- Key insight: The new rule from the Office of the Comptroller of the Currency codifies the Trump administration's stance that "trust operations and activities related thereto," include non-fiduciary activities.
- Expert quote: "The OCC has granted itself unfettered discretion to decide — on a case-by-case basis — what activities any future applicant for a national trust charter can perform." — Conference of State Banking Supervisors President Brandon Milhorn.
- Forward look: While no litigation has yet been filed challenging the rule, concerns from the banking industry and state bank supervisors could be the basis for litigation now that the rule has been finalized.
The Office of the Comptroller of the Currency on Friday finalized a January
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"The purpose of the final rule is merely to align the OCC's regulations with the statutory authorization in [The National Bank Act] to avoid any implication that national trust banks may not conduct any activities within the business of banking," the final rule stated. "These activities may be part of trust company operations, such as custody, or activities related thereto."
Banking industry concerns center around whether trust companies and "activities related thereto" inherently includes non-fiduciary custody. For years, OCC regulations held that a national bank that only conducted "fiduciary activities" did not need to perform one of the three core banking functions — taking deposits, paying checks or making loans — in order to avoid being classified as a traditional bank and thus be subject to heightened prudential regulation.
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The National Bank Act says a bank "is not illegally constituted solely because its operations are or have been required by the comptroller of the currency to be limited to those of a trust company and activities related thereto."
The final rule asserts that the prior regulations were not directed at national trust companies, but other types of special purpose banks.
"The language in [2003 OCC regulations] referencing a 'bank that conducts activities other than fiduciary activities' was intended to clarify that the provision did not address national trust banks; the provision addressed special purpose banks that would engage in activities other than those of a trust company," the OCC stated. "The language was not intended, and has never been interpreted by the OCC, to circumscribe national trust bank activities."
Mayer Brown lawyer Matt Bisanz told American Banker that the OCC's move to issue a formal rulemaking in January to clarify the matter is an effort to lessen confusion between the law and the OCC's regulations.
"I think what this rulemaking is trying to do is eliminate that translation," Bisanz said. "I'm sure someone back when [OCC licensing rules were updated] in 2003 was like, 'Everyone knows that fiduciary activities is the shorthand for activities of a Trust Company and activities related thereto.'
"Now people are hyper fixated on it because there are all these various competitive concerns," Bisanz continued.
The OCC first tried to smooth over that tension in 2021 with Interpretive
Rather than formally rewriting the rule, the letter took the position that trust bank activities inherently include fiduciary activities as well as non-fiduciary activities, like custody. That gave crypto firms and fintechs an opening to apply for custody-oriented trust charters without triggering a formal "bank" designation.
Friday's final rule formalizes that earlier position by amending the 2003 regulation itself, replacing "fiduciary activities" with "the operations of a trust company and activities related thereto" in an administrative rulemaking. Interpretive letters are more vulnerable to challenges, in part because they do not incorporate public comments.
Critics of allowing national trust companies to engage in non-fiduciary activities argue that "fiduciary activities," as defined in the National Bank Act refer to narrow powers involving discretion, like serving as trustee, executor or advisor and do not include non-fiduciary custody, where a bank merely safekeeps assets without making decisions on a customer's behalf.
Art Wilmarth, professor emeritus of law at George Washington University Law School,
"There isn't a word in [the National Bank Act's provisions on trust powers] that says anything about non-fiduciary activities — that's totally out of left field," Wilmarth said. "It's clear that the OCC thinks that 'related' will allow them to run a Mack truck through."
Brandon Milhorn, president and CEO of the Conference of State Bank Supervisors, said in a statement Friday that the rule justifies allowing trusts to perform non-fiduciary custody by claiming it falls within trust company operations and activities related thereto, without ever defining what "related thereto" actually means. He also suggested the rule may violate the law, saying, "neither this vague rule, nor trust charter applications approved under the OCC's case-by-case process, should be entitled to any deference by the courts."
"The OCC has granted itself unfettered discretion to decide — on a case-by-case basis — what activities any future applicant for a national trust charter can perform," Milhorn said, arguing the agency has "doubled down on an already opaque process."
"The OCC missed an opportunity to provide critical transparency regarding its exercise of the specific and limited chartering authority granted by Congress under the National Bank Act," Milhorn continued. "I challenge anyone to explain what the scope and limits of the business of a 'national trust bank' are after reading this rule."
