Notice2023-04626
Proposed Collection; Comment Request; Extension: Rule 17f-5
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
March 7, 2023
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 88 Issue 44 (Tuesday, March 7, 2023)</title>
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[Federal Register Volume 88, Number 44 (Tuesday, March 7, 2023)]
[Notices]
[Pages 14220-14221]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-04626]
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SECURITIES AND EXCHANGE COMMISSION
[SEC File No. 270-259, OMB Control No. 3235-0269]
Proposed Collection; Comment Request; Extension: Rule 17f-5
Upon Written Request, Copies Available From: Securities and Exchange
Commission, Office of FOIA Services, 100 F Street NE, Washington, DC
20549-2736
Notice is hereby given that, pursuant to the Paperwork Reduction
Act of 1995 (44 U.S.C. 350l-3520), the Securities and Exchange
Commission (``Commission'') is soliciting comments on the collection of
information summarized below. The Commission plans to submit the
existing collection of information to the Office of Management and
Budget for extension and approval.
Rule 17f-5 (17 CFR 270.17f-5) under the Investment Company Act of
1940 [15 U.S.C. 80a] (the ``Act'') governs the custody of the assets of
registered management investment companies (``funds'') with custodians
outside the United States. Under rule 17f-5, a fund or its foreign
custody manager (as delegated by the fund's board) may maintain the
fund's foreign assets in the care of an eligible fund custodian under
certain conditions. If the fund's board delegates to a foreign custody
manager authority to place foreign assets, the fund's board must find
that it is reasonable to rely on each delegate the board selects to act
as the fund's foreign custody manager. The delegate must agree to
provide written reports that notify the board when the fund's assets
are placed with a foreign custodian and when any material change occurs
in the fund's custody arrangements. The delegate must agree to exercise
reasonable care, prudence, and diligence, or to adhere to a higher
standard of care, in performing the delegated services. When the
foreign custody manager selects an eligible foreign custodian, it must
determine that the fund's assets will be subject to reasonable care if
maintained with that custodian, and that the written contract that
governs each custody arrangement will provide reasonable care for fund
assets. The contract must contain certain specified provisions or
others that provide at least equivalent care. The foreign custody
manager must establish a system to monitor the performance of the
contract and the appropriateness of continuing to maintain assets with
the eligible foreign custodian.
The collection of information requirements in rule 17f-5 are
intended to provide protection for fund assets maintained with a
foreign bank custodian whose use is not authorized by statutory
provisions that govern fund custody arrangements,\1\ and that is not
subject to regulation and examination by U.S. regulators. The
requirement that the fund board determine that it is reasonable to rely
on each delegate is intended to ensure that the board carefully
considers each delegate's qualifications to perform its
responsibilities. The requirement that the delegate provide written
reports to the board is intended to ensure that the delegate notifies
the board of important developments concerning custody arrangements so
that the board may exercise effective oversight. The requirement that
the delegate agree to exercise reasonable care is intended to provide
assurances to the fund that the delegate will properly perform its
duties.
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\1\ See section 17(f) of the Act. 15 U.S.C. 80a-17(f).
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The requirements that the foreign custody manager determine that
fund assets will be subject to reasonable care with the eligible
foreign custodian and under the custody contract, and that each
contract contain specified provisions or equivalent provisions, are
intended to ensure that the delegate has evaluated the level of care
provided by the custodian, that it weighs the adequacy of contractual
provisions, and that fund assets are protected by minimal contractual
safeguards. The requirement that the foreign custody manager establish
a monitoring system is intended to ensure that the manager periodically
reviews each custody arrangement and takes appropriate action if
developing custody risks may threaten fund assets.\2\
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\2\ The staff believes that subcustodian monitoring does not
involve ``collection of information'' within the meaning of the
Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520) (``Paperwork
Reduction Act'').
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Commission staff estimates that each year, approximately 62
registrants \3\ could be required to make an average of one response
per registrant under rule 17f-5. A ``response'' may involve the fund's
directors making certain findings concerning foreign custody managers,
and the review and ratification of custodial contracts. Commission
staff estimates a response relating to these matters will require
approximately 2.5 hours of board of director time per response, to make
the necessary findings concerning foreign custody managers, and 1 hour
of related compliance attorney time per response, to assist the fund
board.\4\ For registrants, the total annual burden associated with
these requirements of the rule is up to approximately 217 hours (62
responses x 3.5 hours per response).
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\3\ This figure is an estimate of the number of new management
investment company registrants each year, based on data reported on
Form N-CEN as of December 2019, 2020, and 2021. Commission staff
anticipates that the number of existing registrants that change
their foreign custody managers is negligible and, therefore, the
compliance burden of rule 17f-5 falls primarily on new registrants.
In practice, not all registrants will use foreign custody managers.
The actual figure therefore may be smaller.
\4\ As discussed below, Commission staff estimate that a
response from a registrant will also include a related burden for
the applicable foreign custody manager chosen by the registrant's
board of directors.
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Foreign custody managers are also affected by the collection of
information requirements under rule 17f-5. Commission staff estimate
that, in connection with each registrant's board of directors making
certain findings concerning a foreign custody manager, those findings
will require approximately 20 hours of trust administrator time from
the applicable manager. This burden relates to the foreign custody
manager's initial considerations regarding custodial arrangements with
the registrant and preparing reports to the fund board.\5\ Commission
staff further estimate that annually, approximately 15 foreign custody
managers will be required to make an average of 4 responses per manager
concerning the use of foreign custodians other than depositories.\6\
This ``response'' may involve the foreign custody manager establishing
bank custody arrangements, negotiating/renegotiating custodial
contracts, preparing reports to fund boards, and
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establishing and/or amending the foreign custody manager's system for
monitoring custody arrangements for its clients. The staff estimates
that each response will take approximately 250 hours of trust
administrator time, requiring approximately 1,000 total hours annually
per foreign custody manager (4 responses per foreign custody manager x
250 hours per response). Thus, the total annual burden for foreign
custody managers associated with the requirements of the rule is
approximately 16,240 hours ((62 responses by foreign custody managers x
20 hours per response) + (15 foreign custody managers x 4 responses per
manager) x 250 hours per response).
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\5\ This estimate does not include burden hours related to the
establishment and/or amendment of the foreign custody manager's
system for monitoring custody arrangements for its clients, which is
accounted for separately as discussed below.
\6\ This figure is based on the staff's estimate of the number
of global custodians that may act as foreign custody managers under
rule 17f-5.
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Therefore, the total annual burden of all collection of information
requirements of rule 17f-5 is estimated to be up to 16,457 hours (217
hours + 16,240 hours). The total monetized annual cost of burden hours
is estimated to be $5,166,833 ((217 hours x $3,529/hour blended wage
rate) + (16,240 hours x $271/hour for a trust administrator's
time)).\7\ Compliance with the collection of information requirements
of the rule is necessary to obtain the benefit of relying on the rule's
permission for funds to maintain their assets with foreign custodians.
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\7\ The rates used to create the blended rate are as follow:
board of director time -$4,770 and compliance attorney time -$425.
Staff estimates concerning wage rates for the cost of board of
director time are based on fund industry representations. Based on
fund industry representations, the staff estimated in 2014 that the
average cost of board of director time, for the board as a whole,
was $4,000 per hour. Adjusting for inflation, the staff estimates
that the current average cost of board of director time is
approximately $4,770 per hour. Estimates concerning wage rates for
compliance attorneys and trust administrators are based on salary
information for the securities industry compiled by the Securities
Industry and Financial Markets Association and modified by
Commission staff for 2023. The compliance attorney and trust
administrator wage figures are based on published rates for each,
modified to account for a 1800-hour work-year and inflation, and
multiplied by 5.35 to account for bonuses, firm size, employee
benefits and overhead. See Securities Industry and Financial Markets
Association, Report on Management & Professional Earnings in the
Securities Industry 2013.
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The estimate of average burden hours is made solely for the
purposes of the Paperwork Reduction Act. The estimate is not derived
from a comprehensive or representative survey or study of the costs of
Commission rules and forms.
Written comments are invited on: (a) whether the proposed
collection of information is necessary for the proper performance of
the functions of the Commission, including whether the information
shall have practical utility; (b) the accuracy of the Commission's
estimate of the burden of the collection of information; (c) ways to
enhance the quality, utility, and clarity of the information collected;
and (d) ways to minimize the burden of the collection of information on
respondents, including through the use of automated collection
techniques or other forms of information technology. Consideration will
be given to comments and suggestions submitted by May 8, 2023.
An agency may not conduct or sponsor, and a person is not required
to respond to, a collection of information under the PRA unless it
displays a currently valid OMB control number.
Please direct your written comments to: David Bottom, Acting
Director/Chief Information Officer, Securities and Exchange Commission,
c/o John Pezzullo, 100 F Street NE, Washington, DC 20549 or send an
email to: <a href="/cdn-cgi/l/email-protection#4c1c1e0d13012d25202e23340c3f292f622b233a"><span class="__cf_email__" data-cfemail="2d7d7f6c72604c44414f42556d5e484e034a425b">[email protected]</span></a>.
Dated: March 2, 2023.
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-04626 Filed 3-6-23; 8:45 am]
BILLING CODE 8011-01-P
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