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Rule 2012-A

Rule 2012-A, Management of Cash Funds, was recently promulgated by the State Board of Finance. The effective date of the Rule was July 14, 2012.  The Rule provides requirements for the management of cash funds of state agencies including investment activities and the collateralization of cash funds that are on deposit with banks or financial institutions that exceed coverage by the Federal Deposit Insurance Corporation (FDIC).

State agencies that deposit cash funds in a bank or financial institutions must comply with the requirements of the Rule.  Affected state agencies must demonstrate compliance with the Rule by December 31, 2012.  In order to meet this deadline, affected state agencies must execute new agreements with depository banks and custodians by October 31, 2012.  The new agreements must be filed with the Department of Finance and Administration by November 15, 2012.  The Agency Memo (link below) has detailed compliance instructions.

The Rule allows the following entities to act as custodians of securities pledged for the collateralization of cash funds:

• Any Federal Reserve Bank
• Any Federal Home Loan Bank
• A banker’s bank
• The trust department, or similar safekeeping function, of a commercial bank or trust company primarily located in Arkansas that is unaffiliated with the bank or financial institution in which cash funds are deposited

A bank or financial institution may request approval from the State Board of Finance to use the following as custodian:

• The trust department, or similar safekeeping function, of a commercial bank or trust company primarily located outside of Arkansas that is unaffiliated with the bank or financial institution
• A securities broker or dealer that is unaffiliated with the bank or financial institution

As of January 2, 2012, the State Board of Finance has approved the following entities to serve as custodians:

• First Tennessee Bank
• Raymond James/Morgan Keegan
• The Bank of New York Mellon