We are a national bank, and we recently moved our wealth and farm management groups into a separate, state-chartered trust company that will be regulated by the IDFPR and the Federal Reserve. Which compliance regulations apply to a trust company? Do the following apply? BSA, OFAC, AML, CIP, USA Patriot Act, FACT Act, Elder Financial Abuse, UDAAP, and GLBA.

Feb 12, 2019

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Trust companies are subject to all the laws mentioned in your question. Broadly speaking, there are no exemptions for trust companies in the laws and regulations that generally apply to banks, bank holding companies, and their subsidiaries.

Also, you mention in your question that the trust company will be regulated by the IDFPR and the Federal Reserve, but you don’t indicate whether it will be a subsidiary of the national bank or its bank holding company. It merits mentioning that trust companies which are subsidiaries of national banks also are subject to supervision and examination by the bank’s primary regulator, the OCC.

For resources related to our guidance, please see:

Bank Secrecy Act, 31 USC 5312(a)(2) (“‘Financial institution’ means . . . (B) a commercial bank or trust company

OFAC Regulations, e.g., 31 CFR 510.328 (North Korea Sanctions Regulations) (“The term U.S. financial institution . . . . includes depository institutions, banks, savings banks, trust companies . . . .”)

CIP Regulations, 31 CFR 1010.100(d) (“General definitions. . . . (d) Bank. Each agent, agency, branch or office within the United States of any person doing business in one or more of the capacities listed below: (1) A commercial bank or trust company organized under the laws of any State or of the United States; . . .”)

Fair Credit Reporting Act, 15 USC 1681s-2(a)(1) (“A person shall not furnish any information relating to a consumer to any consumer reporting agency if the person knows or has reasonable cause to believe that the information is inaccurate.”)

Illinois Financial Exploitation Training Rules, 89 Ill. Adm. Code 271.110 (“‘Financial exploitation’ means the use of an older person's resources by another to the disadvantage of the older person and/or the profit or advantage of a person other than the older person.”)

Consumer Financial Protection Act of 2010, 12 USC 5481(6) (“The term ‘covered person’ means (A) any person that engages in offering or providing a consumer financial product or service; and (B) any affiliate of a person described in subparagraph (A) if such affiliate acts as a service provider to such person.”)

Gramm-Leach-Bliley Act, 15 USC 6809(3) (“The term ‘financial institution’ means any institution the business of which is engaging in financial activities as described in section 1843(k) of title 12.”)

Bank Holding Company Act of 1956, 12 USC 1843(k) (“Notwithstanding subsection (a), a financial holding company may engage in any activity, and may acquire and retain the shares of any company engaged in any activity, that the Board, in accordance with paragraph (2), determines (by regulation or order) (A) to be financial in nature or incidental to such financial activity; or (B) is complementary to a financial activity and does not pose a substantial risk to the safety or soundness of depository institutions or the financial system generally.”)

FDIC Trust Examination Manual, Section 10, D.3 Trust Companies (“Most trust companies are not insured by the FDIC. These companies are chartered and regulated by the state or by the OCC. Trust companies which are owned by a bank holding company are also subject to supervision by the Federal Reserve Board. Trust companies that are owned by banks are subject to examination and supervision by the parent bank’s primary regulator.”)

Previous: One of our business customers set up several 401(k) accounts several years ago. We opened the accounts as traditional IRAs, named in the company’s name. The company’s owner signed the signature cards. The only document showing the employee’s signature is a form provided by the company showing that the employee marked that they want to hold the IRA at our bank. Is that correct? We are concerned that one of the employees took an early distribution for a family funeral expense — and because the company is set up as the IRA’s primary owner, we send an IRS 1099-R form to the company as well as the employee.

Next: We recently opened a new business checking account for ABC Inc. We later learned that the business is not in good standing with the Secretary of State, and it is our policy to close such accounts (and we have other misgivings about this particular customer). However, the customer already has deposited a check of several thousand dollars. The check was payable to “Smith and Smith,” but it was endorsed by ABC Inc. and deposited into ABC Inc.’s account at our bank.

The payor bank told us that they confirmed with the check’s drawer that the check is a legitimate payment for painting services and that the drawer wishes it to be paid so that painting will commence. The check itself did not include the drawer’s name or contact information, so we have no way of contacting the drawer directly. The payor bank will not guarantee that they won’t make a warranty claim based on the incorrect endorsement, nor will they return the original check to us. If we close the account, we will have to issue an official check to the customer, leaving us holding the bag if the payor bank later brings a warranty claim. But we don’t want to leave the account open, and if we freeze the account funds, the customer might refuse to begin the paint job and possibly expose us to a claim from the drawer. What should we do?