Senate Sub. for HB 2074 enacts the Technology-enabled Fiduciary Financial
Institutions Act (Act), which will be part of and supplemental to Chapter 9 of the Kansas Statutes Annotated (the Kansas Banking Code). On July 1, 2021, the bill requires the State Bank Commissioner issue a conditional charter to The Beneficient Company and establish a fidfin fiduciary institution pilot program with an economic growth zone designated in Harvey County. The bill also establishes an income and privilege tax credit beginning in tax year 2021 for trust banks in an amount equal to such fiduciary financial institution’s qualified charitable distributions during such taxable year if the trust bank maintained such fiduciary financial institution’s principal office in an economic growth zone.
Technology-enabled Fiduciary Financial Institution Defined
Under the bill, a “technology-enabled fiduciary financial institution” [referred to generally as a TEFFI] or “fiduciary financial institution” means any limited liability company, limited partnership, or corporation that:
● Is organized to perform any one or more of the activities and services authorized
by the Act;
● Has been authorized to conduct business as a fiduciary financial institution under
the Kansas Banking Code pursuant to the provisions of Section 2;
● Has made, committed to make, or caused to be made a qualified investment; and
● Has committed, in or as part of the application provided in Section 2, and
amendments thereto, to conduct any fidfin transactions in accordance with
Section 11, and amendments thereto, including the distributions required therein.
Designation of Act; Definitions
The bill names the Act and establishes definitions for the following terms:
● “Alternative asset” to mean professionally managed investment assets that are
not publicly traded, including, but not limited to, private equity, venture capital,
leveraged buyouts, special situations, structured credit, private debt, private real
estate funds, and natural resources, including any economic or beneficial interest
● “Alternative asset custody account” to mean an account created by the owner of
an alternative asset that designates a fiduciary financial institution as a custodian
or agent and into which the client transfers, electronically or otherwise, content,
materials, data, information, documents, reports, and contracts in any form,
including without limitation evidence of ownership; subscription agreements;
private placement memoranda; limited partnership agreements; operating
agreements; financial statements; annual and quarterly reports; capital account
statements; tax statements; correspondence from the general partner, manager,
or investment advisor of the alternative asset; an investment contract as defined
in KSA 17-12a102(28)(E) [in the Uniform Securities Act]; and any digital asset as
defined in KSA 58-4802 [the Revised Uniform Fiduciary Access to Digital Assets
Act], whether such information is in hard copy form or a representation of such
information that is stored in a computer-readable format;
● “Charitable beneficiaries” to mean one or more charities, contributions to which
are allowable as a deduction pursuant to Section 170 of the federal Internal
Revenue Code, that are designated as beneficiaries of a fidfin trust;
● “Custodial services” to mean the safekeeping and management of an alternative
asset custody account, including the execution of customer instructions, serving
as agent, fund administrative services, and overall decision-making and
management of the account by a fiduciary financial institution; “custodial
services” is deemed to involve the exercise of fiduciary and trust powers;
● “Economic growth zone” to mean an incorporated community with a population of
not more than 5,000 people located within one of the listed 78 counties (those
counties, with the exception of Harvey County, had previously been designated
as Rural Opportunity Zone counties);
● “Excluded fiduciary” to mean a fiduciary financial institution in its capacity as a
trustee of a fidfin trust, provided that a fiduciary financial institution shall only be
deemed an “excluded fiduciary” to the extent the fiduciary financial institution is
excluded from exercising certain powers under the instrument that may be
exercised by the trust advisor or other persons designated in the instrument;
● “Fidfin trust” to mean a trust created to facilitate the delivery of fidfin services by a
fiduciary financial institution;
Kansas Legislative Research Department 121 2021 Summary of Legislation
Technology-enabled Fiduciary Financial Institutions Act; Senate Sub. for HB 2074
● “Fiduciary” to mean a trustee, a trust advisor, or a custodian of an alternative
asset custody account appointed under an instrument that is acting in a fiduciary
capacity for any person, trust, or estate;
● “Qualified investment” to mean the purchase or development, in the aggregate,
of at least 10,000 square feet of commercial, industrial, multiuse, or multifamily
real estate in the economic growth zone where the fiduciary financial institution
maintains its principal office pursuant to requirements in the bill (Section 9),
provided that such community has committed to develop the necessary
infrastructure to support a qualified investment.
A “qualified investment”:
○ Can include, as part of satisfying the square footage requirements, the
suitable office space of such fiduciary financial institution, as provided in
Section 9 of the bill, if owned by the fiduciary financial institution;
○ Is exempt from the provisions and limitations on holding real estate of
○ Can be retained by a fiduciary financial institution for as long as the
fiduciary financial institution operates in this state; and
○ Can be sold, transferred, or otherwise disposed of, including through a
sale or transfer to an affiliate of the fiduciary financial institution, if the
fiduciary financial institution continues to maintain its principal office in an
economic growth zone.
The bill also provides for qualified investment criteria in the instance a
fiduciary financial institution leases any portion of a qualified investment
made by another fiduciary financial institution as the lessee fiduciary
financial institution’s suitable office space;
● “Trust” to mean a trust created pursuant to the Kansas Uniform Trust Code (KSA
58a-101 et seq.) or the Kansas Business Trust Act (KSA 17-2027 et seq.); and
● “Trust advisor” to mean a fiduciary granted authority by an instrument to exercise;
consent; direct, including the power to direct as provided in KSA 58a-808
(pertaining to duties of trustees); or approve all or any portion of the powers and
discretion conferred upon the trustee of a fidfin trust, including the power to
invest the assets of a fidfin trust or make or cause distributions to be made from
such fidfin trust.
The bill also defines the terms “act”; “fidfin,” “fidfin services,” or “fidfin transactions”; and “instrument.” The bill also states the definitions applicable to supervision provisions of the Kansas Banking Code apply to fiduciary financial institutions except as otherwise provided in the Act.
Certificate of Authority and Charter; State Banking Board; Office of the State Bank
Commissioner; Department of Commerce
Certificate of Authority; Application Form and Approval of the Board
The bill states no fiduciary financial institution shall be organized under the laws of this
state nor engage in fidfin transactions, custodial services, or trust business in this state until the application for such fiduciary financial institution’s organization and the application for certificate of authority have been submitted to and approved by the State Banking Board (Board). The form for making this application will be prescribed by the Board, and the bill requires any application to the Board to contain such information as the Board may require. The bill further provides, except as provided in provisions pertaining to a pilot program, the Board shall not approve any application until The Beneficient Company conditional charter has been converted to a full charter and the State Bank Commissioner (Bank Commissioner) has completed a regulatory examination.
The bill further provides no bank, trust company, or fiduciary financial institution can
engage in fidfin transactions in Kansas unless an application has been submitted under the Act and has been approved by the Board.
Requirements on Fiduciary Financial Institution Applicants
The bill provides the Board cannot accept an application for a fiduciary financial
institution unless the:
● Fiduciary financial institution is organized by at least one person;
● Name selected is different or substantially dissimilar from that of any other bank,
trust company, or fiduciary financial institution doing business in this state;
● Fiduciary financial institution’s articles of organization contain the names and
addresses of the fiduciary financial institution’s members and the number of units
subscribed by each. The articles of organization may contain other provisions as
are consistent with the Kansas Revised Limited Liability Company Act, the
Kansas Revised Uniform Limited Partnership Act, or the Kansas General
● Fiduciary financial institution has made, committed to make, or caused to be
made a qualified investment, as defined by the bill;
● Fiduciary financial institution has committed to structure any fidfin transaction to
ensure that qualified charitable contributions, as defined in the bill, are made
each calendar year that the fiduciary financial institution conducts fidfin
● Fiduciary financial institution has consulted or agrees to consult with the
Department of Commerce (Department) regarding the economic growth zones to
Role of the State Banking Board
The Board is allowed to deny the application if it makes an unfavorable determination
with regard to the:
● Financial standing, general business experience, and character of the
● Character, qualifications, and experience of the officers of the proposed fiduciary
The Board will not be permitted to make membership in any federal government agency
a condition precedent to granting the authority to do business.
The Board is permitted to require fingerprinting of any officer, director, organizer, or any
other person of the proposed fiduciary financial institution related to the application deemed necessary by the Board. The bill allows the fingerprints to be submitted to the Kansas Bureau of Investigation and the Federal Bureau of Investigation for the purposes of conducting a state and national criminal history record check. Should the Board require fingerprinting, the bill requires any associated costs to be paid by the applicant or parties to the application.
The Board or the Bank Commissioner is required to notify a fiduciary financial institution
of the approval or disapproval of an application. Any final action of the Board approving or disapproving an application is subject to review in accordance with the Kansas Judicial Review Act.
Applicable Distribution, Compliance by Approved Applicants
The bill provides, in the event the application is approved, the fiduciary financial
institution would be issued a charter upon compliance with the Act’s requirements and upon demonstrating to the satisfaction of the Bank Commissioner that an applicable distribution has been made. An “applicable distribution” means a distribution of cash, beneficial interests, or other assets having an aggregate value equal to the greater of:
● 2.5 percent of the aggregate financing balances to be held by the fiduciary
financial institution immediately upon issuance of the fiduciary institution’s
charter, as reflected in its application; or
● $5.0 million in accordance with the applicable distribution amount specified in the
bill, except that if the fiduciary financial institution is chartered to provide only
custodial services, the applicable distribution amount would be $500,000.
The bill states if the amount provided in accordance with the applicable distribution
amount exceeds the amount provided as a percentage of the aggregate financing balances, the fiduciary financial institution would be entitled to a credit against the amount of the distribution under Section 11 of the bill.
The bill provides the distribution schedule for the required applicable distribution to the
Department as follows:
|Applicable distribution amount||Percentage to Department (%)|
|$0 to $500,000||90.0%|
|$500,001 to $1,000,000||50.0%|
The bill specifies these distribution amounts apply to fiduciary financial institutions
chartered prior to January 1, 2023. For fiduciary financial institutions chartered after this date, the Department will be authorized to publish one or more schedules in the Kansas Register as it deems reasonably necessary to facilitate economic growth and development in one or more economic growth zones. The Department is required to timely submit any published schedule to the Bank Commissioner. The Bank Commissioner will be required to provide a copy of such schedule(s) to any applicant for a fiduciary financial institution charter prior to the issuance of such charter. A fiduciary financial institution will be subject to the schedule in existence on the date its charter is issued.
The bill requires the Department to remit all distributions made to the State Treasurer.
Upon receipt of such remittances, the State Treasurer is required to deposit the entire amount to the credit of the Technology-enabled Fiduciary Financial Institutions Development and Expansion Fund. The bill further provides the balance of the applicable distribution must be distributed to one or more qualified charities, as defined in the bill, as selected by the fiduciary financial institution. The bill further states nothing in this section shall preclude a distribution to one of more qualified charities in excess of the amounts provided in this section.
The bill also provides an economic growth zone or qualified charity shall have no
obligation to repay any distributions received under the Act or to make any contributions to a fiduciary financial institution.
Fees and Assessments, Bank Commissioner
Initial Fee and Expenses
The bill requires every fiduciary financial institution be assessed an initial fee of
$500,000 to be remitted concurrently with the issuance of such fiduciary financial institution’s charter. The bill requires the expense of every annual regular fiduciary financial institution examination, together with the expense of administering fiduciary financial institution laws, including salaries, travel expenses, third-party fees for consultants or other entities necessary to assist the Bank Commissioner, and supplies and equipment, to be paid by the fiduciary financial institutions of Kansas.
The bill requires the Bank Commissioner, prior to the beginning of each fiscal year, to
make an estimate of fiduciary financial institution expenses to be incurred by the Office of the State Bank Commissioner (OSBC) during such fiscal year in an amount not less than $1.0 million. The bill requires the Bank Commissioner to allocate and assess each fiduciary financial institution on the basis of such institution’s total fidfin transaction balances, consisting of the aggregate fidfin financing balances of the fiduciary financial institution reflected in the last December 31 report filed with the Bank Commissioner, filed pursuant to reporting provisions of KSA 9-1704. The bill provides a separate assessment allocation for those entities that have no fidfin transaction balances but are providing custodial services or trust services. The bill further provides a fiduciary financial institution that has no fidfin transaction balances and no alternative
asset custody accounts reflected in its last December 31 report may be granted inactive status.
An inactive fiduciary financial institution could be assessed an annual assessment in an
amount not to exceed $10,000. The bill requires the annual fee be first assessed in the year immediately following the year the fiduciary financial institution received a certificate of authority to engage in fidfin transactions, custodial services, and trust business and for each year thereafter.
The bill requires the statement of each assessment to be transmitted by the Bank
Commissioner on December 1 or the next business day to each fiduciary financial institution. The bill further permits the assessment to be collected as needed and in such installments as the Bank Commissioner deems appropriate. The Bank Commissioner is permitted to impose a penalty in the amount of $50 for each day past due, when the annual assessment is more than 15 days past due.
The Bank Commissioner will remit all moneys received from such fees and assessments
to the State Treasurer. The State Treasurer will deposit the entire amount in the State Treasury and credit 75.0 percent of each remittance to the Bank Commissioner Fee Fund and 25.0 percent to the Technology-enabled Fiduciary Financial Institutions Development and Expansion Fund.
Application of Provisions, Chapter 9
The bill provides, to the extent a conflict does not exist between the Act and the Kansas
Banking Code, the provisions of the Code (Chapter 9) shall apply to a fiduciary financial
institution in the same manner as they apply to a trust company except that references in Chapter 9 to:
● “Capital stock” include membership capital and partner capital;
● “Stock” include membership units and partnership interests;
● “Common stock” include common units and common interests;
● “Preferred stock” include preferred units and preferred interests;
● “Stockholders” include members and partners;
● “Articles of incorporation” include articles of organization and articles of limited
● “Incorporation” include organization;
● “Corporation” include company and partnership;
Kansas Legislative Research Department 126 2021 Summary of Legislation
Technology-enabled Fiduciary Financial Institutions Act; Senate Sub. for HB 2074
● “Corporate” include company and partnership; and
● “Trust business” and “business of a trust company” include fidfin and fiduciary
financial institution business.
The bill also provides if any conflict exists between any provision of Chapter 9 (the
Kansas Banking Code) and this act, the provisions of this act would control.
The bill defines “capital” to mean the total of the aggregate par value of a fiduciary
financial institution’s outstanding membership units, its surplus, and its undivided profits. The bill provides the required capital for fiduciary financial institutions must be $250,000 when:
● The fiduciary financial institution does not accept deposits, other than alternative
asset custody accounts;
● The fiduciary financial institution maintains no third-party debt except debts owed
to the members of the fiduciary financial institution or its affiliates; and
● The fiduciary financial institution has secured an agreement from its members
whereby such members agree to contribute additional capital to the fiduciary
financial institution if needed to ensure its safety and soundness. A fiduciary
financial institution that fails to satisfy the capital requirements is subject to the
capitalization requirements of KSA 9-901a, as applicable to trust companies.
The bill provides the capital of a fiduciary financial institution shall be divided, with 60.0
percent of the amount as aggregate par value of outstanding membership units, 30.0 percent as surplus, and 10.0 percent as undivided profits.
Business of Fiduciary Financial Institutions, Management and Control
The bill requires the business of any fiduciary financial institution to be managed and
controlled by such fiduciary financial institution’s board of directors. The bill provides this board must consist of not fewer than 5 nor more than 25 members who are elected by the members at any regular annual meeting. The bill specifies at least one director must be a resident of Kansas. The bill also provides provisions pertaining to holding meetings that cannot occur on the date specified in the operating agreement or bylaws and meeting notice requirements.
The bill requires annual meetings of fiduciary financial institutions to be held in Kansas.
The bill permits any other meetings of such institution’s management or directors, including a meeting required by KSA 9-1116 (quarterly meetings), to be held in any location determined by the fiduciary financial institution’s officers or directors.
Changes in Directorship; Vacancies on the Board of Directors; Administration of Oath
The bill requires any new directorship to be approved and elected by members in the
manner provided in the fiduciary financial institution’s organizational documents or, in the absence of such provisions, in the manner provided by the Kansas Revised Limited Liability Company Act, the Kansas Revised Uniform Limited Partnership Act, or the Kansas General Corporation Code. The bill permits the convening of a special meeting at any time for such purpose. The bill also provides that any vacancy in the board of directors could be filled by the board of directors in the manner provided in the fiduciary financial institution’s organizational documents or, in the absence of such provisions, pursuant to the Kansas laws previously referenced.
The bill requires, within 15 days after the annual meeting, the president or cashier
submit to the Bank Commissioner a certified list of members and the number of units owned by each member. The Bank Commissioner is allowed to require the list be filed via electronic means.
The bill requires each director to take and subscribe an oath to administer the affairs of
the fiduciary financial institution diligently and honestly and to not knowingly or willfully permit any of the laws relating to fiduciary financial institutions to be violated. The bill requires a copy of each oath to be retained and permits the Bank Commissioner to require oaths to be filed via electronic means.
The bill requires every fiduciary financial institution to notify the Bank Commissioner of
any change in the chief executive officer, president, or directors, including in its report a
statement of the past and current business and professional affiliations of the new chief
executive officer, president, or directors.
Reporting to the Bank Commissioner; Evaluation of Safety and Soundness
The bill requires a fiduciary financial institution to make a report to the Bank
Commissioner pursuant to the provisions of the Kansas Banking Code applicable to requiring reports of banks and trust companies, upon request of the Bank Commissioner (KSA 9-1704). In making such report, the bill requires a fiduciary financial institution to:
● Report the fiduciary financial institution’s fidfin transactions pursuant to generally
accepted accounting principles (GAAP); and
● Calculate such fiduciary financial institution’s capital solvency by including the
value of all tangible and intangible assets owned by the fiduciary financial
institution, regardless of use.
Safety and Soundness
The bill requires the Board and Bank Commissioner, when evaluating the safety and
soundness of a fiduciary financial institution, to:
● Consider that collateral or underlying assets associated with fidfin transactions
are volatile in nature and that such volatility has been accepted by the members
and customers of the fiduciary financial institution;
● Respect the form, treatment, and character of fidfin transactions under the laws
of this state, notwithstanding the treatment or characterization of such
transactions under GAAP or for tax purposes;
● Evaluate the soundness based on whether available capital, including the
members’ contribution to capital, exceeds the institution’s obligations, determined
in accordance with GAAP; and
● Evaluate the safety based on the background and qualifications of the fiduciary
financial institution’s executive officers and directors and its internal controls and
audit processes to ensure adherence to the policies and procedures of the
Profitability. The bill states profitability shall not be a consideration in evaluating the
safety and soundness of a fiduciary financial institution if sufficient capital and equity exist in the business, including, without limitation, membership capital, surplus, undivided profits, and commitments by members to contribute additional capital to the fiduciary financial institution.
Advertising, Use of Name
The bill permits a fiduciary financial institution to use in its business name or advertising
the words “fiduciary financial institution” or any similar term or phrase, but such institution will not be permitted to use “bank” or “trust company” or without reference to fidfin trusts any term that tends to imply it is a bank or trust company, unless the Bank Commissioner has approved the use in writing after finding that such use will not be misleading.
The bill also states:
● While a fiduciary financial institution is a trust company for the purposes of
federal and state law, regulations, and rules, and possesses trust powers under
this act, it is the intent of this section to impose restrictions on the name of such
institution in order to avoid confusion with other banks and trust companies that
operate in this state but are not fiduciary institutions;
● The naming restrictions imposed under this section shall in no way reduce or
eliminate the trust powers granted to a fiduciary financial institution as a trust
company under this act; and
● Other than indicating the fiduciary financial institution is headquartered and
chartered in Kansas, no fiduciary financial institution name or advertising shall
infer or imply that such fiduciary financial institution is endorsed by, an affiliate of,
or otherwise connected with, the State of Kansas.
Economic Growth Zone, Requirements on Office Space, Employment, and Business
Performed in Kansas
The bill requires fiduciary financial institutions to maintain suitable office space in an
economic growth zone; employ, engage, or contract with at least three employees; and perform fidfin transactions, custodial services, and trust business in Kansas. The bill also permits a fiduciary financial institution to engage in fidfin transactions, custodial services, and trust business in other states to the extent permitted by applicable law. The term “suitable office space” means at least 2,000 square feet of class A office space located in an economic growth zone selected by the fiduciary financial institution that the fiduciary financial institution utilizes as its principal office. The bill also places requirements on the principal office of the fiduciary financial institution, including that such office must be located in an economic growth zone selected by the trust bank and have a secure computer terminal or other electronic device that provides access to such records necessary to facilitate an efficient and effective examination.
Business Performed in Kansas
The bill deems fidfin transactions, custodial services, and trust business to have been
performed in Kansas if such transaction or custodial service agreements are approved or signed in this state on behalf of the fiduciary financial institution and at least three of the following acts are performed by a technology platform wholly or partly operated in this state: annual account reviews, annual investment reviews, trust or custodial accounting, account correspondence, reviewing and signing trust account or custodial account tax returns, or distributing account statements.
Fiduciary Financial Institution Powers; Fidfin Transactions
The bill authorizes a fiduciary financial institution to exercise by its board of directors or
duly authorized officers or agents, subject to law, the following powers:
● To engage in fidfin transactions in accordance with the bill (in a section on
powers and duties pertaining to extension of credit or credit to a fidfin trust);
● To receive, retain, and manage alternative asset custody accounts in accordance
with the bill (in a section on custodial services); and
● To engage in trust business as defined in provisions of the Kansas Banking Code
applicable to supervision (KSA 9-701).
Additional Powers, Duties, and Responsibilities—Extension of Credit and Financing;
Required Distribution Amount
The bill permits, if authorized by the terms of an instrument (as defined in the bill), a
fiduciary financial institution to:
● Extend financing or extensions of credit to a fidfin trust when:
○ The fiduciary financial institution serves as trustee of the borrowing fidfin
○ The financing is collateralized or supported by the assets of the fidfin
○ The financing is nonrecourse as to the fiduciary financial institution’s
customer and is not otherwise guaranteed by such customer;
○ The fiduciary financial institution agrees, in the applicable financing
agreement or other written document, that the fiduciary financial
institution is providing financing in a fiduciary capacity; and
○ The fiduciary financial institution agrees that such institution is providing
financing in a fiduciary capacity; and
● Acquire or invest in an alternative asset on behalf of and through a fidfin trust.
The bill further specifies the financing of a fidfin trust is considered a fiduciary finance or
fidfin transaction. The bill also states, if authorized or directed by the terms of an instrument, a fiduciary financial institution will not be deemed to have a conflict of interest, have violated a duty to a fidfin trust or the beneficiaries thereof, or have engaged in self-dealing by entering into a fidfin transaction.
The bill provides that the combination rules on limitations on loans and borrowing will not be applicable to a fiduciary financial institution’s fidfin transactions regardless of the identify of the fidfin trust beneficiary if:
● The borrower is a fidfin trust; and
● The fiduciary financial institution serves as trustee of the borrowing fidfin trust.
The bill further states a fiduciary financial institution that engages in a fidfin transaction
shall be a fiduciary and specifies when such fiduciary financial institution would be deemed to be exercising fiduciary powers.
The bill again specifies the required distribution, percentage of distribution to the
Department, and requirement on publication of the schedule as it applies to the fidfin
transactions of a fiduciary financial institution.
The bill also provides an economic growth zone or qualified charity shall have no
obligation to repay any distributions received under the Act or to make any contributions to a fiduciary financial institution.
The bill also states the form, treatment, and character of fidfin transactions under the
laws of this state shall be respected for all purposes of this act, notwithstanding the treatment or characterization of such transactions under GAAP for tax purposes.
Employment of Professionals; Professional Services
The bill allows a fiduciary financial institution to employ and engage various
professionals to advise and assist the fiduciary financial institution in its business. A fiduciary financial institution is permitted, among those activities outlined in the bill, to:
● Employ one or more agents to perform any act of fidfin transactions, custodial
services, or trust business; and
● License Internet-related services, including web services, software, mobile
applications, technology-enabled platforms, and processes to or from affiliates,
third parties, other fiduciary financial institutions, and their affiliates.
The bill also specifies a party engaged by a fiduciary financial institution will not be
deemed to have engaged in fidfin transactions by reason of providing services to a fiduciary financial institution or licensing products or forms, platforms, systems, or processes of the fiduciary financial institution.
Use of Technology-enabled Platform
The bill specifies if a fiduciary financial institution offers its platform to provide fidfin
services to residents of other states, neither the marketing, use, and deployment of such
platform by parties in other states nor the origination of fidfin services through such platform will constitute an out-of-state trust facility under State Banking Code provisions applicable to trust companies (KSA 9-2111), if the fiduciary financial institution complies with provisions of the bill (office space and employment or contracting).
The fiduciary financial institution is required to provide notice to the Bank Commissioner
if it engages a party under the bill’s provisions for employment of a professional for advice and assistance.
Custodian of an Asset Custody Account
The bill permits a fiduciary financial institution to serve as a custodian, which includes
serving as a qualified custodian (as defined by the U.S. Securities and Exchange Commission) of an asset custody account. In providing such services, a fiduciary financial institution is required to:
● Implement all accounting, account statement, internal control, notice, and other
standards specified by applicable state or federal law and rules and regulations
for custodial services;
● Maintain information technology best practices relating to alternative assets held
● Fully comply with applicable federal anti-money laundering, customer
identification, and beneficial ownership requirements; and
● Take other actions necessary to comply with the requirements of the bill.
The bill provides a fiduciary financial institution performing custodial services will be
deemed to be serving as a fiduciary and exercising fiduciary powers.
Instrument of the Trust Advisor
The bill provides that any instrument providing for a trust advisor may also provide such
advisor with some, none, or all of the rights, powers, privileges, benefits, immunities, or
authorities available to a trustee under Kansas law or under such instrument. Unless the
instrument provides otherwise, a trust advisor would have no greater liability to any person than would a trustee holding or benefiting from the rights, powers, privileges, benefits, immunities, or authority provided or allowed by the instrument to such trust advisor.
Excluded Fiduciaries; Exemption from Liability
The bill provides for the exemption from liability of an excluded fiduciary, either
individually or as a fiduciary, from:
● Any loss that results from compliance with a direction of the trust advisor; or
● Any loss that results from a failure to take any action proposed by an excluded
fiduciary that requires a prior authorization of the trust advisor.
The bill provides for instances when the excluded fiduciary would be relieved from
obligations to review or evaluate a direction from a trust advisor and the duty to communicate with the trust advisor. The bill also provides, in any action against an excluded fiduciary, the burden of proof will be on the person seeking to hold the excluded fiduciary liable under the clear and convincing evidence standard.
Trust Advisors; Presumption of Acting as Fiduciary
The bill states a trust advisor is presumed to be a fiduciary when exercising such trust
advisor’s authority under the Act. The bill specifies that by accepting appointment to serve as a trust advisor to a fidfin trust or an alternative asset custody account, a trust advisor submits to jurisdiction of the courts of Kansas even if agreements provide otherwise.
The bill also provides an instrument may appoint an individual, corporation, or limited
liability company as the trust advisor of a fidfin trust or an alternative asset custody account.
Exemption from Article 8 of the State Banking Code
The bill specifies, for an entity appointed as a trust advisor, when certain provisions of
the State Banking Code (Article 8, organization) would not apply. Those instances include if such entity:
● Is established for the exclusive purpose of acting as a trust advisor;
● Is acting in such capacity under an instrument that names a fiduciary financial
institution as trustee or custodian;
● Is not engaged in trust business with the general public as a public trust company
or with any family as a private trust company;
● Does not hold itself out as being in the business of acting as a fiduciary for hire
as either a public or private trust company; and
● Agrees to be subject to examination by the OSBC at the discretion of the Bank
The bill requires the governing documents of any such entity limit that entity’s authorized activities to those of a trust advisor.
The bill provides that an instrument may relieve and indemnify a trust advisor and
fiduciary financial institution that serves as a trustee of a fidfin or alternative asset custody account that serves as a trustee from liability for breach of fiduciary liability duty if any such provision is unenforceable to the extent that it relieves the trust advisor or fiduciary financial institution from liability for a breach of fiduciary duty committed in bad faith, intentionally, or with reckless indifference to the interest of a beneficiary.
Compensation of the Trustee
The bill provides requirements governing the compensation of a trustee, specifying each
trustee is entitled to be compensated as provided in the terms of a fidfin trust, except that such compensation may be increased or decreased upon approval by the trustee and by unanimous consent of the beneficiaries. The bill also specifies when the court will be permitted to allow additional compensation of a trustee.
The bill establishes privacy protections for those establishing a fidfin trust or alternative
asset custody account, in court proceedings, upon petition of the acting trustee, custodian, trustor, or any beneficiary. Upon the filing, documents would be sealed and not be part of the public record, except that the petition would be available.
Definition of Form; Review of Forms for Informational Purposes
The bill permits the Bank Commissioner to, upon a written request from a fiduciary
financial institution prior to a form submission, offer to review a form and reply with informational comments only. The bill further states such comments shall not, in any manner, constitute approval or endorsement of such form, and the fiduciary financial institution shall not represent that such form has been approved by the OSBC.
The bill defines “form” to include:
● An instrument as that term is defined in the bill;
● A transaction agreement between a fiduciary financial institution and a fidfin trust;
● Any other documents executed by a fiduciary financial institution or a fidfin trust
in connection with a fidfin transaction; and
● Any document executed by a fiduciary financial institution or a customer in
connection with the creation and management of an alternative custody account.
Rules and Regulations; Professional Services and Technical Assistance
The bill requires the Bank Commissioner to adopt rules and regulations on or before
January 1, 2022, as necessary to administer the Act.
The bill permits the OSBC to enter into contracts for technical assistance and
professional services as necessary to administer the provisions of this act and to meet the specified deadline for adoption of the rules and regulations.
Interest Rate or Charge; Written Agreement
The bill provides, notwithstanding the provisions of Chapter 16 of the Kansas Statutes
Annotated (contracts and promises) or other law, there is no maximum interest rate or charge or usury rate restriction between or among a fiduciary financial institution and a fidfin trust if the rate or charge is established by written agreement.
A “written agreement” means a document in writing, whether in physical or electronic
form, in which the parties have demonstrated their agreement to the terms and conditions of an extension of credit, including the rate of interest.
Technology-enabled Fiduciary Financial Institutions Development and Expansion Fund
The bill establishes the Technology-enabled Fiduciary Financial Institutions Development and Expansion Fund (Fund) in the State Treasury to be administered by the Secretary of Commerce. The bill requires expenditures from the Fund to be for the purposes of distributing to economic growth zones for the purposes of economic development projects or opportunities and promoting and facilitating the development and growth of trust banks, fidfin activities, and custodial services in Kansas and to locate trust banks’ office space in an economic growth zone.
The bill also requires transfers from the State General Fund to the Fund of interest
earnings of Fund moneys.
Issuance of Charter to The Beneficient Company; FidFin Fiduciary Financial Institution Pilot Program
On July 1, 2021, the bill will require the Bank Commissioner to grant a conditional
fiduciary financial institution charter to The Beneficient Company (Beneficient) upon the filing of an application and satisfying requirements as detailed in the bill.
Harvey County Community; Pilot Program
The bill requires Beneficient to designate a community within Harvey County as the first
economic growth zone.
The Bank Commissioner is required to establish a FidFin Fiduciary Financial Institution
Pilot Program that will include Beneficient as a participant, assess an initial fee of $1.0 million in lieu of the initial charter fee established in the bill, and impose a requirement for Beneficient to distribute or facilitate the distribution of cash, beneficial interests, or other assets having an aggregate value of $9.0 million. This distribution will be distributed in accordance with requirements in the bill and shall be construed as the applicable distribution amount, as specified in the bill.
Upon the issuance of the conditional charter, Beneficient will be subject to all
requirements imposed on trust banks under the Act, but will not be permitted to conduct fidfin transactions, custodial services, or trust business in Kansas until the earlier of December 31, 2021, or the date the Bank Commissioner adopts rules and regulations.
Extension of Time Frame before Transactions and other Business; Reports to Legislature
Reporting. The bill permits the Bank Commissioner to extend the period of time in which Beneficient may not commence fidfin transactions, custodial services, or trust business in Kansas for a period not to exceed six months if the Bank Commissioner submits a report to the chairperson of the Senate Committee on Financial Institutions and Insurance (Senate Committee) and the House Committee on Financial Institutions and Rural Development (House Committee) identifying the specific reasons for which such extension was necessary. The bill requires such report to be submitted on or before January 10, 2022.
The bill also requires, on or before January 10, 2022, the OSBC to provide a report to
the House Committee and the Senate Committee with an update on the progress of the pilot program. This bill requires the report to include recommendations from the OSBC for any legislation necessary to implement the provisions of this act.
Required distributions. The bill further allows Beneficient to satisfy the application
distribution requirements of the bill by placing assets in escrow with one or more qualified charities provided that such funds shall be released when Beneficient is permitted to commence fidfin transactions, custodial services, or trust business.
Interest in a Fidfin Trust
The bill provides that no interest held in a fidfin trust shall be void or invalid by reason of
any common law rule including, but not limited to, the rule against perpetuities or rule limiting the duration of trusts.
Classification of Business Trust, Taxation Purposes
The bill provides that, for state taxation purposes, a fiduciary financial institution that
serves as a trustee under the Act shall be classified as a corporation, association, a partnership, a trust, or otherwise, as determined by the federal Internal Revenue Code.
Income and Privilege Tax Credit; “Qualified Charitable Distributions”
The bill establishes an income and privilege tax credit beginning with tax year 2021 for
fiduciary financial institutions in an amount equal to such fiduciary financial institution’s qualified charitable distributions during such taxable year if the fiduciary financial institution maintained such fiduciary financial institution’s principal office in an economic growth zone. The bill allows a tax credit to be carried forward. The credit could be carried forward for up to five taxable years following the years in which the credit is first allowed. These provisions are part of and supplemental to the Kansas Income Tax Act.
The bill includes provisions pertaining to fiduciary financial institutions that are
considered pass-through entities for Kansas tax purposes and this credit. The bill specifies tax credits allowed and earned under this section shall not be sold, assigned, conveyed, or otherwise transferred.
Tax Liability for Unmet Qualified Charitable Deductions
The bill specifies that a fiduciary financial institution must pay the greater of the qualified charitable distributions made during such taxable year or the tax liability of a fiduciary financial institution imposed pursuant to the Kansas Income Tax Act or the privilege tax imposed pursuant to Article 11, Chapter 79 of the Kansas Statutes Annotated (the financial institutions privilege tax).
Qualified Charitable Distributions; Qualified Charities
The bill creates definitions for “qualified charitable distributions” and “qualified charities.” The bill specifies “qualified charities” are charities that have:
● Been organized pursuant to a charter promulgated by the Department for the
purposes of making distributions for the benefit of economic growth zones;
● Committed in writing to utilize the entire amount of the qualified charitable
distributions, excluding reasonable administrative expenses, exclusively for the
benefit of charitable causes located in one or more economic growth zone or
postsecondary educational institution; and
● Agreed to provide an annual report to the Department detailing qualified
distributions received during such year, distributions made, and the remaining
balance of qualified distributions as of the end of the reporting year.
The bill also specifies when such requirements will not apply.
Joint Committee on Fiduciary Financial Institutions Oversight
The bill establishes a nine-member Joint Committee on Fiduciary Financial Institutions
Oversight (Joint Committee) that is composed of four senators and five representatives.
Membership and Meeting Requirements
The four members of the Senate are the chairperson of the Senate Committee or a
member of the committee designated by the chairperson, two members appointed by the President, and one member appointed by the Minority Leader. The five members of the House of Representatives are the chairperson of the House Committee or a member of the committee designated by the chairperson, two members appointed by the Speaker, and two members appointed by the Minority Leader.
The bill specifies the terms of all Joint Committee members will expire on the first day of
the regular session in odd-numbered years and specifies when the chairperson is appointed by either the Speaker or President. The Joint Committee is permitted to meet at any time and any place on call of the chairperson. The bill provides a quorum of the Joint Committee would be a majority of the members.
The bill also provides for member compensation, travel expenses, and subsistence
expenses or allowances and provision for professional services as may be provided by the Legislative Coordinating Council.
Legislation and Role of Joint Committee
The Joint Committee is permitted to introduce legislation as deemed necessary in
performing its functions. The Joint Committee is required to:
● Monitor, review, and make recommendations regarding fiduciary financial
institutions’ operations in the state of Kansas;
● Monitor, review, and make recommendations regarding the pilot program; and
● Receive a report from the OSBC prior to December 31, 2021, that provides an
update on the implementation of the Act and pilot program. The bill requires the
report to include recommendations from the OSBC for any legislation necessary
to implement the provision of the Act.
The bill also requires the OSBC to appear before the Joint Committee annually and
present a report on the fiduciary financial institution industry.