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OCC Bulletin 2016-17 | May 19, 2016

Money Market Funds: Compliance With SEC Money Market Fund Rules by Bank Fiduciaries, Deposit Sweep Arrangements, and Bank Investments


Chief Executive Officers of All National Banks and Federal Savings Associations, Department and Division Heads, All Examining Personnel, and Other Interested Parties


The Office of the Comptroller of the Currency (OCC) is issuing this bulletin to highlight actions that national banks and federal savings associations (collectively, banks) should take and factors that banks should consider based on the U.S. Securities and Exchange Commission’s (SEC) revised money market fund (MMF) rules in effect now and going into effect. Although these rules directly apply only to MMFs, the rules indirectly affect

  • banks that make MMFs available to their customers through their fiduciary and custody activities.
  • bank programs that automatically sweep funds between deposit accounts and MMFs.
  • banks that invest in MMFs.

Banks involved in any of these activities will likely be affected by compliance, liquidity, operational, and strategic risks related to the SEC’s revised rules.

Note for Community Banks

This guidance applies to all OCC-supervised banks.


This bulletin

  • describes how the SEC’s MMF rules are likely to affect banks.
  • addresses the product and process changes that affected banks should consider.
  • highlights potential compliance, liquidity, operational, and strategic risks.


In 2014, the SEC revised the rules1 for MMFs, which are a type of mutual fund registered under the Investment Company Act of 1940 and regulated pursuant to the act’s Rule 2a-7. (MMFs are sometimes called money market mutual funds or money funds.) In revising these rules, the SEC sought to further mitigate risk by building on the MMF reforms that it adopted in 2010.2 The 2010 rules were designed to make MMFs more resilient by reducing the interest rate, credit, and liquidity risks of fund asset portfolios. The SEC adopted the 2010 rules after a review of the MMF regulatory regime. That review was precipitated by the financial crisis and weaknesses revealed in fixed net asset value (NAV) funds by the Reserve Primary Fund’s “breaking the buck”3 in September 2008. The 2010 rules were designed (1) to increase MMFs’ resilience to economic stresses and (2) to reduce the risk of a significant volume of unexpected redemptions (“runs”) on these funds. The 2010 rules tightened the funds’ maturity and credit quality standards and imposed new liquidity requirements. The SEC indicated at that time that it would continue to consider whether more fundamental changes were warranted.

In 2013, the SEC proposed more changes, and it finalized them in July 2014. With the 2014 rules, the SEC addressed what it identified as differences between institutional and retail investor behavior. The 2014 rules define three types of MMFs: government, retail, and other. (These “other” types of MMFs are typically referred to as “prime,” “institutional,” or “institutional prime” funds.) Elements of these rules are now in effect. The industry is in the process of making the necessary changes to implement the remaining rule requirements by the final compliance date of October 14, 2016.

The 2014 rules establish specific requirements related to NAV determination, liquidity fees, and redemption gates that vary by MMF types. The 2014 rules continue to allow government and retail funds to have a fixed NAV but require that prime funds have a floating NAV. For prime and retail funds, the 2014 rules authorize a regime of liquidity fees and redemption gates that provide MMFs’ boards of directors with new tools to directly address runs on MMFs. Once these tools are adopted (no later than October 14, 2016), if a fund’s weekly liquid assets fall below 30 percent, the MMF board may impose a liquidity fee of no more than 2 percent or impose a redemption gate, temporarily suspending redemptions for up to 10 days. If weekly liquid assets fall below 10 percent, the rules require that an MMF impose a redemption fee of 1 percent unless the MMF board determines that the fee is not in the fund’s best interests.4 Other changes in the 2014 MMF rules include the following.

Enhanced Disclosure

  • MMFs are required to file a Form N-CR with the SEC within one business day of the occurrence of certain significant events, such as portfolio security defaults or receipt of fund sponsor or affiliate support. Fixed NAV MMFs also are required to file this form when the market-based NAV falls below $0.9975. (Compliance date: July 14, 2015)
  • MMFs are required to provide daily website disclosure of specific information related to the fund’s liquidity, inflows and outflows, market-based NAV to four decimal places,5 and use of any affiliate sponsor support. (Compliance date: April 14, 2016)
  • MMF Statements of Additional Information must disclose any instances in the most recent 10 years in which the MMF received support from the sponsor or an affiliate of the fund. (Compliance date: April 14, 2016; not required for instances that occurred before April 14, 2016)
  • The rule eliminates the previous 60-day delay for public availability of fund portfolio holdings reports (Form N-MFP),6 which MMFs had to file with the SEC each month. (Compliance date: April 14, 2016)
  • MMFs are required to promptly and publicly disclose instances when a fund’s weekly liquid assets fall below the 10 percent threshold, and the imposition and removal of any liquidity fee or redemption gate. (Compliance date: October 14, 2016)

Stronger Diversification Requirements

  • MMFs are required to treat certain entities that are affiliated with each other as single issuers for determining whether they comply with the 5 percent issuer diversification limit for MMFs. (Compliance date: April 14, 2016)
  • Most MMFs are required to have more stringent diversification limits for issuers of securities held in the fund, as well as for any guarantors and demand-feature providers related to those securities. (Compliance date: April 14, 2016)
  • MMFs are required to meet diversification limits with respect to the sponsors of asset-backed securities unless the board of directors determines that the fund is not relying on the sponsor’s financial strength or its ability or willingness to provide liquidity, credit, or other support to determine the asset-backed security’s quality or liquidity. (Compliance date: April 14, 2016)

Enhanced Fund Level Stress Testing

  • The requirements for MMF stress testing have been enhanced, as have the requirements related to reporting to the MMF board. (Compliance date: April 14, 2016)

Most mutual fund complexes already have announced which of their MMFs will be characterized as government, retail, or prime and have made, or are making, the changes needed to meet the specific requirements for each type of MMF. Some funds are being renamed, closed, or merged. In some cases, new MMFs are being established. As these changes are implemented, MMF advisors are updating fund prospectuses.

Expectations for Banks

Banks that make MMFs available to customers through their fiduciary and custody activities or through bank programs that automatically sweep funds between deposit accounts and MMFs, or that own MMF shares, should assess the compliance, operational, and investor liquidity implications of the 2014 MMF rules. These regulatory changes affect a broad range of bank activities, including discretionary and directed fiduciary accounts, retirement accounts, corporate trust relationships, custody accounts, deposit sweep arrangements, and MMF investments held on a bank’s balance sheet. Banks should monitor the changes initiated by MMF complexes as these complexes announce which specific funds will be characterized as government, retail, or prime. Banks should determine how these changes might affect the funds that banks make available to their customers or hold on their own balance sheets.7 Banks should develop plans for any resulting bank product changes that include tracking and reporting while the changes are being implemented.

Retail MMF Eligibility

A core element of the 2014 rule is the distinction between the rules for retail MMFs and those for other MMFs, and the specific eligibility requirements for owning shares of retail MMFs. The SEC defines a retail MMF as an MMF “that has policies and procedures reasonably designed to limit all beneficial owners of the fund to natural persons.”8 The terms “beneficial owner” and “natural person” are subject to SEC interpretation. The SEC discusses these terms in the 2014 MMF rulemaking’s adopting release9 and in the “2014 Money Market Fund Reform Frequently Asked Questions”10 maintained on the SEC’s website. In response to an industry question regarding how a financial intermediary determines beneficial ownership, SEC staff refers to Securities Exchange Act Rule 13(d)-3,11 with some limitations.

Rule 13(d)-3(a) generally defines a beneficial owner as “any person who, directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise has or shares … [i]nvestment power which includes the power to dispose, or to direct the disposition of, such security.” Additionally, beneficial ownership generally includes the right to acquire such beneficial ownership within 60 days, including but not limited to any right to acquire through the exercise of any option, warrant, or right; through the conversion of a security; pursuant to the power to revoke a trust, discretionary account, or similar arrangement; or pursuant to the automatic termination of a trust, discretionary account, or similar arrangement.

As the SEC noted in the 2014 adopting release,12 when mutual funds, including MMFs, are owned through a financial intermediary, such as a bank, the fund shares are often reflected as a single omnibus account on the books and records of the mutual fund. The intermediary maintains account-level books and records reflecting the MMF shares owned by each customer. In omnibus account arrangements, the mutual fund is often unable to “look through” to the beneficial owners as reflected on the underlying books and records of the intermediary.

Although the SEC requires that a retail MMF have policies and procedures reasonably designed to limit all beneficial owners of the fund to natural persons, the SEC does not prescribe what types of policies or procedures MMFs would need to implement in order to meet this requirement. The SEC does, however, state that such policies and procedures could include contractual arrangements between the fund and the intermediary or periodic certifications from the intermediary on the eligibility of each underlying account.

The SEC further notes that although it is a fund’s obligation to satisfy the retail fund definition, an intermediary could nonetheless be held liable for violations of other federal securities laws, including the antifraud provisions, when funds of institutional investors are improperly funneled into retail MMFs.13 As a result, banks that make MMFs available to customers through omnibus accounts should have processes and systems to accurately determine and report which underlying accounts are eligible to purchase specific types of MMFs. Banks also should ensure that accounts that do not have beneficial owners who are natural persons are not allowed to purchase retail MMF shares whether through an omnibus account maintained by the bank or otherwise.

  • When developing policies and related procedures, banks should seek advice of counsel to determine which specific types of accounts are eligible to purchase retail MMFs.
  • Banks should have effective processes to determine whether each MMF that they make available qualifies as government, retail, or prime, and they should code their systems accordingly.
  • Banks should have effective processes or automated systems that indicate which accounts are eligible to purchase retail MMFs and that prevent the purchase of retail MMFs by ineligible accounts. Banks should produce periodic reports that enable them to conclude that only eligible accounts own retail MMFs.
  • Banks should have effective processes to identify when an account’s eligibility to own a retail fund changes, and to take necessary actions. For example, some trusts may, at the death of the grantor, become irrevocable and, because the beneficiaries lack investment power, no longer be eligible to own shares of a retail MMF.

Redemption Gates and Liquidity Fees: Retail and Prime Funds

Banks that make retail and prime funds available to their customers should establish effective processes and system capabilities to implement redemption gates and impose liquidity fees at the account level if and when an MMF implements these tools. Banks also should consider the potential effect on bank liquidity if the banks make funds available to clients’ accounts before those funds are actually received from the MMFs, and the MMFs subsequently impose redemption gates that temporarily restrict payment of those customer funds.

Floating NAV and Intraday Liquidity: Prime Funds

MMFs that do not meet the requirements of government or retail funds will no longer be allowed to trade at a fixed NAV of $1.00 per share. Instead, these MMFs must trade based on the market value of the assets held in the funds, rounded to the fourth decimal place. The SEC has stated its belief that prime MMFs should be able to provide intraday liquidity, meaning that these MMFs would establish a process to strike a NAV at multiple, predetermined times each day. These characteristics, which would likely pose numerous operational challenges, make it unclear whether banks will be able to continue to offer prime MMFs as sweep vehicles for deposit sweep arrangements or for a bank’s fiduciary and custody accounts.

Banks that make prime MMFs available to their fiduciary and custody clients will need the system capabilities to report and process transactions to four decimal places. They will also need to establish processes to submit and settle trade orders in the modified time frames established by the funds.

Considerations for Bank Fiduciaries With Investment Discretion

On a daily basis, bank fiduciaries typically sweep funds awaiting investment or distribution into sweep vehicles such as MMFs or deposit accounts at the bank, an affiliate, or another depository institution. When exercising discretion with respect to where the assets are swept, banks are expected to consider the specific characteristics and risks of all available sweep vehicle choices, including risk and reward characteristics such as the rate of return, credit quality, duration, and average maturity. In addition, the bank must ensure that any conflicts of interest are properly authorized by applicable law.14 Given the gates and fees that retail MMFs may impose, fiduciaries should also determine whether a retail MMF is an appropriate sweep vehicle for a fiduciary account.

When establishing processes for the initial and ongoing due diligence for MMFs approved for use as sweep vehicles or as part of the cash equivalent allocation in fiduciary accounts, banks should continue to review the prospectuses and Statements of Additional Information for the MMFs, as well as Form N-MFP. Banks should regularly monitor MMF websites for disclosures related to the funds’ liquidity, market-based NAV rounded to the fourth decimal place, and support from a sponsor or fund affiliate to ensure that the MMFs selected by the bank meet the banks’ ongoing standards for fiduciary account sweep vehicles or cash equivalent assets. For further guidance, refer to the “Investment Management Services” booklet of the Comptroller’s Handbook.

Considerations for Banks That Offer Programs That Automatically Sweep Funds Between Deposit Accounts and MMFs

Banks that offer sweep arrangements between deposit accounts and MMFs15 should assess the respective processing characteristics, system requirements, compliance requirements, and liquidity characteristics of government, retail, and prime MMFs. Based on operational and liquidity considerations, most banks will likely conclude that once the SEC’s MMF reforms are fully implemented, government funds are the only practical option for bank deposit to MMF sweep arrangements.

Banks that offer sweep programs between deposit accounts and MMFs are permitted to do so based on the sweep exception from bank registration as a broker under Title II of the Gramm-Leach-Bliley Act,16 as implemented in Regulation R.17 To qualify for this exception, either the MMF must be a no-load fund as defined in Regulation R, Rule 740,18 or the bank must meet the requirements of the transaction exemption under Rule 741.19 Under Rule 741, if an MMF does not meet the definition of a no-load fund, the bank must provide the customer with a prospectus before the customer authorizes the bank to sweep to the specific MMF, and the bank must not characterize the fund as no-load. If the bank is authorized under the terms of a sweep agreement to alter the specific fund into which the customer’s balances are invested, the bank must provide the customer with a prospectus for any MMF that is not a no-load fund before the date on which the bank first invests the customer’s assets in the fund. When considering changes to the available MMFs offered through a retail sweep program, the bank should consider and adhere to the requirements of Regulation R.

Banks that make changes to the deposit sweep vehicles and arrangements they offer should determine whether updated disclosures are required under the Federal Deposit Insurance Corporation’s disclosure rules pertaining to sweep accounts, 12 CFR 360.8(e).20

Considerations for Banks That Hold Shares of MMFs on Balance Sheets

Banks should monitor changes to any MMFs they hold on their balance sheets to ascertain that these MMFs remain eligible for purchase under 12 CFR 1.3(h), “Limitations on Dealing in, Underwriting, and Purchase and Sale of Securities: Pooled Investments,” and 12 CFR 160.30, “General Lending and Investment Powers of Federal Savings Associations.” Banks also should ensure that the MMFs are not retail MMFs and that the MMFs meet the banks’ investment standards. As part of their initial and ongoing due diligence, banks should review the prospectuses and Statements of Additional Information for MMFs, review monthly Form N-MFPs filed by the funds, and regularly monitor MMF websites for disclosures related to liquidity, market-based NAV, and sponsor or fund affiliate support to ensure that the MMFs continue to meet the banks’ standards for asset quality and liquidity. For further guidance, refer to the “Investment Securities” booklet of the Comptroller’s Handbook.

Supervisory Expectations

The OCC expects banks that make MMFs available to customers through their fiduciary and custody activities or through deposit to MMF sweep programs, and banks that own MMF shares, to actively monitor rule changes and SEC guidance in this area. The OCC also expects banks offering this product to bank customers to track specific changes initiated by MMF complexes as these complexes determine whether each of the funds they offer will be government, retail, or prime. Banks should assess how these rule changes and the resulting changes made by the fund complexes affect bank fiduciary and custody activities, deposit sweep programs, and bank investments. Banks should determine what changes are needed and develop and implement comprehensive plans for incorporating these product changes into their policies and systems. National banks should refer to OCC Bulletin 2004-20, “Risk Management of New, Expanded, or Modified Bank Products and Services,” and federal savings associations should refer to “New Activities and Services,” section 760 of the Office of Thrift Supervision Examination Handbook, for broad risk management guidance for implementing product changes. Examiners focused on asset management and capital market issues will assess banks’ processes for managing the compliance, operational, and strategic risks associated with these MMF rule changes.

Further Information

Please contact Joel Miller, Group Leader, or Patricia Dalton, Technical Expert, Asset Management Group, Market Risk Division, at (202) 649-6360.


Grace E. Dailey
Senior Deputy Comptroller and Chief National Bank Examiner

1 Refer to “Money Market Reform; Amendments to Form PF,” 79 Fed. Reg. 47736 (August 14, 2014), referred to as the “Adopting Release,” and SEC press release 2014-143, “Rules Provide Structural and Operational Reform to Address Run Risks in Money Market Funds” (July 23, 2014).

2 Refer to “Money Market Fund Reform,” 75 Fed. Reg. 10060 (March 4, 2010).

3 An MMF “breaks the buck” when its NAV falls below $1.00 per share, meaning investors in that fund will lose money.

4 The MMF board may, based on the best interests of the fund, impose a fee that is higher or lower than 1 percent, from 0 percent to 2 percent.

5 Under the final rule, prime funds will round prices and transaction fund shares to four decimal places in the case of funds with a $1.00 target share price (i.e., $1.0000).

6 Liquidity fund advisors who manage at least $1 billion of combined MMF and private liquidity fund assets will be required to report substantially the same portfolio information with respect to their private fund’s portfolio holdings on Form PF (Reporting Form for Investment Advisers to Private Funds and Certain Commodity Pool Operators and Commodity Trading Advisors) as MMFs are required to report on Form N-MFP. 

7 Refer to 12 CFR 1.3(h), “Limitations on Dealing in, Underwriting, and Purchase and Sale of Securities: Pooled Investments,” and 12 CFR 160.30, “General Lending and Investment Powers of Federal Savings Associations.”

8 Refer to Investment Company Act rule 2a-7(a)(25).

9 Refer to discussion of natural person in “Money Market Reform; Amendments to Form PF,” 79 Fed. Reg. 47736, 47796-47799 (August 14, 2014).

10 The SEC updates its 2014 Money Market Fund Reform Frequently Asked Questions from time to time to include responses to additional questions.

11 Refer to 17 CFR 240.13(d)-3, “Determination of Beneficial Owner.”

12 Refer to 2014 Adopting Release, 79 Fed. Reg. 47735, 47799–47800 (August 14, 2014). 

13 Refer to 2014 rulemaking, 79 Fed. Reg. 47800, footnote 715.

14 For more information, refer to the “Investment Management Services” and “Conflicts of Interest” booklets of the Comptroller’s Handbook and OCC Bulletin 2010-37, “Fiduciary Activities of National Banks: Self-Deposit of Fiduciary Funds” (September 20, 2010).

15 MMF transactions resulting from automated sweeps to or from deposit accounts are subject to the record-keeping and confirmation requirements of 12 CFR 12 (national banks) and 12 CFR 151 (federal savings associations), both titled “Recordkeeping and Confirmation Requirements for Securities Transactions.” 

16 Refer to section 3(a)(4) of the Securities Exchange Act of 1934 as amended by the Gramm-Leach-Bliley Act.

17 Refer to 12 CFR 218, “Exceptions for Banks From the Definition of Broker in the Securities Exchange Act of 1934 (Regulation R).”

18 Refer to 12 CFR 218.740, “Defined Terms Relating to the Sweep Accounts Exception From the Definition of ‘Broker.’”

19 Refer to 17 CFR 218.741, “Exemption for Banks Effecting Transactions in Money Market Funds.”

20 Refer to 12 CFR 360.8, “Method for Determining Deposit and Other Liability Account Balances at a Failed Insured Depository Institution,” section (e), “Disclosure Requirements.” Also refer to OCC Bulletin 2009-19, “Revision to FDIC Rule 12 CFR 360: New Disclosure Requirements for Sweep Accounts” (June 17, 2009).