CSG’s Senior Compliance Consultant, Ali Higgs, sent the following notice to our trust company clients earlier this week. Provided below is a copy for your convenience. If you are a trust company looking for consulting or auditing services, please message us at contactus@complianceservicesgroup.com or call us at (360) 943-7137.
Dear Xxxx:
As you may be aware, the Washington State Department of Financial Institutions (DFI) made changes to the Trust Institutions Act, Title 30B RCW, and those changes were signed into law last week on May 13th (Chapter 389, 2019 Laws).
Many changes to the Trust Institutions Act do not pertain to existing trust companies, but rather clarify standards for obtaining a trust company charter. Several changes in the law also appear to remove reference to Title 30A RCW and track more uniformly with the federal rules under Regulation 9 (12 CFR 9 – Fiduciary Activities of National Banks).
For purposes of existing trust companies, the following is a summary of the changes in SB 5107 that may affect your company. These changes are effective July 28, 2019.
- Section 15 (pgs. 28-30): Allows DFI to directly examine and request information from trust company third-party service providers.
- Sections 19-23 (pgs. 32-33): Clarifies the remedies that DFI may request if bringing a legal or administrative action against a trust company, affiliate, or individual. These remedies include authority to impose cease and desist orders, orders to take affirmative action, impose fines, and to order restitution to beneficiaries, trustors or other aggrieved persons. DFI can also seek costs and expenses related to the administrative enforcement action including attorney fees. Also describes the legal and administrative process for bringing an action against a trust company, affiliate, or individual.
- Sections 24-33 (pgs. 36-44): Describes the enforcement, removal, or prohibition powers that DFI maintains in relation to trust companies, affiliates, third-party servicers, and individuals who are acting in an unsafe and unsound manner. Also describes the legal process for issuing emergency orders.
- Section 34 (pgs. 44-46): Codifies the requirement that two of the statutorily required five board members must be independent directors. Also requires that a board member may not be convicted of a felony or a crime involving personal dishonesty.
- Section 38 (pgs. 48-50): States the trust company fiduciary audit requirements. Audits must be performed at least annually or on a continuous basis. There are significant changes to the audit committee requirements – the audit committee must be made up of the entire board or a committee of the trust company’s directors. A committee may not include officers, and the majority of members cannot serve on a committee that has the power to manage and control fiduciary activities.
- Sections 42-43 (pgs. 53-57): Codifies the requirements for maintaining a Statement of Principles for Trust Management, following the federal Regulation 9 requirements. Provides additional conflict of interest prohibitions, rules, and exceptions in relation to investing client money in the trust company itself or any related entities.
- Section 46 (pgs. 58-59): Codifies Bank Secrecy Act compliance requirements.
- Section 53 (pg. 64): Provides statutory requirements for trust companies seeking to ‘branch’ out of state.
- Sections 81-90 (pgs. 79-84): Provides DFI specific enforcement powers over trust companies (formerly located in Title 30A RCW).
- Sections 92-95 (pgs. 85-88): Provides the statutory construct and process for a change in control (formerly located in Title 30A RCW).
- Section 103 (pgs. 95-96): Describes the statutes that are now repealed. Of interest is RCW 30A.08.170, which allowed trust companies to hold securities in a nominee name. This has now been moved to RCW 30B.08.080(6).
The above list is non-exhaustive and is meant to be a broad summary. Please do not hesitate to reach out with questions on how any of the above statutes may affect your company’s operations.
Law-Related Services Disclaimer. Please be advised, CSG provides financial services compliance audit and consulting services to our clients. The services that we provide include certain tasks that may be characterized as “law-related services” under Rule 5.7 of the Rules of Professional Conduct governing lawyers. Since some of our employees are lawyers with an active bar license but are NOT engaged in the private practice of law, that Rule requires us to make disclosures clarifying that the services we perform may be law-related services, but they are not legal services. Because they are not legal services, those services and our relationship will not be governed by the Rules of Professional Conduct that guide the client-lawyer relationship, such as rules applicable to privileged communications and prohibitions of conflicts of interest. Notwithstanding this disclaimer, we will continue to govern our relationship with you using reasonable ethical and professional standards that are expected to meet your expectations.
