Session of 2021
SENATE BILL No. 288
By Committee on Ways and Means
3-10

1 AN ACT concerning financial institutions; enacting the technology-
2 enabled trust bank act; relating to requirements, fiduciary powers,
3 duties, functions and limitations for trust banks; trust bank pilot
4 program; prescribing administrative powers and duties for the state
5 banking board and the state bank commissioner; establishing the
6 technology-enabled trust bank development and expansion fund;
7 providing an income and privilege tax credit for trust banks making
8 certain qualified charitable distributions.
9
10 Be it enacted by the Legislature of the State of Kansas:
11 Section 1. (a) The provisions of sections 1 through 27, and
12 amendments thereto, shall be known and may be cited as the technology-
13 enabled trust bank act. The technology-enabled trust bank act shall be a
14 part of and supplemental to chapter 9 of the Kansas Statutes Annotated,
15 and amendments thereto.
16 (b) For purposes of technology-enabled trust bank act:
17 (1) "Act" means the technology-enabled trust bank act;
18 (2) "alternative asset" means professionally managed investment
19 assets that are not publicly traded, including, but not limited to, private
20 equity, venture capital, leveraged buyouts, special situations, structured
21 credit, private debt, private real estate funds and natural resources,
22 including any economic or beneficial interest therein;
23 (3) "alternative asset custody account" means an account created by
24 the owner of an alternative asset that designates a trust bank as custodian
25 or agent and into which the client transfers, electronically or otherwise,
26 content, materials, data, information, documents, reports and contracts in
27 any form, including, without limitation, evidence of ownership,
28 subscription agreements, private placement memoranda, limited
29 partnership agreements, operating agreements, financial statements, annual
30 and quarterly reports, capital account statements, tax statements,
31 correspondence from the general partner, manager or investment advisor
32 of the alternative asset, an investment contract as defined in K.S.A. 17-
33 12a102(28)(E), and amendments thereto, and any digital asset as defined
34 in K.S.A. 58-4802, and amendments thereto, whether such information is
35 in hard copy form or a representation of such information that is stored in
36 a computer readable format;
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1 (4) "charitable beneficiaries" means one or more charities,
2 contributions to which are allowable as a deduction pursuant to section
3 170 of the federal internal revenue code that are designated as
4 beneficiaries of a fidfin trust;
5 (5) "custodial services" means the safekeeping and management of an
6 alternative asset custody account, including the execution of customer
7 instructions, serving as agent, fund administrative services and overall
8 decision-making and management of the account by a trust bank and
9 "custodial services" shall be deemed to involve the exercise of fiduciary
10 and trust powers;
11 (5) "economic growth zone" means an incorporated community with
12 a population of not more than 5,000 people located within one of the
13 following counties: Allen, Anderson, Barber, Bourbon, Brown, Chase,
14 Cherokee, Chautauqua, Cheyenne, Clark, Clay, Cloud, Coffey, Comanche,
15 Decatur, Doniphan, Edwards, Elk, Ellsworth, Gove, Graham, Grant, Gray,
16 Greeley, Greenwood, Hamilton, Harper, Harvey, Haskell, Hodgeman,
17 Jackson, Jewell, Kearny, Kingman, Kiowa, Lane, Lincoln, Linn, Logan,
18 Marion, Marshall, Meade, Mitchell, Montgomery, Morris, Morton,
19 Nemaha, Neosho, Ness, Norton, Osborne, Ottawa, Pawnee, Phillips, Pratt,
20 Rawlins, Republic, Rice, Rooks, Rush, Russell, Scott, Sheridan, Sherman,
21 Smith, Stafford, Stanton, Stevens, Sumner, Trego, Thomas, Wabaunsee,
22 Wallace, Washington, Wichita, Wilson or Woodson;
23 (6) "excluded fiduciary" means a trust bank in its capacity as trustee
24 of a fidfin trust, provided that a trust bank shall only be deemed an
25 "excluded fiduciary" to the extent the trust bank is excluded from
26 exercising certain powers under the instrument that may be exercised by
27 the trust advisor or other persons designated in the instrument;
28 (7) "fidfin," "fidfin services" or "fidfin transactions" means the
29 financing of a fidfin trust as provided in section 11, and amendments
30 thereto, including loans, extensions of credit and direct investments;
31 (8) "fidfin trust" means a trust created to facilitate the delivery of
32 fidfin services by a trust bank;
33 (9) "fiduciary" means a trustee, a trust advisor or a custodian of an
34 alternative asset custody account appointed under an instrument that is
35 acting in a fiduciary capacity for any person, trust or estate;
36 (10) "instrument" means any document creating a fidfin trust or
37 alternative asset custody account;
38 (11) (A) "qualified investment" means the purchase or development,
39 in the aggregate, of at least 10,000 square feet of commercial, industrial,
40 multiuse or multifamily real estate in the economic growth zone where the
41 trust bank maintains its principal office pursuant to section 9, and
42 amendments thereto, provided that such community has committed to
43 develop the necessary infrastructure to support a "qualified investment." A
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1 "qualified investment":
2 (i) May include, as part of satisfying the square footage requirements,
3 the suitable office space of such trust bank, as provided in section 9, and
4 amendments thereto, if owned by the trust bank;
5 (ii) shall be exempt from the provisions and limitations of K.S.A. 9-
6 1102, and amendments thereto;
7 (iii) may be retained by a trust bank for as long as the trust bank
8 operates in this state; and
9 (iv) may be sold, transferred or otherwise disposed of, including a
10 sale or transfer to an affiliate of the trust bank, if the trust bank continues
11 to maintain its principal office in an economic growth zone pursuant to
12 section 9, and amendments thereto;
13 (B) notwithstanding the foregoing provisions, if a trust bank leases
14 any portion of a qualified investment made by another trust bank as the
15 lessee trust bank's suitable office space:
16 (i) The lessee trust bank shall make, or cause to be made, a qualified
17 investment in an economic growth zone other than the economic growth
18 zone where such trust bank maintains its principal office;
19 (ii) the leased square footage shall count toward the square footage
20 requirement applicable to a qualified investment under this section, if such
21 lease has an initial term of not less than five years; and
22 (iii) the square footage requirement otherwise applicable to a
23 qualified investment of the lessee trust bank shall be reduced from 10,000
24 square feet to 5,000 square feet;
25 (12) "technology-enabled trust bank" or "trust bank" means any
26 limited liability company, limited partnership or corporation that:
27 (A) Is organized to perform any one or more of the activities and
28 services authorized by this act;
29 (B) has been authorized to conduct business as a trust bank under this
30 chapter pursuant to the provisions of section 2, and amendments thereto;
31 (C) has made, committed to make or caused to be made a qualified
32 investment; and
33 (D) has committed, in or as a part of the application provided in
34 section 2, and amendments thereto, to conduct any fidfin transactions in
35 accordance with section 11, and amendments thereto, including the
36 distributions required therein;
37 (13) "trust advisor" means a fiduciary granted authority by an
38 instrument to exercise, consent, direct, including the power to direct as
39 provided in K.S.A. 58a-808, and amendments thereto, or approve all or
40 any portion of the powers and discretion conferred upon the trustee of a
41 fidfin trust, including the power to invest the assets of a fidfin trust or
42 make or cause distributions to be made from such fidfin trust; and
43 (14) the definitions of K.S.A. 9-701, and amendments thereto, apply
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1 to trust banks except as otherwise provided in this act.
2 Sec. 2. (a) No trust bank shall be organized under the laws of this
3 state nor engage in fidfin transactions, custodial services or trust business
4 in this state until the application for such trust bank's organization and the
5 application for certificate of authority have been submitted to and
6 approved by the state banking board. The form for making any such
7 application shall be prescribed by the state banking board and any
8 application made to the state banking board shall contain such information
9 as the state banking board shall require.
10 (b) No bank, trust company or trust bank shall engage in fidfin
11 transactions in this state unless an application has been submitted under
12 this act and approved by the state banking board.
13 (c) The state banking board shall not accept an application for a trust
14 bank unless the:
15 (1) Trust bank is organized by at least one person;
16 (2) name selected for the trust bank is different or substantially
17 dissimilar from any other bank, trust company or trust bank doing business
18 in this state;
19 (3) trust banks' articles of organization contain the names and
20 addresses of the trust bank's members and the number of units subscribed
21 by each. The articles of organization may contain such other provisions as
22 are consistent with the Kansas revised limited liability company act,
23 Kansas revised uniform limited partnership act or Kansas general
24 corporation code;
25 (4) trust bank has made, committed to make or caused to be made a
26 qualified investment as defined in section 1, and amendments thereto;
27 (5) trust bank has committed to structure any fidfin transactions to
28 ensure that qualified charitable distributions, as defined in section 28, and
29 amendments thereto, are made each calendar year that the trust bank
30 conducts fidfin transactions; and
31 (6) trust bank has consulted or agrees to consult with the department
32 of commerce regarding the economic growth zones to be selected for
33 purposes of paragraphs (4) and (5).
34 (d) The state banking board may deny the application if the state
35 banking board makes an unfavorable determination with regard to the:
36 (1) Financial standing, general business experience and character of
37 the organizers; or
38 (2) character, qualifications and experience of the officers of the
39 proposed trust bank.
40 (e) The state banking board shall not make membership in any federal
41 government agency a condition precedent to the granting of the authority
42 to do business.
43 (f) The state banking board may require fingerprinting of any officer,
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1 director, organizer or any other person of the proposed trust bank related to
2 the application deemed necessary by the state banking board. Such
3 fingerprints may be submitted to the Kansas bureau of investigation and
4 the federal bureau of investigation for a state and national criminal history
5 record check. The fingerprints shall be used to identify the person and to
6 determine whether the person has a record of arrests and convictions in
7 this state or other jurisdictions. The state banking board may use
8 information obtained from fingerprinting and the criminal history for
9 purposes of verifying the identification of the person and in the official
10 determination of the qualifications and fitness of the persons associated
11 with the applicant trust bank to be issued a charter. Whenever the state
12 banking board requires fingerprinting, any associated costs shall be paid
13 by the applicant or the parties to the application.
14 (g) The state banking board or the commissioner shall notify a trust
15 bank of the approval or disapproval of an application. Any final action of
16 the state banking board approving or disapproving an application shall be
17 subject to review in accordance with the Kansas judicial review act.
18 (h) (1) In the event such application is approved, the trust bank shall
19 be issued a charter upon compliance with any requirements of this act and
20 upon demonstrating to the satisfaction of the commissioner that an
21 applicable distribution has been made. For purposes of this section,
22 "applicable distribution" means a distribution of cash, beneficial interests
23 or other assets having an aggregate value equal to the greater of:
24 (A) 2.5% of the aggregate financing balances to be held by the trust
25 bank immediately upon issuance of the trust bank's charter, as reflected in
26 the trust bank's application filed pursuant to this section; or
27 (B) $5,000,000 in accordance with subsection (i), except that if a trust
28 bank is chartered to provide only custodial services, the applicable
29 distribution amount shall be $500,000.
30 (2) If the amount provided in paragraph (1)(B) exceeds the amount
31 provided in paragraph (1)(A), the trust bank shall be entitled to a credit
32 against the amount distributable under section 11(e), and amendments
33 thereto, in an amount equal to such excess.
34 (i) The applicable distribution required under subsection (h) shall be
35 distributed as follows:
36 (1) (A) To the department of commerce:
37 Applicable distribution amount Percentage to department of commerce
38 $0 to $500,000 90%
39 $500,001 to $1,000,000 50%
40 Above $1,000,000 10%
41 (B) the amounts specified in subparagraph (A) shall apply to trust
42 banks chartered prior to January 1, 2023. For trust banks chartered after
43 such date, the department of commerce may publish one or more
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1 schedules in the Kansas register as the department of commerce deems
2 reasonably necessary to facilitate economic growth and development in
3 one or more economic growth zones. No such schedule shall be effective
4 until after its publication in the Kansas register. The department of
5 commerce shall timely submit to the commissioner any schedule published
6 under this section. The commissioner shall provide a copy of such
7 schedule to any applicant for a trust bank charter prior to the issuance of
8 such charter. A trust bank shall be subject to the schedule in existence on
9 the date such trust bank's charter is issued and shall not be subject to any
10 schedules published after such date;
11 (C) the department of commerce shall remit all distributions under
12 this subsection to the state treasurer in accordance with the provisions of
13 K.S.A. 75-4215, and amendments thereto. Upon receipt of each such
14 remittance, the state treasurer shall deposit the entire amount in the state
15 treasury to the credit of the technology-enabled trust bank development
16 and expansion fund established in section 24, and amendments thereto;
17 and
18 (2) the balance of the applicable distribution required under
19 subsection (h) shall be distributed to one or more qualified charities as
20 defined in section 28, and amendments thereto, as shall be selected by the
21 trust bank. Nothing in this section shall preclude a distribution to one or
22 more qualified charities in excess of the amounts provided in this section.
23 Sec. 3. (a) Every trust bank shall be assessed an initial fee of
24 $500,000 to be remitted concurrently with the issuance of such trust bank's
25 charter. The expense of every annual regular trust bank examination,
26 together with the expense of administering trust laws, including salaries,
27 travel expenses, supplies and equipment, shall be paid by the trust banks of
28 this state. Prior to the beginning of each fiscal year, the commissioner shall
29 make an estimate of the trust expenses to be incurred by the office of the
30 state bank commissioner during such fiscal year in an amount not less than
31 $1,000,000. The commissioner shall allocate and assess each trust bank in
32 this state on the basis of such trust bank's total fidfin transaction balances,
33 consisting of the aggregate fidfin financing balances of the trust bank
34 reflected in the last December 31 report filed with the commissioner
35 pursuant to K.S.A. 9-1704, and amendments thereto. If a trust bank has no
36 fidfin transaction balances, but such trust bank otherwise providing
37 custodial services or trust services, the commissioner shall allocate and
38 assess such trust bank in a manner the commissioner deems reasonable and
39 appropriate. A trust bank that has no fidfin transaction balances and no
40 alternative asset custody accounts reflected in the last December 31 report
41 filed with the commissioner may be granted inactive status by the
42 commissioner. The annual assessment shall not exceed $10,000 for such an
43 inactive trust bank. The annual fee shall be first assessed for the year
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1 immediately following the year the trust bank received a certificate of
2 authority to engage in fidfin transactions, custodial services and trust
3 business and for each year thereafter.
4 (b) (1) A statement of each assessment made under the provisions of
5 subsection (a) shall be sent by the commissioner on December 1 or the
6 next business day t