How is a Special Purpose Depository Institution (SPDI) compared/different to a Trust Company (TC)

A Wyoming-chartered SPDI is a fully reserved bank that receives deposits and conducts other activity related to the business of banking, including custody, asset servicing, fiduciary asset management, and related activities. SPDIs can handle digital assets, such as virtual currencies, digital securities, and digital consumer assets. SPDIs may deal in traditional assets as well, by serving as a vehicle for business cash management, operational accounts, and any other purpose permitted under applicable law.

A TC is a separate corporate entity owned by a bank or other financial institution, law firm, or independent partnership. Its function is to manage trusts, trust funds, and estates for individuals, businesses, and other entities. A trust is an arrangement that allows a third party or trustee to hold assets or property for a beneficiary or beneficiaries. TCs get their title from the fact that they act in a fiduciary capacity for their clients—as trustees.

Differences

SPDIs and TCs are different in multiple ways. Important differences include:

1. SPDIs are regulated as banks and must comply with banking regulations and special, strict regulations applicable to SPDIs (for example, have their customer deposits of fiat currency at all times backed 100% or more by unencumbered liquid assets, which include U.S. currency and level 1 high-quality liquid assets).
2. SPDIs advance qualified custody of securities and digital assets. SPDIs may provide custodial services for digital assets and perform authorized transactions for customers. Further, the Wyoming SPDI laws mean that only SPDIs can provide an effective bailment while permitting direct ownership of securities, all provable through the blockchain.
3. SPDIs may conduct activity under Wyoming regulations tailored to digital assets, which address issues such as technology controls, transaction handling, and custody operations for digital assets.
4. SPDIs operate under Wyoming law that defines digital assets in conjunction with the Wyoming Uniform Commercial Code and describes, among things, perfection and priority of security interests in digital assets.
5. SPDIs may resemble custody banks because they will likely be predominantly engaged in custody, safekeeping, and asset servicing activities. A custody bank is focused on safekeeping assets, fiduciary management, transaction processing and settlement, and providing an “on/off” ramp to securities markets, commodities markets, and customer bank accounts.
6. A SPDI can engage in a wider range of activities than a TC.
7. A TC is often owned by another entity, such as a bank.

Doug Park, Commercium Legal Advisor April 30, 2023