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Comptroller's Handbook for Asset Management

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Comptroller's Handbook for Asset Management AM-OC As of January 6, 2012, this guidance applies to federal savings associations in addition to national banks.* Comptroller of the Currency Administrator of National Banks Asset Management Operations and Controls Comptroller’s Handbook January 2011 AM Asset Management As of January 6, 2012, this guidance applies to federal savings associations in addition to national banks.* Asset Management UOperations and Controls Table of Contents Asset Management Operations and Controls: Overview................................ 1 Background............................................................................................... 1 Risks Associated With Asset Management Operations ............................... 3 Operational Risk.................................................................................... 4 Reputation Risk ..................................................................................... 5 Strategic Risk......................................................................................... 5 Compliance Risk ................................................................................... 6 Credit Risk............................................................................................. 7 Board and Management Supervision ......................................................... 7 Risk Management.................................................................................. 8 Compliance Management...................................................................... 9 Staffing ................................................................................................ 11 Oversight of IT and Third-Party Service Providers ................................ 11 Operational Controls............................................................................... 15 Separation of Trust and Bank Assets..................................................... 16 Segregation of Duties .......................................................................... 17 Joint Custody or Control ...................................................................... 18 System Administration......................................................................... 19 Internal Accounting Controls ............................................................... 20 Operations Core Functions...................................................................... 20 Safeguarding of Assets ......................................................................... 20 Securities Servicing ............................................................................. 28 Securities Transaction Processing......................................................... 38 Cash Transaction Processing................................................................ 44 Asset Management Accounting and Internal Accounting Controls........ 51 Record Keeping and Reporting ............................................................ 58 Other Processes, Controls, or Regulatory Requirements....................... 61 Operations and Controls: Examination Procedures...................................... 72 Planning Activities .................................................................................. 72 Operations and Controls: Quantity of Risk.................................................. 77 Comptroller’s Handbook i Asset Management Operations and Controls As of January 6, 2012, this guidance applies to federal savings associations in addition to national banks.* Operations and Controls: Quality of Risk Management............................... 79 Board and Management Supervision ....................................................... 79 Audit and Internal Controls ..................................................................... 84 Core Asset Management Operations Functions........................................ 90 Operations and Controls: Examination Conclusions .................................... 97 Operations and Controls: Appendix A......................................................... 99 Sample Request Letter............................................................................. 99 Examination Request Letter Attachment................................................. 100 General Information .......................................................................... 100 Control Functions.............................................................................. 101 Systems and Processes....................................................................... 102 Operations and Controls: References ........................................................ 105 Laws ..................................................................................................... 105 Regulations ........................................................................................... 105 Comptroller’s Handbook Booklets......................................................... 107 OCC Issuances...................................................................................... 107 U.S. Department of Labor Issuances...................................................... 108 Federal Financial Institutions Examination Council Issuances ................ 108 Comptroller’s Handbook ii Asset Management Operations and Controls As of January 6, 2012, this guidance applies to federal savings associations in addition to national banks.* Asset Management UOperations and Controls Overview This booklet provides guidance applicable to core Asset Management operations functions and to internal controls and processes used by national banks to manage risks associated with Asset Management activities. One of a series of specialized booklets in the Comptroller’s Handbook, this booklet supplements the overall guidance provided in the “Large Bank Supervision,” “Community Bank Supervision,“ and “Asset Management” booklets of the Comptroller’s Handbook. This booklet provides expanded examination procedures when specific products or risks warrant review beyond the core assessment. Related booklets in the Comptroller’s Handbook include “Personal Fiduciary Services,” “Retirement Plan Services,” “Custody Services,” “Investment Management Services,” “Internal and External Audits,” and “Internal Control.” Background Asset Management consists of an array of bank services, such as custody, investment management, trust and estate administration, retirement plan administration and participant record keeping, and corporate trust administration. The types of Asset Management customers serviced by a bank are diverse (e.g., individuals, retirement plans, corporations, mutual funds, investment managers, insurance companies, endowments, and foundations), as are the capacities in which a bank acts on behalf of these customers (e.g., trustee, agent, or custodian). Many of these customer and account types have specialized legal, processing, accounting, and reporting requirements. This booklet focuses on core processes applicable to most account types. Asset Management operations serves as the “back office” for a bank’s Asset Management activities and plays an important role in fulfilling a bank’s strategic goals. Asset Management operations should implement efficient processes and systems capable of supporting the types of Asset Management accounts, clients, and assets that the bank services. These processes and systems should be capable of providing timely and detailed account information to management, customers, regulatory agencies, and other authorized parties, such as accountants or co-fiduciaries. Asset Management operations moves and controls cash balances, marketable securities, and tangible assets. This results in a heightened risk of loss due to Comptroller’s Handbook 1 Asset Management Operations and Controls As of January 6, 2012, this guidance applies to federal savings associations in addition to national banks.* error or theft. The market volatility of assets being processed may increase the impact of such losses. As a result, a strong system of internal controls is required. In addition, Asset Management operations often supports systems and processes integral to overall risk management and compliance processes for Asset Management services. This booklet provides guidance related to core Asset Management operations functions and core Asset Management accounting systems. These core functions include safeguarding assets, servicing securities, processing cash and securities transactions, maintaining internal controls, record keeping and reporting, and record retention. This booklet addresses these functions in detail. Core Asset Management accounting systems support these core functions by maintaining account and asset master files, account level asset and cash positions, department-level asset and cash positions, and securities movement and control (SMAC) capabilities. These systems process such transactions as interest and dividend payments, cash receipts, disbursements, and fees. They can track key events and produce client statements and regulatory and management reports. Banks may also rely on specialized systems for specific lines of business, services, asset types, or functions. Examples include retirement plan participant recordkeeping, document custody, natural resource accounting, tax preparation, performance measurement, performance attribution, or fund accounting. Many of these systems have automated data feeds or interfaces with the core Asset Management accounting system and therefore affect core functions. While this booklet does not specifically
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