The Finance Commission of Texas (the commission), on behalf of the Texas Department of Banking (the department), proposes new §3.23, concerning exercise of trust powers. The new rule is proposed to ensure that a state bank seeking to offer trust services can provide those services reliably and consistently without undue risk to its customers or to the safety and soundness of the institution.
Proposed §3.23(a) would define "trust services" to mean service as a fiduciary to hold or administer accounts established through a customer relationship involving the transfer of title to funds or property to the bank, including a relationship in which the bank acts as a trustee, executor, administrator, guardian, custodian, conservator, receiver, registrar of stocks and bonds, mortgage or indenture trustee, escrow agent, transfer agent, or investment advisor.
However, proposed to be excluded from the term are relationships in which the bank as trustee or custodian acts in an essentially custodial or ministerial capacity, and can only invest the funds in its own time or savings deposits or in other assets at the explicit direction of the customer, provided the bank does not exercise any investment discretion or provide any investment advice with respect to such other assets. This exception would permit serving as the fiduciary under accounts like Individual Retirement Accounts established pursuant to the Employee Retirement Income Security Act of 1974 (26 U.S.C. 408), Self-Employed Retirement Plans established pursuant to the Self-Employed Individuals Retirement Act of 1962 (26 U.S.C. 401), Roth Individual Retirement Accounts and Coverdell Education Savings Accounts established pursuant to the Taxpayer Relief Act of 1997 (26 U.S.C. 408A and 530 respectively), Health Savings Accounts established pursuant to the Medicare Prescription Drug Improvement, and Modernization Act of 2003 (26 U.S.C. 223), and other similar accounts without having to obtain prior approval to provide trust services. The commission specifically requests comment regarding whether this specific exception is appropriate in light of the accompanying fiduciary risk, and whether other exemptions should be considered.
Only a bank that does not currently provide trust services and has not provided trust services over a year would be required to file a notice with the commissioner, as specified by proposed §3.23(b). Proposed §3.23(c) itemizes the information to be required in a notice submission for approval to provide trust services.
Finally, proposed §3.23(d) would permit a bank that already has trust powers specified in its certificate of formation to begin providing trust services on the 31st day after the notice is received by the banking commissioner unless the commissioner specifies an earlier or later date, subject to any conditions imposed by the banking commissioner and any required approval of the bank's primary federal regulator. The banking commissioner would have authority to extend the decision period if the bank's notice raises issues that require additional information or additional time for analysis but, if the period is extended, the bank would be required to wait for the commissioner's written approval to begin providing trust services. A bank that is amending its certificate of formation to authorize trust powers would also be required to wait for the commissioner's written approval.
Robert L. Bacon, Deputy Commissioner, Texas Department of Banking, has determined that for the first five-year period the proposed rule is in effect, there will be no fiscal implications for state government or for local government as a result of enforcing or administering the rule.
Mr. Bacon also has determined that, for each year of the first five years the rule as proposed is in effect, the public benefit anticipated as a result of enforcing the rule is enhanced consistency and quality of trust services offered by state banks that previously have not provided such services. In addition, the rule will support the safety and soundness of state bank operations by ensuring that fiduciary risk is appropriately managed and controlled.
For each year of the first five years that the rule will be in effect, there will be no economic costs to persons required to comply with the rule as proposed. Any additional costs incurred by a state bank seeking to provide trust services are required to ensure the safety and soundness of bank operations, regardless of whether or not the rule as proposed is adopted.
There will be no adverse economic effect on small businesses or micro-businesses. There will be no difference in the cost of compliance for small businesses as compared to large businesses.
To be considered, comments on the proposed new rule must be submitted no later than 5:00 p.m. on April 6, 2015. Comments should be addressed to General Counsel, Texas Department of Banking, Legal Division, 2601 North Lamar Boulevard, Suite 300, Austin, Texas 78705-4294. Comments may also be submitted by email to legal@dob.texas.gov.
The new rule is proposed under Finance Code §31.003(a)(2), which authorizes the commission to adopt rules necessary or reasonable to preserve or protect the safety and soundness of state banks. As required by Finance Code §31.003(b), the commission has considered the need to (1) promote a stable banking environment; (2) provide the public with convenient, safe, and competitive banking services; (3) preserve and promote the competitive position of state banks with regard to national banks and other depository institutions in this state consistent with the safety and soundness of state banks and the state bank system; and (4) allow for economic development in this state.
Finance Code §32.001 and §32.101 are affected by the proposed new section.
(a) As used in this section, "trust services" mean services provided to the public as a fiduciary for hire or compensation, to hold or administer accounts established through a customer relationship involving the transfer of title to funds or property to the bank, including a fiduciary relationship in which the bank acts as trustee, executor, administrator, guardian, custodian, conservator, receiver, registrar of stocks and bonds, mortgage or indenture trustee, escrow agent, transfer agent, or investment advisor, except that "trust services" do not include customer services in which:
(1) the bank's duties as trustee or custodian are essentially custodial or ministerial in nature; and
(2) the bank may only invest customer funds:
(A) in its own time or savings deposits; or
(B) in other assets at the explicit direction of the customer, provided the bank does not exercise any investment discretion or provide any investment advice with respect to such other assets.
(b) A state bank that does not currently provide trust services and has not provided trust services for a period in excess of one year may not begin offering or providing trust services except upon compliance with this section and with any requirements imposed by the bank's primary federal regulator.
(c) A state bank described in subsection (b) of this section that intends to offer and provide trust services shall submit a notice to the banking commissioner describing the proposed trust services and the anticipated date for initiation of such services. In addition, the bank must submit:
(1) the bank's proposed business plan for providing trust services, including the policies and procedures the bank will employ to manage its fiduciary risk;
(2) sufficient biographical information on proposed trust management personnel to enable the banking commissioner to assess their qualifications;
(3) a description of the locations where the bank proposes to offer trust services and the manner in which such services will be provided at each location, including the extent to which fiduciary authority is proposed to be delegated to personnel at such location;
(4) if the bank's certificate of formation does not authorize the bank to exercise the trust powers necessary to provide the proposed trust services, an application for amendment of its certificate of formation pursuant to Finance Code, §32.101, accompanied by the filing fee required by §15.2 of this title (relating to Filing Fees and Cost Deposits); and
(5) a copy of any filings made with the bank's primary federal regulator providing notice or seeking approval to offer trust services.
(d) Provided the bank's certificate of formation authorizes the bank to exercise trust powers sufficient to provide the proposed trust services, and subject to any conditions imposed by the banking commissioner and any required approval of the bank's primary federal regulator, the bank may begin offering and providing trust services on the 31st day after the date the banking commissioner receives the bank's notice under subsection (c) of this section unless the banking commissioner specifies an earlier or later date. The banking commissioner may extend the 30-day period on a determination that the bank's notice raises issues that require additional information or additional time for analysis. If the period is extended, or if the bank is amending its certificate of formation to authorize trust powers, the bank may not offer or provide trust services until it has received written approval of the banking commissioner.
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