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| Montana Administrative Register Notice 2-59-642 | No. 6 03/22/2024 | |
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BEFORE THE DEPARTMENT OF ADMINISTRATION OF THE STATE OF MONTANA
TO: All Concerned Persons
1. On May 11, 2024, the Department of Administration (department) proposes to adopt and repeal the above-stated rules.
2. The department will make reasonable accommodations for persons with disabilities who wish to participate in this rulemaking process or need an alternative accessible format of this notice. If you require an accommodation, contact the Department of Administration no later than 5:00 p.m. on April 3, 2024, to advise us of the nature of the accommodation that you need. Please contact Heather Hardman, Department of Administration, Division of Banking and Financial Institutions, P.O. Box 200546, Helena, Montana 59620-0546; telephone (406) 841-2922; Montana Relay Service 711; facsimile (406) 841-2930; or by email to [email protected].
3. GENERAL STATEMENT OF REASONABLE NECESSITY: Section 32-1-1007, MCA, requires the department to adopt rules to regulate the conduct of business in Montana by foreign (out-of-state) trust companies. In Montana, trust companies are banks. Pursuant to Title 32, chapter 1, part 10, MCA, a number of out-of-state state-chartered banks operate as fiduciary foreign trust companies in Montana. Prior to 2022, the department did not allow out-of-state nondepository (nonbank) trust companies to do business in Montana. In 2022, a Montana district court ruled that nonbank trust companies are allowed to conduct business in Montana as fiduciary foreign trust companies under Title 32, chapter 1, part 10, MCA. First Trust Company, LLC v. Montana Department of Administration, Division of Banking and Financial Institutions, Mont. First Jud. Dist. Ct. Cause No. DDV-2021-1256 (Order). As no authority exists under Montana law to charter or regulate a nonbank trust company, the department is unable to require chartering or licensing of a nonbank trust company. The department has no statutory authority to examine or supervise any nonbank trust company doing business in Montana. Montana's sole authority over foreign trust companies doing business in Montana is found in Title 32, chapter 1, part 10, MCA. These provisions allow foreign trust companies to do business in Montana under rules adopted by the department. Since the Order applied the fiduciary foreign trust company statutes to cover nonbank trust companies, the department must implement 32-1-1007, MCA, by rule in order to create a process for both bank and nonbank trust companies to apply to conduct business in Montana as a fiduciary foreign trust company, as well as a process to establish trust representative offices in Montana.
4. The rules proposed to be adopted are as follows:
NEW RULE I DEFINITIONS For purposes of this subchapter, the following definitions apply: (1) "Good standing" means the entity is not subject to a supervisory directive, corrective action order, conservatorship, or the equivalent, from a state or federal regulator, and has not had its authority to do business in its home state, any other state, or a foreign jurisdiction suspended or revoked. (2) "Home state" means the state where a bank or nonbank trust company is chartered. (3) "Home state regulator" means the supervisory agency of the home state of a bank or nonbank trust company. (4) "Nonbank trust company" means a foreign non-depository trust company. (5) "Primary regulator" means the state or federal regulatory agency tasked with being the main supervisory authority of a financial institution. (6) "Principal office" means an office of a fiduciary foreign trust company that is located in Montana and undertakes activities set forth in 32-1-1002, MCA. (7) "Trust representative office" means an office of a fiduciary foreign trust company, other than a principal office, located in Montana at which the fiduciary foreign trust company performs activities ancillary to its fiduciary business, but does not engage in any of the activities specified in 32-1-1002, MCA. Examples of ancillary activities include advertising, marketing, and soliciting for fiduciary business; contacting existing or potential customers, answering questions, and providing information about matters related to their accounts; acting as a liaison between the trust office and the customer (such as forwarding requests for distribution or changes in investment objectives, or forwarding forms and funds received from the customer); and inspecting or maintaining custody of fiduciary assets or holding title to real property. A trust representative office is not a "branch" for purposes of 32-1-372, MCA, unless it is also an office at which deposits are received, checks paid, or money lent. (8) "Well capitalized" means the fiduciary foreign trust company is well capitalized under the existing standards in the home state.
AUTH: 32-1-1007, MCA IMP: 32-1-1002, 32-1-1007, MCA
STATEMENT OF REASONABLE NECESSITY: Definitions are necessary to provide the meaning of specific terms used throughout the rules. The definition of "good standing" is needed since a nonbank trust company in good standing in another state can apply to be a fiduciary foreign trust company in Montana. "Good standing" as defined here covers the most common types of supervisory actions that a regulator may take against an entity. If an entity were subject to any of these regulatory actions, it would be indicative of safety and soundness concerns at the institution. It would not be in the best interests of Montanans to allow such an entity to do business in Montana. "Trust representative office" and "principal office" are defined consistent with industry and regulatory norms. If the fiduciary foreign trust company is a bank, it is necessary to distinguish a branch (which accepts deposits) from a principal office and from a trust representative office. "Well capitalized" is defined by the standards that are enforced by the primary regulator that charters or licenses the fiduciary foreign trust company. Since Montana has no standards for capitalization of a nonbank trust company, it proposes to use the standards that exist in the chartering or licensing state.
NEW RULE II OUT-OF-STATE STATE-CHARTERED BANK OR NATIONAL BANK SEEKING TO EXERCISE FIDUCIARY POWERS IN MONTANA (1) An out-of-state state-chartered or national bank that seeks to act as a fiduciary foreign trust company in Montana must provide: (a) the Fiduciary Foreign Trust Company Application, October 30, 2023, version, which is available on the department's website at banking.mt.gov; (b) certification from the primary regulator stating: (i) that the bank is lawfully chartered; (ii) that the bank is operating in good standing; (iii) that banking or trust corporations or corporations organized under the laws of Montana or national banking associations that maintain their principal offices in Montana are permitted to act as trustees, guardians, or conservators in the state in which the applicant maintains its principal office; and (c) the physical location of any principal or trust representative office located in Montana.
AUTH: 32-1-1007, MCA IMP: 32-1-1002, 32-1-1007, MCA
STATEMENT OF REASONABLE NECESSITY: NEW RULE II is necessary in the case of an out-of-state state-chartered bank or a national bank seeking to exercise fiduciary powers in Montana to ensure the bank complies with 32-1-1001, MCA, in providing a copy of the charter from their primary regulator. NEW RULE II is also necessary to ensure the foreign trust company complies with 32-1-1002, MCA, by providing proof that a Montana state-chartered bank or trust company would be allowed reciprocity to operate as a fiduciary trust company in the state in which the out-of-state bank or national bank has its principal office. In addition, pursuant to Title 32, chapter 1, part 10, MCA, the department proposes to require, as a condition of doing business in Montana, that the primary regulator certify that the foreign bank is in good standing. This is necessary to ensure that the primary regulator of the institution certifies that the institution is not operating in an unsafe or unsound manner prior to the institution doing business in Montana.
NEW RULE III OUT-OF-STATE NONBANK TRUST COMPANIES SEEKING TO EXERCISE FIDUCIARY POWERS IN MONTANA (1) A nonbank trust company that seeks to act as a fiduciary foreign trust company in Montana must provide: (a) the Fiduciary Foreign Trust Company Application, October 30, 2023, version, which is available on the department's website at banking.mt.gov; (b) certification from the primary regulator stating: (i) that the nonbank trust company is lawfully chartered or licensed; (ii) that the nonbank trust company is in good standing in the chartering or licensing state; (iii) that the nonbank trust company is well capitalized under the standards that exist in the home state; and (iv) that banking or trust associations or corporations organized under the laws of Montana or national banking associations that maintain their principal offices in Montana are permitted to act as trustees, guardians, or conservators in the state in which the fiduciary foreign trust company maintains its principal office; and (c) the physical location of any principal or trust representative office located in Montana.
AUTH: 32-1-1007, MCA IMP: 32-1-1002, 32-1-1007, MCA
STATEMENT OF REASONABLE NECESSITY: Unlike a bank, a nonbank trust company would not have FDIC insurance for their custodial funds. FDIC insurance covers funds on deposit in a bank up to $250,000. Since nonbank trust companies do not have FDIC insurance, and the department has no authority to supervise or examine these entities, additional regulatory scrutiny is needed to ensure that these entities are safe and sound. Therefore, in addition to the items that a bank must provide in order to be allowed to do business in Montana, it is necessary for the department to require a nonbank trust company to provide certification from the chartering or licensing state that the entity is well-capitalized under the standards that exist in that state. This will ensure that the chartering or licensing state has examined the entity in question and certified that they are well capitalized. This will help to protect Montanans who choose to do business with these entities, to the extent possible under current law.
5. The department proposes to repeal the following rule:
2.59.136 FOREIGN FIDUCIARY TRUST COMPANY
AUTH: 32-1-1007, MCA IMP: 32-1-1002, 32-1-1007, MCA
STATEMENT OF REASONABLE NECESSITY: It is necessary to repeal ARM 2.59.136 because its substance has been incorporated into NEW RULE III.
6. Concerned persons may present their data, views, or arguments concerning the proposed action to the person listed in paragraph two. Comments must be received no later than 5:00 p.m., April 19, 2024.
7. If persons who are directly affected by the proposed actions wish to express their data, views, or arguments orally or in writing at a public hearing, they must make written request for a hearing and submit this request along with any written comments to the person listed in paragraph two above no later than 5:00 p.m., April 3, 2024.
8. If the department receives requests for a public hearing on the proposed action from either 10 percent or 25, whichever is less, of the persons directly affected by the proposed action; from the appropriate administrative rule review committee of the Legislature; from a governmental subdivision or agency; or from an association having not less than 25 members who will be directly affected, a hearing will be held at a later date. Notice of the hearing will be published in the Montana Administrative Register. Montana currently has six fiduciary foreign trust companies. Ten percent of those directly affected is approximately one.
9. An electronic copy of this proposal notice is available through the department's website at doa.mt.gov/administrative rules. The department strives to make its online version of the notice conform to the official version, but advises all concerned persons that if a discrepancy exists between the official version and the department's online version, only the official text will be considered. In addition, although the department works to keep its website accessible at all times, concerned persons should be aware that the website may be unavailable during some periods, due to system maintenance or technical problems.
10. The department maintains a list of interested persons who wish to receive notices of rulemaking actions proposed by this division. Persons who wish to have their name added to the mailing list must make a written request that includes the name, mailing address, and e-mail address of the person to receive notices and specifies that the person wishes to receive notices regarding division rulemaking actions. Notices will be sent by e-mail unless a mailing preference is noted in the request. Written requests may be mailed or delivered to the person listed in paragraph two or may be made by completing a request form at any rules hearing held by the department.
11. The bill sponsor contact requirements of 2-4-302, MCA, do not apply.
12. The department has determined that under 2-4-111, MCA, the proposed adoption and repeal of the above-stated rules will not significantly and directly impact small businesses.
By: /s/ Misty Ann Giles By: /s/ Don Harris Misty Ann Giles, Director Don Harris, Rule Reviewer Department of Administration Department of Administration
Certified to the Secretary of State March 12, 2024.
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A directory of state agencies is available online at http://www.mt.gov/govt/agencylisting.asp.
For questions about the organization of the ARM or this web site, contact [email protected].
