The rating system now explicitly calls for consideration of the processes
an institution uses to identify, measure, monitor, and control risks
related to the institution's fiduciary activities.
- Changes in composite rating definitions to parallel proposed changes
in component rating descriptions. The composite rating will continue
to be based on a careful evaluation of an institution's fiduciary management
and of operational and compliance performance.
- The explicit identification, within component descriptions, of the
types of risks to be considered when assigning ratings to each of the
components.
- The consolidation of the former Account Administration and Conflicts
of Interest components into a new Compliance component, reducing the
number of components from six to five. The new Compliance component
will assess an institution's efforts to comply with applicable laws
and regulations, the terms of governing instruments, and internal policies
and procedures.
- A change to the evaluation and rating of the Earnings component.
While earnings will continue to be evaluated at all institutions, a
component rating will only be required to be assigned for those institutions
which must file Schedule E of the FFIEC 001. This will reduce by approximately
66 percent the number of institutions receiving a mandatory rating of
earnings.
- Provision in the Asset Management component for a waiver for institutions
whose fiduciary activities do not include activities involving the management
of any trust account assets.
- The restructuring and clarification of the existing rating component
descriptions into three distinct sections for each component: an introductory
paragraph; a listing of applicable evaluation factors; and brief qualitative
descriptions of component rating definitions.
Request for Comment on Proposed Revisions and Additional Questions
The FFIEC requests comment on these proposed revisions to the trust
rating system. In addition, the FFIEC specifically invites comments on
the following questions:
- Does the proposal capture the essential risk areas of the fiduciary
services industry?
- Does the proposed management component adequately assess the quality
of the board of directors' and management's oversight regarding their
fiduciary responsibility and their ability to identify and manage all
areas of risk involved in the exercise of the institution's fiduciary
powers?
- Are there any components which should be added to or deleted from
the proposal?
- Are the definitions for the individual components and the composite
numerical ratings in the proposal consistent with the language and tone
of the UFIRS definitions?
All comments should be submitted to:
Mr. Joe M. Cleaver, Executive Secretary
Federal Financial Institutions Examination Council
2100 Pennsylvania Avenue NW, Suite 200
Washington, D.C. 20037
or by fax, to (202) 634-6556. Comments must be received
by April 20, 1998.
For Additional Information
If you have questions concerning these proposed revisions, please contact
Mr. William Stanley, Supervisory Trust Analyst, of the Boards' Banking
Supervision and Regulation Division, at (202) 452-2744,
or Mr. Starr Seegmiller, Assistant Vice President, Banking Supervision
and Regulation, Federal Reserve Bank of San Francisco, at (415)
974-2944.
FEDERAL RESERVE BANK OF SAN FRANCISCO
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