UNOFFICIAL COPY 22 RS BR 954
Page 1 of 33
XXXX Jacketed
AN ACT relating to special purpose depository institutions. 1
Be it enacted by the General Assembly of the Commonwealth of Kentucky: 2
SECTION 1. SUBTITLE 12 OF KRS CHAPTER 286 IS ESTABLISHED, 3
AND A NEW SECTION THEREOF IS CREATED TO READ AS FOLLOWS: 4
(1) The General Assembly finds the following: 5
(a) The rapid innovation of blockchain technology, including the growing use 6
of virtual currency and other digital assets, has resulted in many blockchain 7
innovators being unable to access secure and reliable banking services, 8
hampering development of blockchain services and products in the 9
marketplace; 10
(b) Federally insured financial institutions are not generally permitted to 11
manage accounts in virtual currency or hold other digital assets; 12
(c) Blockchain innovators have greater compliance challenges with federal 13
customer identification, anti-money-laundering, and beneficial ownership 14
requirements because of the complex nature of these obligations and the 15
unfamiliarity of regulators with blockchain innovators' businesses; 16
(d) The intricate obligations of blockchain innovators have resulted in many 17
financial institutions in Kentucky and across the United States refusing to 18
provide banking services to blockchain innovators and also refusing to 19
accept deposits in United States currency obtained from the sale of virtual 20
currency or other digital assets; 21
(e) Compliance with applicable federal and state laws is critical to ensuring the 22
future growth and reputation of the blockchain and technology industries 23
as a whole; 24
(f) Most financial institutions today do not have the requisite expertise or 25
familiarity with the challenges facing blockchain innovators, which is 26
required to provide secure and reliable banking services to these innovators; 27 UNOFFICIAL COPY 22 RS BR 954
Page 2 of 33
XXXX Jacketed
and 1
(g) A new type of Kentucky financial institution that has expertise with 2
customer identification, anti-money-laundering, and beneficial ownership 3
requirements could seamlessly integrate these requirements into its 4
operating model. 5
(2) The purpose of this subtitle is to: 6
(a) Provide a necessary and valuable service to blockchain innovators; 7
(b) Emphasize Kentucky's partnership with the technology and financial 8
industries; and 9
(c) Safely grow Kentucky's financial sector. 10
SECTION 2. A NEW SECTION OF SUBTITLE 12 OF KRS CHAPTER 286 11
IS CREATED TO READ AS FOLLOWS: 12
As used in this subtitle, unless the context requires otherwise: 13
(1) The following have the same meaning as in KRS 286.3-010: 14
(a) "Articles of incorporation"; 15
(b) "Board of directors"; 16
(c) "Corporation"; 17
(d) "Director"; 18
(e) "Shareholder"; and 19
(f) "Stock"; and 20
(2) "Special purpose depository institution" means a corporation chartered under 21
this subtitle to engage in the business authorized under this subtitle. 22
SECTION 3. A NEW SECTION OF SUBTITLE 12 OF KRS CHAPTER 286 23
IS CREATED TO READ AS FOLLOWS: 24
No person shall carry on, in this state, a business authorized under this subtitle, except 25
in compliance with this chapter. 26
SECTION 4. A NEW SECTION OF SUBTITLE 12 OF KRS CHAPTER 2 86 27 UNOFFICIAL COPY 22 RS BR 954
Page 3 of 33
XXXX Jacketed
IS CREATED TO READ AS FOLLOWS: 1
(1) As used in this section, "usual or incidental to the business of banking" shall 2
include the following: 3
(a) Acting as a fiduciary and engaging in trust business, which shall include 4
custodial, safekeeping, and asset services activities; 5
(b) Investment adviser, investment company, and broker-dealer activities; 6
(c) Commodities intermediary activities; and 7
(d) Other activities determined by the commissioner to be usual or incidental to 8
the business of banking. 9
(2) (a) Except as otherwise provided by paragraph (b) of this subsection, five (5) or 10
more natural persons may form a special purpose depository institution. 11
(b) Subject to applicable federal and state law, a bank holding company may 12
apply to hold a special purpose depository institution. 13
(3) A special purpose depository institution shall be organized as a corporation under 14
Kentucky law to exercise the powers set forth in subsection (4) of this section. 15
(4) Each special purpose depository institution may: 16
(a) Receive notes and buy and sell gold and silver coins and bullion as 17
permitted by federal law; 18
(b) Carry on a nonlending banking business for depositors, consistent with 19
subsection (5) of this section; 20
(c) Provide payment services upon the request of a depositor; 21
(d) Make an application to become a member bank of the federal reserve 22
system; 23
(e) Purchase debt obligations specified in subsection (1)(b)2. of Section 9 of 24
this Act; 25
(f) Engage in any other activity that is usual or incidental to the business of 26
banking, subject to the prior written approval of the commissioner; 27 UNOFFICIAL COPY 22 RS BR 954
Page 4 of 33
XXXX Jacketed
(g) Receive deposits relating to activities authorized by the commissioner under 1
paragraph (f) of this subsection; and 2
(h) Exercise powers and rights otherwise authorized for corporations under 3
Kentucky law that are not inconsistent with this subtitle. 4
(5) (a) Except as otherwise provided in subsection (4)(e) of this section and 5
paragraph (b) of this subsection, a special purpose depository institution 6
shall not make loans, including the provision of temporary credit relating to 7
overdrafts. 8
(b) An institution that has been approved by the commissioner to act as a 9
fiduciary and engage in trust business may engage in any activity 10
permissible for trust companies under Subtitle 3 of this chapter. 11
(6) The commissioner shall not approve a request made under subsection (4)(f) of 12
this section if the requested activity would: 13
(a) Adversely impact the solvency, or the safety and soundness, of the special 14
purpose depository institution; or 15
(b) Conflict with any provision of this subtitle. 16
(7) A special purpose depository institution shall maintain its principal operating 17
headquarters, and the primary office of its chief executive officers, in Kentucky. 18
(8) A special purpose depository institution may: 19
(a) Conduct business with depositors outside this state; and 20
(b) Refer to itself as a "bank." 21
SECTION 5. A NEW SECTION OF SUBTITLE 12 OF KRS CHAPTER 286 22
IS CREATED TO READ AS FOLLOWS: 23
(1) No person shall transact any business as a special purpose depository institution, 24
except business which is incidental or preliminarily necessary to its organization, 25
without first: 26
(a) Obtaining a charter from the commissioner under this subtitle; 27 UNOFFICIAL COPY 22 RS BR 954
Page 5 of 33
XXXX Jacketed
(b) Satisfying the requirements for incorporation under Kentucky law; 1
(c) Filing, with the commissioner, the adopted bylaws, as approved by the 2
commissioner during the application process; and 3
(d) Complying with Sections 6, 8, and 9 of this Act. 4
(2) The commissioner shall not accept an application for a special purpose 5
depository institution charter unless the application: 6
(a) Is filed by the persons referenced in subsection (2) of Section 4 of this Act; 7
(b) Contains the following: 8
1. Proposed articles of incorporation. The articles of incorporation shall 9
include the following: 10
a. The corporate name, which shall not resemble so closely the 11
name of any other financial institution transacting business in 12
this state so as to cause confusion; 13
b. The purpose or purposes for which the corporation is organized; 14
c. The term of its existence, which may be perpetual; 15
d. The place where its office shall be located and its operations 16
conducted; 17
e. The amount of capital stock and the number of shares; 18
f. The name and residence of, and the number of shares owned by, 19
each shareholder subscribing to more than ten percent (10%) of 20
the stock; 21
g. The number of directors and the names of those who shall 22
manage the affairs of the corporation for the first year; and 23
h. A statement that the corporation shall only engage in activities, 24
and possess powers, authorized under this subtitle; 25
2. The proposed bylaws; 26
3. The identities and contact information of proposed directors and 27 UNOFFICIAL COPY 22 RS BR 954
Page 6 of 33
XXXX Jacketed
officers; 1
4. An address, which may be electronic, at which orders and other 2
notices may be served by the commissioner; 3
5. A detailed business plan; 4
6. A comprehensive estimate of operating expenses for the first three (3) 5
years of operation; 6
7. A complete proposal for compliance with the provisions of this 7
subtitle; 8
8. Evidence of the capital required under Section 7 of this Act; and 9
9. Any other information required by the commissioner; and 10
(c) Is accompanied by an application fee established by the commissioner. 11
(3) (a) The commissioner may: 12
1. Prescribe the form of a special purpose depository institution's charter 13
application; and 14
2. In his or her discretion, not accept applications that fail to comply 15
with the form prescribed by the commissioner. 16
(b) The commissioner shall notify the applicants in writing: 17
1. Of any deficiency in the application that prevents the commissioner 18
from accepting the application; or 19
2. That the application has been accepted. 20
(4) Upon acceptance of an application for a special purpose depository institution 21
charter, the commissioner shall make a careful investigation and examination of 22
the following: 23
(a) The character, reputation, financial standing, and ability of the organizers; 24
(b) The character, financial responsibility, banking or other financial 25
experience, and business qualifications of those proposed as officers and 26
directors; and 27 UNOFFICIAL COPY 22 RS BR 954
Page 7 of 33
XXXX Jacketed
(c) The information provided in the application for a charter, including: 1
1. The adequacy and plausibility of the proposed business plan; and 2
2. Whether the proposed institution has offered a complete proposal for 3
compliance with the provisions of this subtitle. 4
(5) The commissioner shall approve a special purpose depository institution charter 5
application if the commissioner finds that: 6
(a) The following are sufficient to afford reasonable assurance of successful 7
operation for the proposed institution and of compliance with the law: 8
1. The character, reputation, financial standing, and ability of the 9
organizers; and 10
2. The character, financial responsibility, banking or other financial 11
experience, and business qualifications of those proposed as officers 12
and directors; 13
(b) The proposed articles of incorporation and bylaws, as submitted or 14
subsequently amended by the applicants, are sufficient to ensure reasonable 15
compliance with the provisions of this subtitle; 16
(c) The business plan is adequate and plausible; 17
(d) The capital and surplus requirements of Section 7 of this Act have been 18
satisfied; 19
(e) The institution is being formed for no other purpose than legitimate 20
objectives authorized by law; and 21
(f) The applicants have complied with all applicable provisions of state law. 22
(6) The commissioner may conditionally approve a charter application. In the event 23
of conditional approval, the commissioner shall comply with subsection (8) of 24
this section upon satisfaction of the conditions specified by the commissioner for 25
approval. If the conditions specified are not satisfied within a reasonable period 26
of time, or within any time period specified by the commissioner, the 27 UNOFFICIAL COPY 22 RS BR 954
Page 8 of 33
XXXX Jacketed
commissioner shall deny the application in accordance with subsection (7) of this 1
section. 2
(7) (a) Notice of entry of any order denying an application for a charter under this 3
subtitle shall be: 4
1. In writing and filed by the commissioner in his or her office. The 5
notice shall state the commissioner's findings with respect to the order 6
and the reasons for the action; and 7
2. Served upon the applicants personally or to the address specified in 8
the application for service of the commissioner's orders. Service to the 9
address specified in the application shall be by: 10
a. Certified mail, return receipt requested, postage prepaid; or 11
b. Submission to an electronic mail address, if electronic service is 12
elected by the applicants. 13
(b) Within twenty (20) days from the date of the notice referenced in paragraph 14
(a) of this subsection, the applicants may file, in the office of the 15
commissioner, a written petition requesting a hearing to appeal the 16
decision. 17
(c) Upon the timely filing of an appeal petition under this subsection, an 18
administrative hearing shall be conducted in accordance with KRS Chapter 19
13B. 20
(d) If the applicants do not file a timely appeal under this subsection: 21
1. The applicants shall be deemed to have waived the right to appeal; and 22
2. The commissioner may enter a final order denying the charter. 23
(e) Any person aggrieved by a final order of the commissioner under this 24
subsection may obtain a review of the order in the Circuit Court of the 25
county in which the applicants proposed to conduct business. 26
(f) Service by certified mail under this subsection shall be deemed complete as 27 UNOFFICIAL COPY 22 RS BR 954
Page 9 of 33
XXXX Jacketed
provided in KRS 13B.050(2). 1
(8) (a) If the commissioner approves an application for a charter under this 2
subtitle, the commissioner shall issue a charter to the special purpose 3
depository institution. 4
(b) Upon issuance of a charter and receipt of any filing fee, in the form 5
prescribed by the commissioner, necessary for filing the articles of 6
incorporation with the Secretary of State, the commissioner shall: 7
1. Endorse upon the articles the commissioner's approval; 8
2. Transmit the approved articles to the Secretary of State, along with 9
any necessary filing fee; 10
3. Retain a copy of the approved articles; and 11
4. Return a copy of the approved articles to the applicants. 12
(9) If a special purpose depository institution fails to commence business in good 13
faith within six (6) months after the issuance of a charter by the commissioner, 14
the institution shall forfeit its corporate existence, by operation of law, at the 15
expiration of the six (6) month period. The commissioner, for good cause and 16
upon application filed by the institution prior to expiration of the six (6) month 17
period, may extend the time within which the special purpose depository 18
institution may commence business. Upon any forfeiture under this subsection, 19
the charter issued by the commissioner shall expire and the institution shall not 20
transact any business, except business that is incidental or necessary to dissolving 21
the institution's corporate existence as provided by law. 22
(10) All amendments to the articles of incorporation of any special purpose depository 23
institution shall be approved by the commissioner before filing with the Secretary 24
of State in the same manner as the original articles of incorporation. 25
SECTION 6. A NEW SECTION OF SUBTITLE 12 OF KRS CHAPTER 286 26
IS CREATED TO READ AS FOLLOWS: 27 UNOFFICIAL COPY 22 RS BR 954
Page 10 of 33
XXXX Jacketed
(1) Before any special purpose depository institution may transact any business 1
authorized under this subtitle, each director of the institution shall take an oath 2
that states in substance: 3
(a) That the director is a citizen of the United States, and the State of Kentucky, 4
or if not, the place of the director's residence; 5
(b) That the director will faithfully discharge the duties of the office and 6
administer the affairs of the institution, so far as the duties of the office 7
require; and 8
(c) That the director will uphold the laws of the state, and particularly the laws 9
applicable to the institution. 10
(2) The oath shall be taken before any officer authorized to administer oaths and 11
shall be forwarded to the commissioner for filing. 12
(3) Upon the election of any subsequent director, or reelection of any director, the 13
oath shall be: 14
(a) Taken; 15
(b) Maintained by the institution; and 16
(c) Subject to review at examination. 17
SECTION 7. A NEW SECTION OF SUBTITLE 12 OF KRS CHAPTER 286 18
IS CREATED TO READ AS FOLLOWS: 19
(1) As used in this section: 20
(a) The following have the same meaning as in KRS 286.3-010: 21
1. "Capital stock"; and 22
2. "Surplus"; and 23
(b) "Undivided profits" means the composite of the special purpose depository 24
institution's net retained earnings from current and prior years' operations. 25
(2) The capital of a special purpose depository institution shall be paid in full in 26
money. None of the original minimum capital of an institution may be designated 27 UNOFFICIAL COPY 22 RS BR 954
Page 11 of 33
XXXX Jacketed
as undivided profits. 1
(3) (a) The organizers of a special purpose depository institution shall solicit 2
capital prior to filing an application for a charter with the commissioner, 3
consistent with this section. In the event an application for a charter is not 4
filed or is denied by the commissioner, all capital shall be promptly returned 5
without loss. 6
(b) No special purpose depository institution shall be chartered: 7
1. With capital stock less than five million dollars ($5,000,000). 8
Additional capital may be required depending upon an investigation of 9
the application, at the discretion of the commissioner; 10
2. With a paid-up surplus of less than three (3) years of estimated 11
operating expenses, in the amount disclosed in the application for a 12
charter or in another amount required by the commissioner; and 13
3. Until the full amount of the institution's authorized capital is 14
subscribed and all capital stock is fully paid. 15
(c) A special purpose depository institution may acquire additional capital prior 16
to the issuance of a charter and may report this capital in its charter 17
application. 18
(4) No reduction in the capital stock of a special purpose depository institution shall 19
be made to an amount less than that required for organization, nor shall any 20
reduction be valid until it has been approved by the commissioner upon a finding 21
that the interest of creditors of the institution will not be prejudiced thereby. In no 22
event, however, shall the capital stock be less than two million five hundred 23
thousand dollars ($2,500,000). 24
SECTION 8. A NEW SECTION OF SUBTITLE 12 OF KRS CHAPTER 286 25
IS CREATED TO READ AS FOLLOWS: 26
(1) Before transacting any business, each special purpose depository institution shall 27 UNOFFICIAL COPY 22 RS BR 954
Page 12 of 33
XXXX Jacketed
pledge or furnish a surety bond, or in lieu of a bond, the institution may 1
irrevocably pledge specified assets, to the commissioner, which shall be in an 2
amount determined by the commissioner that is sufficient to cover costs likely to 3
be incurred by the commissioner in a liquidation of the institution. 4
(2) (a) All costs associated with pledging and holding assets under this section 5
shall be the responsibility of the special purpose depository institution. 6
(b) Assets pledged under this section shall be unencumbered and shall not 7
serve as collateral for any other purpose. 8
(c) Income from assets pledged under this section shall be paid to the special 9
purpose depository institution, unless a liquidation proceeding is initiated in 10
accordance with Section 19 of this Act. 11
(3) The surety bond, or pledged assets, shall be of the same nature and quality as the 12
collateral required under KRS 41.240(4). 13
(4) Surety bonds shall be: 14
(a) Procured from a surety company, or other surety, acceptable to the 15
commissioner; 16
(b) In a form prescribed by the commissioner, which shall include a term that 17
provides that the bond may not be terminated without thirty (30) days prior 18
written notice to the commissioner; and 19
(c) Payable to the commissioner. 20
(5) The commissioner may establish additional investment guidelines or options for 21
the assets or surety bond required under this section. 22
(6) (a) If the commissioner at any time reasonably determines that the bond or 23
assets pledged under this section is insecure, deficient in amount, or 24
exhausted in whole or part, the commissioner may by written order require 25
the filing of a new or supplemental bond or pledge of assets in order to 26
secure compliance with this section. 27 UNOFFICIAL COPY 22 RS BR 954
Page 13 of 33
XXXX Jacketed
(b) An order entered in accordance with paragraph (a) of this subsection shall 1
designate when compliance with the order is required, except in no case 2
shall an institution be required to comply with an order within thirty (30) 3
days following service of the order. 4
(7) In the event of a liquidation, as provided in Section 19 of this Act, the 5
commissioner may, without regard to priorities, preferences, or adverse claims, 6
reduce the surety bond or pledged assets to cash and utilize the cash to defray the 7
costs associated with the liquidation. 8
SECTION 9. A NEW SECTION OF SUBTITLE 12 OF KRS CHAPTER 286 9
IS CREATED TO READ AS FOLLOWS: 10
At all times, a special purpose depository institution shall maintain: 11
(1) (a) Unencumbered liquid assets valued at not less than one hundred percent 12
(100%) of the institution's depository liabilities. 13
(b) As used in this subsection, "liquid assets" means: 14
1. United States currency held: 15
a. On the premises of a special purpose depository institution; or 16
b. For the special purpose depository institution by a federal 17
reserve bank or a federally insured financial institution; and 18
2. Investments that are determined by the commissioner to be highly 19
liquid, which: 20
a. Shall include obligations of the United States Treasury; and 21
b. May include other federal agency obligations; 22
(2) (a) A contingency account to account for unexpected losses and expenses. 23
(b) The initial capital and surplus established under Section 7 of this Act shall 24
constitute compliance with this subsection for the first three (3) years of the 25
institution's operation. 26
(c) After the conclusion of three (3) years, the contingency account shall total 27 UNOFFICIAL COPY 22 RS BR 954
Page 14 of 33
XXXX Jacketed
not less than two percent (2%) of the depository liabilities of the special 1
purpose depository institution, except the commissioner may require a 2
greater percentage if the commissioner finds that an institution's 3
contingency account is not adequate and reasonable in light of current and 4
prospective business conditions; and 5
(3) (a) Appropriate insurance, or a bond, covering the operational risks of the 6
institution. 7
(b) The coverage required under this subsection shall include: 8
1. Directors' and officers' liability coverage; 9
2. Errors and omissions liability coverage; and 10
3. Liability coverage for information technology infrastructure and 11
activities. 12
SECTION 10. A NEW SECTION OF SUBTITLE 12 OF KRS CHAPTER 286 13
IS CREATED TO READ AS FOLLOWS: 14
(1) Except as otherwise provided in subsection (2) of this section, a special purpose 15
depository institution, including any branch of the institution, shall not offer an 16
account to, allow an account to be maintained by, or otherwise provide services to 17
a depositor, or potential depositor, unless the depositor, or potential depositor: 18
(a) Is a legal entity other than a natural person; 19
(b) Is in good standing with the jurisdiction in the United States in which it is 20
incorporated or organized; 21
(c) Maintains deposits with the institution totaling not less than five thousand 22
dollars ($5,000); 23
(d) 1. Is engaged in, or is likely to open, within the next six (6) months, a 24
bona fide business that is lawful under the laws of Kentucky and the 25
United States. 26
2. In addition to any requirements specified by federal law, the 27 UNOFFICIAL COPY 22 RS BR 954
Page 15 of 33
XXXX Jacketed
institution shall require a potential depositor to provide reasonable 1
evidence that the person is in compliance with this paragraph. 2
3. As used in this paragraph, "reasonable evidence" includes business 3
entity filings, articles of incorporation or organization, bylaws, 4
operating agreements, business plans, promotional materials, 5
financing agreements, or other evidence; and 6
(e) Makes sufficient evidence available to the institution to enable compliance 7
with anti-money-laundering, customer identification, and beneficial 8
ownership requirements, as determined by the institution. 9
(2) A special purpose depository institution may conduct activities authorized by the 10
commissioner under subsection (4)(f) or (g) of Section 4 of this Act with a person 11
that does not meet the requirements of subsection(1)(a) to (d) of this section, if 12
the person is engaged in activities that are lawful under the laws of Kentucky and 13
the United States. 14
(3) (a) A special purpose depository institution may require payment of 15
contributions from depositors to fund the contingency account required 16
under Section 9 of this Act. 17
(b) A depositor shall obtain a refund of any contingency account contributions 18
made under paragraph (a) of this subsection after closing an account with 19
the institution. 20
(4) A special purpose depository institution shall comply with all applicable state and 21
federal laws, including those relating to anti-money-laundering, customer 22
identification, and beneficial ownership. 23
SECTION 11. A NEW SECTION OF SUBTITLE 12 OF KRS CHAPTER 286 24
IS CREATED TO READ AS FOLLOWS: 25
(1) Except as provided in subsection (2) of this section, all of the provisions of KRS 26
286.1-440 and Subtitle 3 of this chapter, which are applicable to banks and trust 27 UNOFFICIAL COPY 22 RS BR 954
Page 16 of 33
XXXX Jacketed
companies, shall also be applicable to special purpose depository institutions, 1
except to the extent that any provision conflicts with a provision in this subtitle, in 2
which case this subtitle shall control. 3
(2) The following provisions of Subtitle 3 of this chapter shall not apply to special 4
purpose depository institutions: 5
(a) KRS 286.3-020; 6
(b) KRS 286.3-025; 7
(c) KRS 286.3-030; 8
(d) KRS 286.3-040; 9
(e) KRS 286.3-050; 10
(f) KRS 286.3-060; 11
(g) KRS 286.3-070; 12
(h) KRS 286.3-080; 13
(i) KRS 286.3-090; 14
(j) KRS 286.3-145 to 286.3-150; 15
(k) KRS 286.3-214 and 286.3-215, except for the provisions that apply to trust 16
companies, but only for the purpose of applying trust company laws to 17
special purpose depository institutions permitted to engage in trust business; 18
(l) KRS 286.3-280 and 286.3-290; 19
(m) KRS 286.3-300; 20
(n) KRS 286.3-385; 21
(o) KRS 286.3-450(1); 22
(p) KRS 286.3-710 to 286.3-770; 23
(q) KRS 286.3-820; and 24
(r) KRS 286.3-852. 25
SECTION 12. A NEW SECTION OF SUBTITLE 12 OF KRS CHAPTER 286 26
IS CREATED TO READ AS FOLLOWS: 27 UNOFFICIAL COPY 22 RS BR 954
Page 17 of 33
XXXX Jacketed
(1) As used in this section, "out-of-state special purpose depository institution" 1
means an institution chartered under the laws of a state other than Kentucky, or 2
the United States, to engage in activities that are substantially similar to the 3
activities authorized for special purpose depository institutions. 4
(2) Subject to the provisions of this section, a special purpose depository institution 5
may establish or acquire a branch: 6
(a) Within this state; and 7
(b) Within any other state, the District of Columbia, or a territory of the United 8
States. 9
(3) A special purpose depository institution, except for an institution the 10
commissioner may designate by administrative regulation, shall apply to the 11
commissioner for permission to establish or acquire a branch. Before the 12
commissioner shall approve or deny any application made under this section, the 13
commissioner shall ascertain and determine that: 14
(a) The public convenience and advantage will be served and promoted by 15
establishment or acquisition of the branch; and 16
(b) There is reasonably probability of the successful operation of the branch 17
based upon the financial and managerial impact of the branch on the 18
institution establishing or acquiring the branch. 19
(4) (a) An out-of-state special purpose depository institution may establish or 20
acquire a branch in this state only if the institution receives prior written 21
approval from the commissioner to do so. 22
(b) The out-of-state special purpose depository institution shall: 23
1. Make an application to the commissioner on a form prescribed by the 24
commissioner. The application shall include: 25
a. The name of the out-of-state special purpose depository 26
institution; and 27 UNOFFICIAL COPY 22 RS BR 954
Page 18 of 33
XXXX Jacketed
b. The location of the proposed branch or branches; 1
2. Furnish the commissioner with: 2
a. A copy of the resolution adopted by the institution's board of 3
directors authorizing the branch; 4
b. Evidence of compliance with the requirements of: 5
i. The institution's home state regulator and home state law 6
for establishing or acquiring the branch; and 7
ii. Kentucky law, relating to qualification as a foreign entity 8
doing business in Kentucky; and 9
c. Any other information requested by the commissioner to assist 10
the commissioner in determining compliance with this subtitle; 11
and 12
3. Pay the filing fee, if any, prescribed by the commissioner. 13
(c) The commissioner shall approve an application made by an out-of-state 14
special purpose depository institution if: 15
1. Special purpose depository institutions are permitted to establish and 16
acquire branches, and engage in activities that are substantially 17
similar to the activities authorized under this subtitle, in the state 18
where the out-of-state special purpose depository institution has its 19
principal office; and 20
2. The commissioner determines that: 21
a. The public convenience and advantage will be served and 22
promoted by establishment or acquisition of the branch; 23
b. There is reasonably probability of the successful operation of the 24
branch based upon the financial and managerial impact of the 25
branch on the establishing or acquiring institution; 26
c. The proposed branch is authorized under applicable law; and 27 UNOFFICIAL COPY 22 RS BR 954
Page 19 of 33
XXXX Jacketed
d. The applicant has complied with the requirements of this 1
section. 2
(d) An out-of-state special purpose depository institution that establishes or 3
acquires a branch in this state shall confirm in writing to the commissioner, 4
prior to commencing business in this state, and at least annually thereafter, 5
that for so long as the institution maintains a branch in this state, the 6
institution will comply with all applicable laws of this state. 7
(5) The following conditions shall apply to all branch applications and branch 8
approvals: 9
(a) The permission to establish or acquire a branch shall lapse one (1) year 10
after the commissioner has rendered a final order as defined in KRS 11
13B.010, unless, prior to expiration of the one (1) year period, business is 12
actually begun at the branch in good faith. If, for reasons beyond the 13
control of the applicant, business at the branch is not commenced within 14
this time period, permission to establish or acquire the branch may, with the 15
approval of the commissioner, be extended for any period of time the 16
commissioner deems to be necessary; and 17
(b) An application to establish or acquire a branch shall be approved or denied 18
by the commissioner based upon the facts existing at the date of filing of the 19
application, except for the financial condition of the applicant, which shall 20
be subject to review until an order ruling on the application is made. 21
(6) Except as permitted by the commissioner, any special purpose depository 22
institution, including an out-of-state special purpose depository institution, with 23
branch offices in Kentucky shall use at all times the same name for all its branch 24
offices in Kentucky. The commissioner shall permit the limited use of a different 25
name at one (1) or more branches, upon written request, when necessary to avoid 26
customer confusion. 27 UNOFFICIAL COPY 22 RS BR 954
Page 20 of 33
XXXX Jacketed
(7) The provisions of KRS 286.3-180, KRS 286.3-183, and any other provision of 1
Subtitle 3 of this chapter that regulates, or authorizes, bank branching, shall also 2
be applicable to the branching of business authorized under this subtitle, except 3
to the extent that any provision conflicts with a provision in this subtitle, in which 4
case this subtitle shall control. 5
SECTION 13. A NEW SECTION OF SUBTITLE 12 OF KRS CHAPTER 286 6
IS CREATED TO READ AS FOLLOWS: 7
Any person aggrieved by a decision of the commissioner under this subtitle may, within 8
twenty (20) days of service of notice of the decision, request an administrative hearing, 9
which shall be conducted in accordance with KRS Chapter 13B. 10
SECTION 14. A NEW SECTION OF SUBTITLE 12 OF KRS CHAPTER 286 11
IS CREATED TO READ AS FOLLOWS: 12
The commissioner shall adopt all administrative regulations necessary to implement 13
the provisions of this subtitle. 14
SECTION 15. A NEW SECTION OF SUBTITLE 12 OF KRS CHAPTER 286 15
IS CREATED TO READ AS FOLLOWS: 16
(1) As used in this section, "FDIC" means the Federal Deposit Insurance 17
Corporation. 18
(2) (a) Special purpose depository institutions shall not be required to obtain FDIC 19
insurance for their deposits. 20
(b) Nothing is this subsection shall be construed as prohibiting a special 21
purpose depository institution from obtaining FDIC insurance, if available. 22
(3) If the deposits of a special purpose depository institution are not insured by the 23
FDIC, the institution shall: 24
(a) Display on any Internet Web site it maintains, and at each window or place 25
where it accepts deposits, a sign conspicuously stating that the deposits are 26
not insured by the FDIC; 27 UNOFFICIAL COPY 22 RS BR 954
Page 21 of 33
XXXX Jacketed
(b) Upon opening an account, require each depositor making a deposit to 1
execute a statement, which shall be permanently retained by the institution, 2
acknowledging that the deposit is not insured by the FDIC; and 3
(c) Include, in all advertising, a disclosure that the deposits are not insured by 4
the FDIC. 5
SECTION 16. A NEW SECTION OF SUBTITLE 12 OF KRS CHAPTER 286 6
IS CREATED TO READ AS FOLLOWS: 7
Every special purpose depository institution, and branch of an out-of-state special 8
purpose depository institution doing business in this state, shall be subject to the same 9
inspection and examination requirements, and fees, as banks under Subtitle 3 of this 10
chapter, except: 11
(1) The examination schedule for special purpose depository institutions shall be 12
established by the commissioner through the promulgation of an administrative 13
regulation; and 14
(2) The commissioner may establish different fee schedules for special purpose 15
depository institutions in accordance with KRS 286.3-480 or any other applicable 16
fee provision under this subtitle or Subtitle 3 of this chapter. 17
SECTION 17. A NEW SECTION OF SUBTITLE 12 OF KRS CHAPTER 286 18
IS CREATED TO READ AS FOLLOWS: 19
(1) The commissioner may suspend or revoke the charter of a special purpose 20
depository institution, or the approval granted to an out-of-state special purpose 21
depository institution under Section 12 of this Act if, after notice and hearing 22
conducted in accordance with KRS Chapter 13B, the commissioner determines 23
that: 24
(a) The institution has failed to, or refused to, comply with an order of the 25
commissioner issued under this subtitle or any other applicable law; 26
(b) The application for a charter, or a branch, contained a false statement of 27 UNOFFICIAL COPY 22 RS BR 954
Page 22 of 33
XXXX Jacketed
material misrepresentation or material omission; or 1
(c) An officer, director, or agent of the institution, in connection with a charter 2
or branch application, examination, report, or other document filed with the 3
commissioner, knowingly made a false statement, material 4
misrepresentation, or material omission to the commissioner or a duly 5
authorized agent of the commissioner. 6
(2) If the charter of a special purpose depository institution is surrendered, 7
suspended, or revoked, the institution shall continue to be subject to the 8
provisions of this chapter during any liquidation or receivership. 9
(3) In addition to the remedies provided under KRS 286.3-690, each officer, director, 10
employee, or agent of a special purpose depository institution may be removed 11
from office by order of the commissioner if the commissioner finds that the 12
officer, director, employee, or agent has knowingly or willfully failed to: 13
(a) Perform any duty required by this subtitle or other applicable law; or 14
(b) Conform to any administrative regulation or order issued by the 15
commissioner. 16
SECTION 18. A NEW SECTION OF SUBTITLE 12 OF KRS CHAPTER 286 17
IS CREATED TO READ AS FOLLOWS: 18
(1) If the commissioner has reason to believe that the capital of any special purpose 19
depository institution is impaired, the commissioner shall examine the institution 20
and ascertain the facts. If the commissioner finds an impairment of capital, the 21
commissioner shall provide written notice to each director of the institution and 22
require the institution to repair the deficiency within sixty (60) days after the date 23
of notice. 24
(2) (a) Within fifteen (15) days from the date of notice made under subsection (1) 25
of this section, the directors shall levy an assessment upon the common 26
stock of the institution to repair the deficiency. Written notice of the 27 UNOFFICIAL COPY 22 RS BR 954
Page 23 of 33
XXXX Jacketed
deficiency, and the amount of the assessment, shall be provided to each 1
shareholder, which may, with prior consent of the shareholder, be by 2
electronic transmission. 3
(b) If any shareholder fails to pay the assessment levied under paragraph (a) of 4
this subsection within thirty (30) days of receiving the notice, the directors 5
may sell the stock of the shareholder to the highest bidder at public auction 6
or by private sale. 7
(c) Notice of a public auction under this subsection shall be published for ten 8
(10) days in a newspaper of general circulation published in the county 9
where the institution is located and a copy of the notice of sale shall be 10
served upon the shareholder. 11
(d) If stock is sold by private sale under this subsection, the directors shall 12
obtain a written offer for the stock and serve that offer upon the 13
shareholder. If, after service of the offer, the shareholder still fails to pay 14
the assessment within fourteen (14) days from the date of service of the 15
offer, the directors may accept the private offer or a larger offer. 16
(e) In no event shall stock be sold under this subsection for less than the 17
amount of the assessment and cost of sale. The directors shall pay the 18
assessment out of the sale proceeds, with any remainder first being applied 19
to the cost of sale and second being paid to the shareholder. 20
(f) Service under this subsection shall be personally or by mail at the 21
shareholder's last known address. 22
(3) If any board of directors fails to timely comply with an order issued under 23
subsection (1) of this section, the commissioner shall immediately take possession 24
of the institution and proceed to liquidate as provided in Section 19 of this Act. 25
SECTION 19. A NEW SECTION OF SUBTITLE 12 OF KRS CHAPTER 286 26
IS CREATED TO READ AS FOLLOWS: 27 UNOFFICIAL COPY 22 RS BR 954
Page 24 of 33
XXXX Jacketed
(1) As used in this section: 1
(a) "Failed" or "failure" means, consistent with any administrative 2
regulations promulgated by the commissioner, a circumstance when a 3
special purpose depository institution has not: 4
1. Complied with the requirements of subsections (1) or (2) of Section 9 5
of this Act; or 6
2. Paid, in the manner commonly accepted by business practices: 7
a. Its legal obligations to depositors on demand; or 8
b. To discharge any certificates of deposit, promissory notes, or 9
other indebtedness when due; and 10
(b) "Unsafe or unsound condition" means, consistent with any administrative 11
regulations promulgated by the commissioner, a circumstance relating to a 12
special purpose depository institution, which is likely to: 13
1. Cause the failure of the institution; 14
2. Cause a substantial dissipation of assets or earnings; 15
3. Substantially disrupt the services provided by the institution to 16
depositors; or 17
4. Otherwise substantially prejudice the depository interests of 18
depositors. 19
(2) If the commissioner finds that a special purpose depository institution has failed, 20
is operating in an unsafe or unsound condition, or meets any of the conditions set 21
forth in KRS 286.3-854(1), and the condition has not been remedied within the 22
time prescribed under Section 18 of this Act, or in an order issued under KRS 23
286.3-690, the commissioner shall close the institution for purposes of 24
liquidation, which shall be conducted in accordance with KRS 286.3-850 and 25
KRS 286.3-854 to 286.3-884. 26
SECTION 20. A NEW SECTION OF SUBTITLE 12 OF KRS CHAPTER 286 27 UNOFFICIAL COPY 22 RS BR 954
Page 25 of 33
XXXX Jacketed
IS CREATED TO READ AS FOLLOWS: 1
(1) A special purpose depository institution may voluntarily dissolve in accordance 2
with the provisions of this section. 3
(2) Voluntary dissolution shall be accomplished by either: 4
(a) Liquidating the institution; or 5
(b) Reorganizing the institution into an appropriate business entity that does 6
not transact business in accordance with this subtitle. 7
(3) A voluntary dissolution shall provide for the discharge or assumption of all 8
known and unknown claims and liabilities of the institution. 9
(4) Upon completion of the liquidation or reorganization, the institution shall 10
surrender its charter. 11
(5) A special purpose depository institution seeking to dissolve under this section 12
shall: 13
(a) File an application for voluntary dissolution with the commissioner; and 14
(b) Pay the filing fee, if any, established by the commissioner. 15
(6) The application required under subsection (5) of this section shall: 16
(a) Be in a form prescribed by the commissioner; and 17
(b) Include: 18
1. A comprehensive plan for dissolution that sets forth the proposed 19
disposition of all assets and liabilities, in reasonable detail to effect a 20
liquidation or reorganization; 21
2. The timetable for effective disposition of the assets and liabilities of 22
the institution; 23
3. A proposal for addressing any claims that are asserted after 24
dissolution has been completed; and 25
4. Any other evidence, certifications, affidavits, documents, or 26
information required by the commissioner. 27 UNOFFICIAL COPY 22 RS BR 954
Page 26 of 33
XXXX Jacketed
(7) (a) The commissioner shall examine the application filed under this section for 1
compliance with: 2
1. This section; and 3
2. The business entity laws applicable to the required type of dissolution. 4
(b) The commissioner may conduct a special examination for purposes of 5
evaluating the application. 6
(8) If the commissioner finds that an application filed under this section is 7
incomplete, the commissioner shall return the application to the institution for 8
completion. If the application is not completed and refiled with the commissioner 9
within sixty (60) days after the return, the application shall be deemed 10
abandoned. 11
(9) (a) If the application is found to be complete by the commissioner, the 12
commissioner shall conditionally approve, or deny, the application not later 13
than thirty (30) days after the date of filing. 14
(b) A conditional approval may set forth additional conditions that must be 15
satisfied by the institution in order to obtain a voluntary dissolution under 16
this section. 17
(10) (a) If the application is conditionally approved by the commissioner, the 18
institution shall proceed with the dissolution in accordance with the plan 19
outlined in the application, subject to any conditions the commissioner has 20
prescribed. 21
(b) An institution may file a request with the commissioner for approval to 22
amend the voluntary dissolution plan after it has been conditionally 23
approved by the commissioner. 24
(11) (a) Upon completion of all actions required under the commissioner's 25
conditional approval, the institution shall submit a written report of its 26
actions to the commissioner. 27 UNOFFICIAL COPY 22 RS BR 954
Page 27 of 33
XXXX Jacketed
(b) The report shall contain a certification made under oath that the report is 1
true and correct. 2
(c) Within sixty (60) days of receipt of the report, the commissioner shall 3
examine the institution to determine whether the commissioner is satisfied 4
that all required actions have been taken. 5
(d) The commissioner shall, within thirty (30) days of the examination required 6
under paragraph (c) of this subsection, notify the institution, in writing, 7
whether he or she is satisfied that all actions required for voluntary 8
dissolution have been taken. 9
(e) Upon receipt of notice that the commissioner is satisfied that all actions 10
required for voluntary dissolution have been taken, the institution shall: 11
1. Surrender its charter to the commissioner; and 12
2. Take all steps necessary to complete the dissolution or reorganization 13
of the institution's corporate existence as provided by law. 14
(12) (a) If, after the examination conducted under subsection (11)(c) of this section, 15
the commissioner determines that all actions required for voluntary 16
dissolution have not been taken, the commissioner shall notify the 17
institution, in writing, within thirty (30) days of the examination, what 18
additional actions shall be taken, along with reasonable deadlines for 19
taking those actions, in order for the institution to be eligible for voluntary 20
dissolution under this section. 21
(b) For good cause shown, the commissioner may extend any deadlines 22
established under paragraph (a) of this subsection. 23
(c) If the institution fails to file a supplemental report showing that all 24
additional actions have been taken on or before the deadlines established by 25
the commissioner, or submits a report that is found not to be satisfactory by 26
the commissioner, the commissioner shall notify the institution in writing 27 UNOFFICIAL COPY 22 RS BR 954
Page 28 of 33
XXXX Jacketed
that the institution's conditional approval has been revoked and that the 1
application for a voluntary dissolution under this section is denied. 2
Section 21. KRS 286.1-011 is amended to read as follows: 3
(1) There is created within the Public Protection Cabinet a Department of Financial 4
Institutions, which shall be headed by a commissioner of financial institutions, who 5
shall be the executive head of the department and shall be charged with the 6
administration of the department. 7
(2) The Department of Financial Institutions shall exercise all administrative functions 8
of the state in relation to the regulation, supervision, chartering, and licensing of 9
banks, trust companies, savings and loan associations, consumer loan companies, 10
[investment and ]industrial loan companies,[ and] credit unions, all other persons 11
regulated under this chapter, securities, and all persons regulated under KRS 12
Chapter 292[in relation to the regulation of securities]. 13
(3) There are established within the Department of Financial Institutions the following 14
divisions: 15
(a) The Division of Depository Institutions, which shall be headed by a director 16
appointed by the secretary of the Public Protection Cabinet in accordance with 17
KRS 12.050. The division shall consist of entities deemed appropriate by the 18
director; 19
(b) The Division of Non-Depository Institutions, which shall be headed by a 20
director appointed by the secretary of the Public Protection Cabinet in 21
accordance with KRS 12.050. The division shall consist of entities deemed 22
appropriate by the director; and 23
(c) The Division of Securities, which shall be headed by a director appointed by 24
the secretary of the Public Protection Cabinet in accordance with KRS 12.050. 25
The division shall consist of entities deemed appropriate by the director. 26
(4) The department may accept any application or other document required to be filed 27 UNOFFICIAL COPY 22 RS BR 954
Page 29 of 33
XXXX Jacketed
with the department in electronic format or in any other technology acceptable to 1
the department. 2
Section 22. KRS 286.2-040 is amended to read as follows: 3
(1) As used in this section: 4
(a) "Covered service" means: 5
1. Data processing; 6
2. Any activity that supports financial services, including but not limited to 7
lending, funds transfer, fiduciary activity, trading activity, and deposit 8
taking; and 9
3. Internet-related services, including but not limited to Web services and 10
electronic bill payments, mobile applications, system and software 11
development and maintenance, and security monitoring; 12
(b) "Depository institution" means any: 13
1. State bank as defined in KRS 286.3-010; 14
2. Branch of an out-of-state bank as defined in KRS 286.3-010 that is 15
doing business under the laws of this state; 16
3. Trust company as defined in KRS 286.3-010;[ or] 17
4. Credit union as defined in KRS 286.6-005; 18
5. Special purpose depository institution as defined in Section 2 of this 19
Act; or 20
6. Branch of an out-of-state special purpose depository institution as 21
defined in Section 12 of this Act that is doing business under the laws 22
of this state; and 23
(c) "Service provider" means any person that provides a covered service listed in 24
paragraph (a) of this subsection to a depository institution, except any: 25
1. Bank service company that is examined and regulated by the appropriate 26
federal banking agency. For the purposes of this subparagraph, "bank 27 UNOFFICIAL COPY 22 RS BR 954
Page 30 of 33
XXXX Jacketed
service company" and "appropriate federal banking agency" have the 1
meanings set forth in the Bank Service Company Act, 12 U.S.C. sec. 2
1861, as amended, or any successor statute; 3
2. Depository institution, holding company of a depository institution, or 4
subsidiary of that holding company; and 5
3. Federally chartered depository institution, holding company of a 6
federally chartered depository institution, or subsidiary of that holding 7
company. For the purposes of this subparagraph, "federally chartered 8
depository institution" means a bank, savings association, or credit union 9
organized pursuant to the laws of the United States. 10
(2) The commissioner may examine a service provider for any covered service it 11
provides to a depository institution if the examination is conducted in conjunction 12
with an examination conducted by a properly authorized federal regulatory agency. 13
(3) The commissioner may accept an examination made by other properly authorized 14
state or federal regulatory agencies that have concurrent jurisdiction over a service 15
provider in lieu of any examination authorized or required under the laws of this 16
state. 17
(4) A report of examination and related correspondence shall be considered confidential 18
information. No person shall release any information contained in the examination 19
unless required by court order. Notwithstanding this subsection, the department may 20
furnish: 21
(a) A copy of a report of examination performed by the commissioner of the 22
condition and affairs of any service provider to the depository institutions 23
serviced by the service provider; and 24
(b) To and exchange information and reports of examinations with officials and 25
examiners of other properly authorized state or federal regulatory agencies. 26
(5) Every official report concerning a service provider, and every report of examination, 27 UNOFFICIAL COPY 22 RS BR 954
Page 31 of 33
XXXX Jacketed
shall be prima facie evidence of the facts contained in the report for any purpose in 1
any action in which the department or service provider is a party. 2
(6) The commissioner shall fix a scale of examination fees to be paid by service 3
providers. The fees shall be: 4
(a) Sufficient to cover the cost of the examination based upon a fair compensation 5
for time and actual expense; 6
(b) Assessed and paid by service providers promptly after completion of the 7
examination; and 8
(c) Set by administrative regulation. 9
(7) The commissioner may enter into cooperative agreements with other properly 10
authorized state or federal regulatory agencies that have concurrent jurisdiction over 11
a service provider to facilitate the examination process, including joint examination, 12
scheduling, resources, fee collection and sharing, report of examination processing, 13
and enforcement actions. 14
Section 23. KRS 286.2-685 is amended to read as follows: 15
(1) No person may use the term "bank," "banker," "banking," "trust," or a similar term 16
or a character, ideogram, phonogram, phrase, or foreign language word in its name, 17
stationery, or advertising in a manner that would imply to the public that the person 18
is engaged in the banking or trust business. 19
(2) Subsection (1) of this section does not apply to a depository institution or other 20
entity organized under the laws of this state, another state, or the United States to 21
the extent that the depository institution or other entity is: 22
(a) Authorized under its charter or the laws of this state or the United States to 23
use a term, word, character, ideogram, phonogram, or phrase prohibited by 24
subsection (1) of this section; and 25
(b) Authorized by the laws of this state or the United States to conduct the 26
activities in which it is engaged in this state. 27 UNOFFICIAL COPY 22 RS BR 954
Page 32 of 33
XXXX Jacketed
(3) For purposes of this section, unless the context requires otherwise, "financial 1
institution" means any person or entity operating in the Commonwealth of 2
Kentucky, as permitted under the laws of this state, any other state, or the United 3
States, as a bank, bank holding company, credit union, savings and loan association, 4
special purpose depository institution, or any wholly owned subsidiary thereof. 5
(4) Except as provided in subsection (5) of this section, no person that is not a financial 6
institution may use the trade name, trademark, service mark, logo, or symbol, or any 7
combination thereof, of any financial institution, or any trade name, trademark, 8
service mark, logo, or symbol, or any combination thereof, that is similar to the 9
trade name, trademark, service mark, logo, or symbol of such a financial institution, 10
in any marketing material, solicitation, or advertising provided or directed to 11
another person in a manner such that a reasonable person may be confused, 12
mistaken, or deceived that the marketing material, solicitation, or advertising 13
originated from, is endorsed by, or has been consented to by the financial 14
institution. 15
(5) Subsection (4) of this section shall not apply to a person who uses the trade name, 16
trademark, service mark, logo, or symbol of a financial institution with the written 17
consent of the financial institution. 18
(6) The financial institution whose trade name, trademark, service mark, logo, or 19
symbol has been used in violation of this section may institute an action in the 20
Franklin Circuit Court or any court of competent jurisdiction against any person or 21
entity in violation of subsection (4) of this section to enjoin a continuance of any 22
activity in violation of subsection (4) of this section and, if injured thereby, for the 23
recovery of damages at three (3) times the amount of any actual damages sustained 24
and for civil penalties in the amount of one thousand dollars ($1,000). It shall not be 25
necessary that actual damages be alleged or proved in order to recover injunctive 26
relief or civil penalties. The penalties prescribed by this subsection shall be 27 UNOFFICIAL COPY 22 RS BR 954
Page 33 of 33
XXXX Jacketed
cumulative. 1
Section 24. The commissioner shall promulgate administrative regulations to 2
implement the provisions of this Act on or before October 1, 2022. 3
Section 25. Sections 1 to 23 of this Act take effect on October 1, 2022. 4