Section 892-X-1-.07 - Custodians (Alabama Administrative Code)

§ 892-X-1-.07. Custodians

(1) Each custodian designated by a QPD ("Custodian") shall be a bank, savings association or trust company that:

(a) Is organized and existing under the laws of the State of Alabama, any other state of the United States, or the United States.

(b) Has executed a Collateral Agreement in the format prescribed by the SAFE Board.

(c) Agrees to be subject to the jurisdiction of the courts of this state, or of courts of the United States which are located within this state, for the purpose of any litigation arising.

(d) Has been approved by the Treasurer to act as a custodian.

(e) Upon request from the Treasurer, provides a confirmation of securities pledged to the Treasurer by each QPD in the format prescribed by the Treasurer.

(f) Agrees to provide financial information to the Treasurer upon request.

(g) Provides immediate notification to SAFE when any pledged mortgage backed security, CMO, or similar security is paid off.

(h) If a trust company, agrees to the following:

1. Provide a notice of good standing from its charter authority;

2. Hold and maintain $1 million in tangible capital;

3. Submit regulatory financial reports on a quarterly basis;

4. Submit its annual SSAE 16, or similar, audit, and the results be acceptable to SAFE;

5. Notify Treasurer of any and all public enforcement actions immediately.

(2) Financial institutions which exercise trust powers may hold collateral (other than Letters of Credit and the proceeds from any draws on any Letters of Credit) as security for deposits situated in that financial institution through its trust division.

(3) The Treasurer may designate one or more custodians a Treasurer-Designated Custodian to perform such functions as the Treasurer shall determine are appropriate and desirable in connection with the administration of the SAFE Program. Each Treasurer-Designated Custodian shall be a bank, savings association or trust company that meets the requirements of a Custodian

(4) A Custodian may be assessed an administrative penalty or disqualified if it does one or more of the following:

(a) Fails to execute a Collateral Agreement

(b) Releases pledged collateral without the Treasurer's approval.

(c) Fails to provide complete confirmations of pledged collateral within 7 business days.

(d) Fails to honor a request for reports, or an examination of funds or securities.

(e) Fails to pay an administrative penalty.

(5) The following administrative penalties may be enforced upon a Custodian in lieu of suspension or involuntary withdrawal:

(a) Notice of SAFE violation

(1) The written notice of SAFE violation will be issued by email or fax to the custodian contact included in the collateral agreement upon the first occurrence of any action listed in (4) above.

(2) The Custodian shall prepare a written response to the notice of SAFE violation that provides a corrective action plan within 30 calendar days of acknowledged receipt of the notice; or provides a statement with substantiating documentation that the infraction has not occurred.

(b) Notice of SAFE Fine

(1) A written notice of SAFE fine shall be issued by email or fax to the custodian contact included in the collateral agreement under the following conditions:

(i) The Recurrence of a previous infraction cited by a notice of SAFE violation;

(ii) No response is received from the Custodian to either the notice of SAFE violation or the notice of SAFE fine;

(iii) The Custodian refuses to correct a violation;

(iv) The violation significantly harms the SAFE Program.

(2) The Custodian shall prepare a written response to the notice of SAFE fine that provides a corrective action plan within 30 calendar days of acknowledged receipt of the notice and includes payment of fine by check; or provides a statement with substantiating documentation that the infraction has not occurred;

(c) Fines to be imposed against a Custodian will be as follows:

(1) The first Recurrence of a violation shall result in a $2,500 fine;

(2) The second Recurrence of a violation or a violation that causes significant harm to the SAFE Program shall be referred to the SAFE Board for review and assessment of penalty or disqualification as allowed by SAFE Law.

(New Rule: Filed March 28, 2001; effective May 2, 2001. Amended (only rule number changed: Filed September 19, 2002; effective October 24, 2002. Amended: Filed January 23, 2004; effective February 27, 2004. Amended: Filed December 20, 2004; effective January 24, 2005. Amended: Filed August 20, 2008; effective September 24, 2008. Amended by Alabama Administrative Monthly Volume XXXV, Issue No. 04, January 31, 2017, eff. March 4, 2017.)

Rule 892-X-1-.08, was renumbered to Rule as per certification filed September 19, 2002; effective October 24, 2002.

Author: Daria S. Story, SAFE Division, Office of State Treasurer

Statutory Authority: Code of Ala. 1975, §§ 41-14 A-2, 41-14A-5, 41-14A-6, 41-14A-7, as amended.

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