What is a Trust Company?
A trust company is a corporation authorized by law to act in a fiduciary or representative capacity. Simply put, trust companies are businesses that have the legal authority to hold and manage other people’s money for compensation. Examples of fiduciaries include trustees, executors, personal representatives, guardians, conservators, and investment advisors.
How are Trust Companies Regulated?
Trust companies are regulated differently depending on whether they are formed under a state charter or a national charter. The laws of approximately 40 states, including Florida, allow for the establishment of state-chartered trust companies. In Florida, the Office of Financial Regulation (“OFR”) oversees the formation and ongoing operations of trust companies and grants licenses on a case-by-case basis.
What are the Requirements for Forming a Trust Company?
Florida Statute §658.21 outlines the requirements that must be met for forming a trust company in the state of Florida. First, the applicant must submit a detailed business plan which shall include a “Reasonable Promise of Successful Operation” based on local conditions. To meet this threshold, the OFR will consider (1) the applicant’s business plan (2) the applicant’s projected financial performance; and (3) the feasibility of the trust company with respect to asset and liability growth and management. Each of these will be discussed in turn.
To begin, the applicant’s business plan must convey the proposed trust company’s purpose, objectives, and business philosophy. It must also contain a detailed market analysis which identifies prospective customers and explains why local, regional and statewide conditions are favorable to the proposed trust company. Additionally, the business plan must also identify existing competitors and distinguish itself by describing the proposed trust company’s competitive advantages, e.g., new services, better prices, etc.
The applicant’s projected financial performance is based on pro forma financial statements for the first three years of operation. The financial statements should include a statement of financial condition detailing expected assets, liabilities, and equity; a statement of income with expected revenues and expenses; and a capital funds account statement with a snapshot of the company’s proposed capital structure. Note: The proposed trust company’s stock offering must be completed within 6 months of corporate existence and at least 30 days prior to opening for business, and the paid-in capital must account for at least 50% of the company’s capital structure. For banks operating as trust company’s the capital account must contain at least $8 million and for trust companies not operating as banks the capital account must contain at least $3 million.
Aside from these requirements, there are also organizational requirements that must be met by the proposed trust company. The company must be a corporation with at least five elected directors, a majority of which must be U.S. citizens and Florida residents for at least one year preceding their election as directors of the trust company. In the case of a trust company with total assets of less than $150 million, at least one, and in the case of a trust company with total assets of $150 million or more, two of the directors who are not also officers of the trust company must have had at least 1 year of direct experience as an executive officer, regulator, or director of a financial institution within the last 5 years. The OFR requires complete biographical information for proposed directors which includes a showing of sufficient business experience, ability, standing, and reputation to indicate reasonable promise of successful operation. Finally, the directors must have no prior convictions related to money laundering or financial institution crimes.
Once the application is complete, the OFR requires a non-refundable $15,000.00 application fee.