Add Art 3-C §§156 - 159, amd §§9-c, 606 & 617, Bank L; amd §301, Fin Serv L
Establishes requirements for the creation and operation of limited purpose trust companies; establishes how to apply to operate as a limited purpose trust company.
STATE OF NEW YORK
________________________________________________________________________
8364
IN SENATE
January 22, 2024
___________
Introduced by Sen. COONEY -- read twice and ordered printed, and when
printed to be committed to the Committee on Banks
AN ACT to amend the banking law and the financial services law, in
relation to limited purpose trust companies
The People of the State of New York, represented in Senate and Assem-bly, do enact as follows:
1 Section 1. The banking law is amended by adding a new article 3-C to
2 read as follows:
3 ARTICLE 3-C
4 LIMITED PURPOSE TRUST COMPANIES
5 Section 156. Limited purpose trust company creation.
6 157. Application to commence operation as a limited purpose
7 trust company.
8 158. Limited purpose trust company operation.
9 159. Special provisions relating to digital assets.
10 § 156. Limited purpose trust company creation. 1. If the superinten-
11 dent shall find that a trust company has met the conditions of this
12 article, and has in good faith complied with all other requirements of
13 law and fulfilled all conditions precedent to commencing business as a
14 limited purpose trust company pursuant to this article, the superinten-
15 dent shall promptly issue and execute under the official seal of the
16 department, in triplicate, an authorization certificate to the person or
17 persons named in such organization certificate.
18 2. Such authorization certificate shall be conclusive evidence that
19 all conditions precedent have been fulfilled and that a limited purpose
20 trust company has been formed under this article, except in an action or
21 special proceeding brought by the superintendent or the attorney gener-
22 al. The superintendent shall cause one of the triplicate authorization
23 certificates to be transmitted to such limited purpose trust company,
24 one to be filed in the office of the department, and one to be filed in
25 the county clerk's office of the county in which such organization
26 certificate has been filed. The copies of the authorization certificate
27 filed in the offices of the superintendent and the county clerk shall be
28 attached to the previously filed copies of the organization certificate
EXPLANATION--Matter in italics (underscored) is new; matter in brackets
[] is old law to be omitted.
LBD14145-02-4
S. 8364 2
1 and such certificates shall be recorded in the records of incorporation
2 therein.
3 3. Any limited purpose trust company which does not commence business
4 as such within six months after the date on which its authorization
5 certificate is issued by the superintendent pursuant to subdivision one
6 of this section shall forfeit such trust company's rights and privileges
7 as a limited purpose trust company and corporate powers shall cease and
8 desist, unless the time within which such business may be commenced has
9 been extended by the superintendent. The superintendent may grant one or
10 more such extensions upon satisfactory cause being shown. Such extension
11 shall be granted by order executed, transmitted, and filed in the manner
12 provided for an authorization certificate pursuant to subdivision one of
13 this section.
14 § 157. Application to commence operation as a limited purpose trust
15 company. 1. The superintendent shall establish by regulation the form of
16 an application for any corporate entity to operate as a limited purpose
17 trust company, provided that such entity meets all other requirements of
18 this article.
19 2. The superintendent shall conduct an investigation of the applica-
20 tion, including an assessment of the character and fitness of the
21 members of the board of directors and the management of the proposed
22 limited purpose trust company.
23 3. The name of the limited purpose trust company shall contain the
24 words "trust company" as part of its corporate name and any doing busi-
25 ness as designation filed with the department. The superintendent shall
26 be authorized to establish other guidelines on the suitability of
27 certain names of limited purpose trust companies, and deemed to be
28 necessary and appropriate.
29 4. (a) Any limited purpose trust company shall be organized in the
30 state of New York, and shall have a board of directors of no fewer than
31 three individuals. Any member of the board of directors shall be subject
32 to a review of their character and fitness to serve as a member of such
33 board. Such limited purpose trust company shall designate a president
34 or chief executive officer, a secretary, and a general counsel which
35 shall all be subject to review by the department for suitability to
36 serve in their fiduciary roles.
37 (b) The limited purpose trust company shall describe its intended
38 business plan, including the type or types of fiduciary activities to be
39 undertaken and whether any trust assets are to be offered. Such limited
40 purpose trust company shall provide a statement summarizing the proposed
41 market and target customers to the department for approval, including
42 financial projections for the first three years of such company's opera-
43 tion and all relevant assumptions upon which such projections are based.
44 5. (a) Each member of the board of directors and members of senior
45 management and major shareholders shall provide fingerprints to be veri-
46 fied against the criminal history database maintained by the division of
47 criminal justice services.
48 (b) Each member of the board of directors, major shareholders, and
49 members of senior management that proposes to contribute capital to the
50 limited purpose trust company by purchasing stock of such trust company
51 shall submit financial information to the department.
52 (c) An organization chart shall be included in an application to the
53 department to operate as a limited purpose trust company, which shall
54 outline the roles and responsibilities of the senior management of such
55 trust company.
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1 (d) The department shall develop a questionnaire to determine the
2 suitability of any individual to serve as a member of the board of
3 directors or hold any other key position in a limited purpose trust
4 company.
5 (e) The plan of operations of the limited purpose trust company shall
6 be provided to the department, which shall include the operating proce-
7 dures of the legal, accounting, investment, and recordkeeping functions
8 of such trust company and information regarding any plans to obtain
9 related services from outside sources.
10 (f) (i) Major shareholders shall be identified to the department. If
11 an individual's ownership interest constitutes statutory control by
12 constituting twenty-five percent or more of the proposed limited purpose
13 trust company's capital stock, then certified public accountant-prepared
14 and reviewed financial statements may be provided in lieu of audited
15 financial statements. Any corporation, or limited liability company,
16 which is a major shareholder, shall disclose the individual owners of
17 such entity to the department.
18 (ii) For the purposes of this paragraph, a "major shareholder" shall
19 mean any individual or corporate entity owning or controlling twenty-
20 five percent or more of the proposed trust company's capital stock.
21 (g) A limited purpose trust company shall provide evidence of minimum
22 primary coverage of one million dollars. A bond or other surety may be
23 acceptable, at the discretion of the department.
24 (h) The number of shares to be issued and par value for such shares
25 shall be included in an application to operate as a limited purpose
26 trust company.
27 (i) If a trust company is a subsidiary of another corporate entity,
28 then a description of the type of business conducted by the parent
29 company, and biographical information on each of its owners and direc-
30 tors, including any entities which have ownership interests of five
31 percent or more of such parent company, shall be provided to the depart-
32 ment. Audited financial statements of such parent company shall be
33 provided to the extent they are available. A stipulation of financial
34 surety may be required from such limited purpose trust company by such
35 parent company, in an amount to be determined by the superintendent.
36 § 158. Limited purpose trust company operation. 1. Any limited purpose
37 trust company shall receive a certificate of authority prior to offering
38 any fiduciary services pursuant to section one hundred fifty-six of this
39 article. Any transfer of the majority of the assets of such limited
40 purpose trust company, or any merger, shall require the approval of the
41 superintendent.
42 2. Any limited purpose trust company shall submit its plans for inter-
43 nal audit and control to the department for approval. Such plans shall
44 include, but not be limited to, a policy for internal controls, a
45 relationship with a full-time auditor, engagement with a certified
46 public accountancy firm for a periodic external audit, and maintenance
47 of a conflict-of-interest policy.
48 3. (a) Any limited purpose trust company shall establish policies and
49 procedures for compliance with the bank secrecy act, and exercise
50 reasonable diligence regarding opening and maintaining every account, in
51 order to know and retain the essential facts concerning every customer,
52 and the authority of each person acting on behalf of such customer.
53 (b) (i) For the purposes of this subdivision, "essential facts"
54 include those required to:
55 (A) effectively service the customer's account;
S. 8364 4
1 (B) act in accordance with any special handling instructions for the
2 account;
3 (C) understand the authority of each person acting on behalf of the
4 customer; and
5 (D) comply with applicable state and federal laws and regulations.
6 (ii) Any customer for which a limited purpose trust company has
7 performed the reasonable diligence required pursuant to subparagraph (i)
8 of this paragraph shall be a known customer of such trust company.
9 4. Any limited purpose trust company shall develop and maintain poli-
10 cies and procedures designed to monitor and prevent fraud and mismanage-
11 ment, which shall include independent accounting, auditing, and opera-
12 tional controls.
13 5. (a) Any limited purpose trust company shall seek the approval of
14 the department prior to offering a materially new product, service, or
15 business to the public, and shall provide the superintendent with a
16 description and risk assessment of the proposed product, service, or
17 business.
18 (b) The superintendent shall promptly review a request by a limited
19 purpose trust company to approve a new product, service, or business
20 provided by a limited purpose trust company pursuant to paragraph (a) of
21 this subdivision, and approve or disapprove such proposed product,
22 service, or business within one hundred eighty days of receiving such
23 request. An application shall be promulgated by the department to facil-
24 itate such requests. Any denial of such request for approval by a
25 proposed trust company shall be reviewable upon application before a
26 judge in a court of competent jurisdiction. Any request to approve a new
27 product, service, or business made pursuant to this subdivision which is
28 not approved or disapproved by the superintendent within one hundred
29 eighty days of receipt of such request shall be deemed approved.
30 (c) Provided that a request by a limited purpose trust company for
31 approval of a new product, service, or business has been granted by the
32 superintendent or deemed approved, no further approval is required to
33 provide the same product, service, or business to additional customers,
34 whether such customers reside in or outside of New York state.
35 § 159. Special provisions relating to digital assets. 1. (a) Each
36 limited purpose trust company shall be required to maintain digital
37 currency in an amount and form as the superintendent deems necessary and
38 appropriate to ensure the financial integrity and ongoing operations of
39 such trust company, as based on an assessment of the specific risks
40 applicable to each such trust company, including operational risk,
41 liquidity risk, and management risk.
42 (b) The amounts of digital currency may be held by a limited purpose
43 trust company in the form of: cash, virtual currency, precious metals,
44 or other high quality, highly liquid, investment grade assets, in such
45 proportions as the superintendent deems appropriate.
46 (c) An asset held in trust for a customer by a limited purpose trust
47 company, or a stablecoin, if it is issued pursuant to the superinten-
48 dent's approval and regulatory requirements, shall not be required to be
49 separately capitalized by such trust company.
50 2. It shall be prohibited for any limited purpose trust company to act
51 as, employ, or otherwise use the services of any proprietary trading
52 agent in violation of its fiduciary obligations to its customers. No
53 limited purpose trust company shall engage in activity which constitutes
54 prearranged trading, wash trading, market manipulation, or insider trad-
55 ing.
S. 8364 5
1 3. (a) For the purposes of this article, an asset held in trust by a
2 limited purpose trust company shall include any digital asset which is a
3 stablecoin backed by United States dollars, or an asset-backed token
4 which is a token for which a fixed unit of an underlying asset is held
5 by such trust company. To qualify as a stablecoin, a ratio equal to 1.0
6 or greater in cash or cash equivalent must be maintained and the issuer
7 shall manage any liquidity risk therein.
8 (b) For the purposes of this subdivision, "cash equivalent" shall
9 mean:
10 (i) U.S. treasury bills acquired by the issuer three months or less
11 from the respective maturities of such U.S. treasury bills;
12 (ii) reverse repurchase agreements fully collateralized by U.S. treas-
13 ury bills, U.S. treasury notes, and/or U.S. treasury bonds on an over-
14 night basis, subject to department requirements concerning overcollater-
15 alization. Such reverse repurchase agreements shall be either (A)
16 tri-party or (B) bilateral with a counterparty that the issuer has found
17 to be adequately creditworthy and whose identity has been submitted to
18 the department in writing, without objection, together with the issuer's
19 credit assessment, at least fourteen days prior to the commencement of a
20 contract between such issuer and such counterparty;
21 (iii) U.S. government money-market funds, subject to department caps
22 on the fraction of reserve assets to be held in such funds and depart-
23 ment restrictions on such funds, which may include, but shall not be
24 limited to, a minimum percentage allocation to direct obligations of the
25 U.S. government and reverse repurchase agreements on such obligations;
26 or
27 (iv) deposit accounts at U.S. state or federally chartered depository
28 institutions, subject to department restrictions which may include, but
29 shall not be limited to, (A) percentage-of-reserve or absolute-dollar-
30 value caps on the assets to be deposited at any given depository insti-
31 tution and (B) limitations based on the department's conclusions
32 concerning the risk characteristics of particular depository insti-
33 tutions, which shall take into consideration the amounts reasonably
34 necessary to be held at depository institutions in order to meet antic-
35 ipated redemption demands.
36 (c) In order to qualify as an asset-backed token, each unit of digital
37 currency must be backed by a fixed unit of an underlying asset which is
38 held by a limited purpose trust company. Such underlying asset may
39 include, but shall not be limited to, precious metals or currency of
40 another country.
41 (d) Stablecoins and asset-backed tokens held by a limited purpose
42 trust company shall be redeemable within two full business days of a
43 timely request from a depositor.
44 (e) A certified public accountant shall audit the account reserves of
45 any limited purpose trust company on a monthly basis and verify that the
46 required proportion of assets and segregation of such assets is main-
47 tained.
48 (f) Such reserved amounts held by a limited purpose trust company
49 shall be subject to an annual audit from an independent certified public
50 accountant.
51 (g) Any documents related to such reserves and backing of any issued
52 stablecoin or asset-backed token held by a limited purpose trust company
53 shall be produced upon request by the department.
54 4. (a) Upon application to the department, any limited purpose trust
55 company shall be authorized to issue any stablecoin or asset-backed
56 token which meets the regulatory requirements of this article. Such
S. 8364 6
1 application shall be made in a form and manner to be proscribed by the
2 department. The department, in evaluating such application, shall
3 authorize limited purpose trust companies to issue any digital asset if
4 such trust company demonstrates to the department that such trust compa-
5 ny has the requisite expertise, experience, and capability to issue such
6 stablecoin or asset-backed token in a manner that will comport with the
7 policy considerations contained in section ten of this chapter. For any
8 other asset-backed token issuance, the superintendent shall similarly
9 review and approve a limited purpose trust company to issue such asset-
10 backed token. For any issuance authorized pursuant to this paragraph
11 such, the superintendent shall conduct a review of any offering docu-
12 ments, or other information used for marketing such currency prior to it
13 being offered to any consumer entity.
14 (b) A limited purpose trust company may list and hold in its custody
15 any stablecoin or asset-backed token meeting the regulatory requirements
16 of this article upon submission to the department of a certification, on
17 a form to be provided by the department for such purpose, provided that
18 the superintendent has reviewed and approved the issuance of such
19 stablecoins or asset-backed tokens.
20 (c) The superintendent may, in his or her discretion, place any virtu-
21 al currency on a list of accepted virtual currencies, which shall be
22 published on the department's website.
23 (d) All applications by a limited purpose trust company to issue any
24 stablecoin or asset-backed token shall be filed on a form prescribed by
25 the superintendent. Any such application shall be either approved or
26 disapproved by the department within one hundred eighty days of such
27 filing. If the department has not disapproved such application within
28 one hundred eighty days of such filing, it shall be deemed approved. Any
29 disapproval of such application shall be reviewable in a court of compe-
30 tent jurisdiction.
31 (e) Provided that a limited purpose trust company is exercising
32 reasonable diligence in its opening of accounts, as required by subdivi-
33 sion three of section one hundred fifty-eight of this article, no
34 further review or approval shall be required for the sale or transfer of
35 any virtual currency to any known customer once such initial sale or
36 transfer has been approved by the superintendent.
37 (f) Encryption and data protection measures relative to virtual
38 currency shall be reviewed and approved by the department as part of the
39 department's review of an application by a limited purpose trust company
40 to issue any stablecoin. The department shall promulgate requirements
41 for data protection and encryption standards related to virtual curren-
42 cy.
43 5. The superintendent shall, where it has investigated and determined
44 that the requirements of another state's laws are substantially equiv-
45 alent to those of New York state, accept the license or approval of any
46 digital asset or virtual currency issued by such other state, or author-
47 ize the doing business of any limited purpose trust company formed under
48 a regulatory framework that is substantially equivalent to this article.
49 6. (a) Customers of a limited purpose trust company shall be recog-
50 nized as the owners of funds, deposits, and assets they have placed in
51 custody with such limited purpose trust company and such funds, depos-
52 its, and assets shall not constitute the property of such limited
53 purpose trust company in a bankruptcy, receivership, or other dissol-
54 ution, as applicable.
S. 8364 7
1 (b) The superintendent may review a limited purpose trust company's
2 use of contract terms to ensure compliance with paragraph (a) of this
3 subdivision.
4 (c) Any limited purpose trust company shall develop written policies
5 that are designed to track, trace, and return customer funds, deposits,
6 and assets to their proper owner, including, where relevant, to the
7 holders of record, to the greatest extent possible, in the event of
8 bankruptcy, receivership, or other dissolution, as applicable.
9 § 2. Section 301 of the financial services law is amended by adding 2
10 new subsections (d) and (e) to read as follows:
11 (d) A violation of article twenty-two-A of the general business law
12 shall constitute a violation of this chapter and a violation of the
13 banking law. Nothing herein shall infringe on the authority of the
14 department of law to investigate or oversee the sale or transfer of
15 securities as provided in article twenty-one-A of the general business
16 law. An action shall not be maintained against an entity regulated under
17 the banking law by the attorney general unless referred thereto by the
18 superintendent.
19 (e) Any out of state entity which has been granted reciprocity under
20 this provision shall remain in good standing at all times in its state
21 of licensure. Any suspension, revocation or termination of such licen-
22 sure shall apply as if levied in New York state. The superintendent
23 shall issue regulations to implement the provisions of this subsection.
24 § 3. The opening paragraph of subdivision 1 of section 9-c of the
25 banking law, as added by chapter 849 of the laws of 1964, is amended to
26 read as follows:
27 The superintendent or the attorney-general may bring an action for the
28 dissolution of a corporation formed under any article of this chapter or
29 formed under any other statute or special act having as its purpose or
30 among its purposes a purpose for which a corporation, except for a
31 limited purpose trust company formed pursuant to article 3-C of this
32 chapter, may be formed under this chapter upon one or more of the
33 following grounds:
34 § 4. Section 606 of the banking law is amended by adding a new subdi-
35 vision 7 to read as follows:
36 7. For the purposes of this section, the superintendent shall not
37 liquidate the trust assets of a limited purpose trust company which
38 holds amounts in reserve for an asset-backed token, including stable-
39 coin, before making a determination of whether such amounts are safe-
40 guarded from fraud, waste, or abuse. If such amounts are not determined
41 to be at risk, such amounts may continue to be held in the name of the
42 superintendent, or a receiver deemed appropriate by the superintendent
43 to administer such amounts, and such funds shall not be made a part of
44 any estate in bankruptcy. Any customer of such limited purpose trust
45 company shall be able to transfer the amount held in trust or redeem
46 such amounts of a stablecoin or asset-backed token as they deem appro-
47 priate. Notwithstanding the provisions of this subdivision, nothing
48 herein shall prevent the superintendent from proceeding against accounts
49 and property not held in trust. The accounting treatment of the amounts
50 held in such accounts shall not be determinative of whether such amounts
51 are fiduciary assets.
52 § 5. Subdivision 1 of section 617 of the banking law, as amended by
53 chapter 259 of the laws of 1986, is amended to read as follows:
54 1. The superintendent may, after he has taken possession of any bank-
55 ing organization, cause to be mailed to each person claiming to be, or
56 appearing upon the books of such banking organization to be
S. 8364 8
1 (1) the owner of any personal property in the custody or possession of
2 such banking organization as bailee or depositary for hire or otherwise,
3 including the contents of any safe, vault or box theretofore opened for
4 non-payment of rental in accordance with the provisions of this chapter,
5 which shall include any amounts held in trust for a customer, including
6 a stablecoin issued or held and other trust assets held by a limited
7 purpose trust company, or
8 (2) the lessee of any safe, vault or box, a notice in writing directed
9 by registered mail to such person at his last address as the same
10 appears on the books of such banking organization or at his last known
11 address if no address appears on such books, notifying such person to
12 remove all such property or the contents of any such safe, vault or box,
13 within a period stated in said notice, which period shall be not less
14 than sixty days from the date of such notice, and further notifying such
15 person of the terms and provisions of this section. The contract of
16 bailment or of deposit for hire, or lease of safe, vault or box, if any,
17 between the person to whom such notice is mailed and such banking organ-
18 ization shall cease and determine upon the date for removal fixed in
19 such notice. Such person shall have a claim against such banking organ-
20 ization for the amount of the unearned rent or charges, if any, paid by
21 such person from the date fixed in such notice, if the property or
22 contents is removed on or before such date, or from the date of actual
23 removal, if the property or contents is removed after such date.
24 As used herein the phrase "personal property in the custody or
25 possession of such banking organization as bailee or depositary for hire
26 or otherwise" shall include, without limitation, securities, whether
27 held in custody directly or in book-entry form by such banking organiza-
28 tion, its nominee, subcustodian, clearing corporation or similar entity,
29 and any trust assets held by a limited purpose trust company.
30 § 6. This act shall take effect on the one hundred eightieth day after
31 it shall have become a law. Effective immediately, the addition, amend-
32 ment and/or repeal of any rule or regulation necessary for the implemen-
33 tation of this act on its effective date are authorized to be made and
34 completed on or before such effective date.
