The OCC's Proposed Trust Bank Clarification: A 23-Year-Old Ambiguity and the Question of What Constitutes the Operations of a Trust Company

By Valerie Song & Roman Goldstein

When the Office of the Comptroller of the Currency (OCC) published its proposed revision to 12 CFR 5.20 earlier this month to replace the regulatory reference to "fiduciary activities" with the statutory "operations of a trust company and activities related thereto," the seemingly minor housekeeping revision received more attention than a simple fix might warrant—because for the booming digital asset industry, these nine words are anything but minor. They signal that the OCC is open to national trust banks that engage in activities that are unorthodox by today’s standards. (But not, as we’ll discuss later, by historical standards.)

The Problem of Imprecise Shorthand

The specific provision the OCC proposed amending is found in its rule governing the chartering of special purpose national banks. The current rule, 12 CFR § 5.20(e)(1)(i), states: "A special purpose bank that conducts activities other than fiduciary activities must conduct at least one of the following three core banking functions: Receiving deposits; paying checks; or lending money." (Emphasis added).

As the OCC noted in the preamble to the proposed rule, the "other than fiduciary activities" language was intended to clarify that this section did not apply to national trust banks, thus distinguishing special purpose national banks that perform core banking functions from those limited to trust operations.

The OCC’s current proposal simply replaces the imprecise "other than fiduciary activities" with the precise language used in the underlying federal statute that authorizes national trust banks, 12 U.S.C. § 27(a): "those of a trust company and activities related thereto."

On its face, this is a reasonable correction. The regulatory shorthand “other than fiduciary activities” to refer to trust banks could mistakenly be read to circumscribe the activities of trust banks to fiduciary roles only, contradicting both the statutory language and the long-standing practice of national trust banks, which have historically performed a mix of non-fiduciary activities, such as custody, safekeeping, and recordkeeping, alongside fiduciary activities.

Beyond the Correction: The Broader Question

If the OCC is merely aligning its regulation with the language of the statute and over two decades of practice, why the intense focus from the industry?

The reason lies in the implications for new entrants, especially digital asset and crypto custody firms, which are currently flocking to the national trust bank charter. 

This brings us to the core, unanswered question: Does a national trust bank have to perform any fiduciary activities at all to be chartered by the OCC?

Arguably, no.

The statutory authority in 12 U.S.C. § 27(a) limits the bank’s operations to the "operations of a trust company and activities related thereto." Tellingly, this statute does not cross-reference 12 U.S.C. § 92a, the provision granting national banks the power to act in a “fiduciary capacity." Congress could have tied the trust bank chartering provision directly to the fiduciary capacity statute, but chose not to. Trust companies have long engaged in nonfiduciary activities, as Congress knew when it enacted section 27(a)(1). Congress also distinguished between “trust” and “fiduciary” activities in the Bank Holding Company Act, which says that, subject to conditions, “[a]n institution that functions solely in a trust or fiduciary capacity” is not a bank.(2) (Emphasis added).

This intentional omission suggests the "operations of a trust company" encompass a broader set of services, potentially including entirely non-fiduciary services under 92a. The proposed rule change could be viewed as reinforcing this interpretation by replacing the more restrictive regulatory term ("fiduciary activities") with the broader statutory one ("operations of a trust company").

In Interpretive Letter 1176 ( January 2021), the OCC noted that activities of a trust company for purposes of 27(a) include activities of a state trust bank, even if those activities are not necessarily defined as fiduciary under federal law. Thus, the letter opened the door to permitting trust banks that do not engage in any fiduciary activities under 92a, so long as they engage in “operations of a trust company.” 

The Next Question

Regardless of whether some degree of fiduciary activities is required for a trust bank, the next question is equally—or perhaps even more—important: What are the boundaries of "operations of a trust company" and "activities related thereto" in the modern context?

Interpretive Letter 1176 tiptoed into this space as well, noting two key things: 

1.  A national trust bank may engage in “any and all activities permitted under state law for a state trust company located in the same state under the plain terms of 12 U.S.C. § 27(a),” and

2. National trust banks may also engage in activities beyond those permissible for a state trust company, provided they are permissible under other sources of federal authority, such as 12 USC 24(Seventh), the provision granting national banks their general corporate powers, including the authority to engage in the business of banking and all necessary and incidental activities. (Of course, a national trust bank’s operations would be limited to those of a trust company and related activities.)

If trust banks are not required to engage in fiduciary activities under 92a, and also are not limited to the activities of a state trust bank, and may engage in any permissible activity under 12 USC 24(Seventh) that constitutes the operations of a trust company, where are the outer bounds of what constitutes the “operations of a trust company?” 

Interpretive Letter 1176 and 12 USC 92a’s framework of allowing national banks to compete with state trust companies offer a partial answer: national trust banks can do whatever their state counterparts can do. So, for example, a national trust bank in New York should be able to operate a crypto exchange because NYDFS permitted Gemini Trust Company to operate one. NYDFS also authorized Gemini Trust Company to issue stablecoins and stake digital assets. More broadly, New York Banking Law § 96 grants state trust companies broad powers. The general authorization to conduct banking activities—including discounting notes, accepting drafts, issuing travelers checks and money orders, and leasing personal property—applies to “[e]very bank and every trust company.” This statute really is as broad as it seems: at the turn of the 20th century, New York trust companies engaged in investment banking, private banking, and commercial banking.(3)

Other laws may serve as practical or legal constraints on the activities of national trust banks. For example, the statute that confirmed the OCC’s authority to charter national trust banks also recognized that state trust companies take deposits and make real estate loans.(4) But if a national trust bank took deposits other than trust funds, it would arguably need FDIC insurance and could be required to have a bank holding company. That could be a deal-breaker for prospective bank organizers. Similarly, a national trust bank that issues payment stablecoins must comply with the activity restrictions in the GENIUS Act.

The courts and the OCC have recognized that banking is an evolving business. “Commentators uniformly have recognized that the National Bank Act did not freeze the practices of national banks in their nineteenth-century forms…[W]e believe the powers of national banks must be construed so as to permit the use of new ways of conducting the very old business of banking.”(5)

So, too, national trust banks and the very old business of trust banking.

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(1)  Financial Institutions Regulatory and Interest Rate Institutions Control Act of 1978, P.L. 95-630 § 202(4) (recognizing state trust companies made real estate loans and took deposits from individuals), and § 1504 (confirming the OCC may charter national banks with operations “limited to those of a trust company and activities related thereto”).

(2)  12 U.S.C. § 1841(c)(2)(D) (emphasis added).

(3)  Carosso, Investment Banking In America: A History 99 (1970).

(4)  See supra note 1.  (5)  M&M Leasing Corp. v. Seattle First National Bank, 563 F.2d 1377, 1382 (9th Cir. 1977).