Organization of a Safe Deposit Company under New York Banking Law
Please refer to the Departments Application Fee Schedule to determine the proper fee for the application being filed.
The purpose of this outline is to give prospective incorporators an idea of the scope of subjects to be considered in evaluating the merits of a proposal to charter a safe deposit company. Among the areas which must be addressed by the organizing group are the following:
1. Name of Institution: A suitable name should be selected.
2. Incorporators/Directors: Number, names, occupations, business interests, approximate financial worth, standing in the community, character and fitness to serve on the Board of Directors and its various committees. Incorporators should be aware that they:
- a) will be subject to an investigation;
- b) will be asked to submit a questionnaire, a financial report, a litigation affidavit, an investigative report, and fingerprints;
- c) may be asked to attend a conference with Department representatives; and
- d) will be required to assume legal and other responsibilities upon becoming directors.
- a) Description of the community or trading territory to be served by the proposed institution, some idea of its size and characteristics, estimated residential population, traffic conditions, shopping centers; and
- b) Reasons for failure of existing facilities to serve the market.
4. Public Convenience and Advantage: The manner in which the establishment of the safe deposit company would enhance public convenience and advantage.
5. Competitive Impact: The likely impact of the proposed safe deposit company on the financial institutions located in the target market area.
6. Proposed Site
- a) Where the institution will be located to serve the public most conveniently and the reason for such choice;
- b) Availability;
- c) Advantages of purchasing or leasing the site;
- d) Cost of developing the site as a safe deposit company office; cost of improvements, furniture, fixtures and equipment; the relation of these costs to the proposed capital funds;
- e) Number and sizes of boxes to be offered for lease;
- f) The security arrangements to protect the safe deposit boxes; and
- g) Whether any incorporator, director, or major shareholder has any interest in the proposed site.
7. Capital Funds
a) Adequacy: To determine the amount of capital initially needed to support the operation of a new institution, it will be necessary to consider the above information as well as develop projections on the volume of business that may be expected. The ability of the incorporators to raise additional capital as needed should also be considered.
b) Shares and Distribution: The number of shares, their par value and subscription price, the adequacy of surplus to absorb pre-opening costs and operating losses in the initial years, and the amount of stock to be purchased by the incorporators and directors and any known large investors.
8. Management Team
Candidate for the Chief Executive Officer of the institution; resume of his/her education, experience and general knowledge of the type of business contemplated; probable salary; stock participation; etc. He/she should be available for an interview with the Department.
Top management personnel should have substantial and satisfactory experience in the type of business contemplated.
The types of insurance the safe deposit company will carry.
10. Name of Representative
The organizers must select an individual who will be responsible for submitting all material to the Department, and will have authority to discuss all aspects of the submission in detail (including, but not limited to, personal questionnaires, litigation affidavits, financial statements, and investigative reports) and respond to requests for additional information.
Before the formal application process begins, a meeting with the appropriate Department staff will be held to discuss the proposal.
If the organizers decide to proceed with the formation of the institution, it is recommended that the group’s representative gather and develop all economic and financial data outlined in the form a Certificate of Merit.
For New York State Law information, visit sections 23, 24, 25, 1003, 4001, 4003, 4004, 4005, 7001 and 7015.
The steps involved in organizing a safe deposit company follow:
A. Execution by the incorporators of an Organization Certificate, in duplicate (Section 4001).
B. Submission to the Superintendent of the Organization Certificate, executed in duplicate (Section 4003), accompanied by the following documents:
- a) Certificate of Merit (in quadruplicate) including personal data on each incorporator, director and major shareholder (owner of 5% or more of the proposed safe deposit company's capital stock);
- b) Investigation fee of (please refer to the Department's Application Fee Schedule);
- c) Copy of lease or option on the proposed site.
C. Filing of Organization Certificate for examination by the Superintendent (Section 23).
D. Investigation of incorporators/directors and major shareholders by the Superintendent; refusal of Organization Certificate, or presentation of Organization Certificate to the Superintendent for approval (Section 23).
E. Conditional approval by the Superintendent.
F. Payment of Organization Tax in accordance with Section 180 of the New York Tax Law.
G. Filing by the Superintendent of the Organization Certificate when relevant conditions have been satisfied (Section 24).
H. Beginning of corporate existence, but entity is not yet a safe deposit company (Section 4004).
I. Commencement of solicitation of subscriptions for shares of stock of the proposed safe deposit company, via an Offering Circular or Private Placement Memorandum.
J. Meeting of the incorporators and adoption of by-laws (Section 4005); first meeting of the Board of Directors; submission of certified copies of the minutes of these meetings.
K. Filing of Affidavit of Payment of Capital Stock in the office of the Superintendent (Section 4004).
L. Filing of Oaths of Directors in the office of the Superintendent (Section 7015).
M. Upon receipt and clearance of the above and other required items, issuance of an Authorization Certificate by the Superintendent and the filing of duplicate originals thereof (Section 25).
CERTIFICATE OF MERIT
Brochure of Economic and Financial Data
In Support of an Application to Establish a Safe Deposit Company
Listed below is the information required for the Superintendent to assess the merits of an application to establish a safe deposit company.
It is incumbent upon the applicant to provide complete and reliable information and to supplement the information requested with any additional data deemed relevant or material to the application. It may also be necessary to require additional information from the applicant during the application analysis process.
In accordance with Supervisory Procedure G-106 (Public Access to Department Records), the entire application and all supporting material are available for public inspection except for confidential material. If the applicant believes that the public availability or disclosure of certain information requested in the brochure would be clearly harmful, such information should be segregated from the public portion and labeled "Confidential." The applicant should also state the reasons for any request for confidentiality.
I. Rationale for Establishment of the Proposed Safe Deposit Company
Discuss the events leading to the preliminary talks with the Department staff. Include the incorporators' motives and aspirations for desiring to organize a safe deposit company.
II. Name of Proposed Safe Deposit Company
Give reasons for selection of name.
III. Market Analysis
1. Define the community or market from which the majority of the business of the proposed safe deposit company is expected to be derived.
2. Describe the economic characteristics of the community or market specified above. Include information covering, but not limited to:
- a) Background and history of development of the community or market; and
- b) Present and possible future economic trends, and the likely effect they will have on the proposed safe deposit company.
- 3. Explain the strategies to be followed to capture an adequate share of the target market.
IV. Public Convenience and Advantage
1. Discuss the services to be offered, and the anticipated hours of operation.
2. Describe the clientele to be served.
3. Describe how the establishment of the safe deposit company will enhance public convenience and advantage.
V. Competitive Impact of Proposed Institution
1. List the names and addresses of all offices of banking organizations which are presently offering safe deposit facilities to the target market. Give distances and directions of such offices from the proposed safe deposit company. Plot locations on a large-scale map, on which the proposed market area is delineated.
2. Explain why, in your opinion, establishment of the proposed safe deposit company will not adversely affect financial institutions now serving the target market.
VI. Proposed Premises
1. Describe in detail the proposed or altered building and plot plan. Give details of the number and sizes of boxes to be offered for lease. To illustrate further, furnish copy of plot plan, interior layout, and artist's or architect's sketch of exterior. If parking is involved, give details: area, size, location and number of parking spaces available for customers.
2. Describe the security devices to be utilized to protect the safe deposit boxes, i.e., wiring systems; keys; size of vault; thickness of walls, floors, ceilings, and doors; the type of material used; etc. Describe other precautions to be taken to protect the rented boxes.
3. Furnish a copy of the conditional lease or option to lease or purchase the property. The option or conditional lease should contain a renewable clause. No lease for the proposed premises may contain a clause prohibiting the landlord from renting space to another banking institution.
4. Give a summary of rental terms by years, together with renewal options, if property is to be leased. In the case of an option to purchase, give a summary of its terms.
5. State whether any incorporator, director or major shareholder has any interest, direct or indirect, in the proposed site or in the construction of the premises, and describe fully the nature of such interest. Submit documentation demonstrating that any agreement involving such individual is at fair market value.
6. List all development costs (i.e., improvements, alterations, furniture, fixtures, equipment, etc.) that will be incurred in preparing the site as a safe deposit facility.
Give number of shares, par value, subscription price, and allocation of capital funds to capital stock and surplus. Per Department policy, at least one-third of total capital must be allocated to capital stock. Also, the par value of the capital stock must be at least $1.00.
(NOTE: Department policy does not permit authorized but unissued shares, options, or warrants for new institutions.)
1. Capital Adequacy
Give reasons for believing that: (a) total capital funds will be adequate to protect the customers of the facility; (b) surplus will be ample to absorb all start-up costs and operating losses in the initial years; and (c) additional capital funds can and will be raised if needed.
2. Distribution of Capital Stock
List all known subscribers to the capital stock of the safe deposit company, giving name, place of residence, and number of shares to be subscribed.
(IMPORTANT: If the proposed institution's stock is to be sold through a public or private offering, solicitation for stock subscriptions may not be made until (1) the Organization Certificate has been conditionally approved by the Superintendent, and (2) the Offering Circular/Private Placement Memorandum, Subscription Agreement, and Escrow Agreement have been reviewed and found acceptable by the Department.)
VIII. Incorporators, Directors and Major Shareholders
- Discuss the diversity and quality of experience of each prospective incorporator/director. If the incorporators/directors have been involved in any business which will be undertaken, or taken over, by the proposed safe deposit company, annual reports of such businesses for the past three years should be included.
- The members of the Board of Directors should be allocated to the respective committees to show that their experience is well fitted to the respective duties of the committees. Where possible, we would not expect to see a director, except the President, on more than one committee. However, no director who is an operating officer of the safe deposit company may be a member of the Examining Committee.
Discuss any plans to pay fees to the directors.
3. Each incorporator, director and major shareholder (owner of 5% or more of the proposed safe deposit company's capital stock) must submit: (a) a questionnaire (on Department form); (b) a litigation affidavit (on Department form); (c) a financial report (on Department form); (d) fingerprints (see Fingerprinting Procedures); and (e) an explanation of the source of funds for his/her intended stock purchase. NOTE: If an individual's ownership interest constitutes statutory control (10% or more of the proposed safe deposit company’s capital stock), C.P.A. prepared and reviewed financial statements, in accordance with Section 117.5(k) of Supervisory Procedure CB 117, will be required in lieu of the financial report mentioned in (c) above.
In addition, a personal investigative report on each of the above-mentioned persons must be developed by an independent investigative agency and sent directly to the Department by such agency. It is incumbent upon those individuals or their representative to advise the agency selected that they must be subject to the broadest possible background investigation. In this regard, the portion of the investigation involving the access of public records should include, but not be limited to, contact with the following sources: (a) U.S. District Court, (b) U.S. Bankruptcy Court, (c) State Supreme Court, (d) local Criminal Court, (e) local Civil Court, (f) County Clerk's office, (g) Federal tax lien files, (h) Uniform Commercial Code files, (i) Department of Motor Vehicles, (j) a credit reporting agency, (k) a national news database network, and, where applicable (l) regulatory/administrative agencies and (m) professional licensing agencies. These sources should be contacted in and around all jurisdictions in which the subject of the investigation has resided and been employed for at least the past ten years. It is also expected that the personal background information contained in each individual's questionnaire will be verified, and that references will be interviewed.
4. Counsel should submit a letter stating that the proposed directors are eligible locally to serve on the Board under the provisions of the Laws of New York and the United States.
IX. Chief Executive Officer and Official Staff
In addition to the questionnaire and litigation affidavit, a resume for the prospective CEO, giving his/her education, experience, age, community and social interests, other qualifications, availability and present salary is required. Give the views of the incorporators on their choice for the CEO and outline any arrangements made to secure his/her services. Provide a copy of his/her proposed employment contract, if any.
Resumes, questionnaires, litigation affidavits, and employment contracts, if any, for the remainder of the proposed management team should be submitted.
Plans to recruit the remaining members of the staff should be set forth in detail, including the number, salary, fringe benefits, etc.
XI. Organization Chart
Show how the safe deposit company will be organized and operated. Also, provide an organization chart showing all direct and indirect reporting lines to all board committees including audit, compliance and BSA (Bank Secrecy Act).
XII. Fidelity Insurance
Type, amount and annual costs of insurance. The statement should be supported by a letter from a qualified insurance agent on bank protection. A Financial Institutions Bond, Type 24, would be acceptable. Minimum primary coverage of $1,000,000 is required (a deductible of $25,000 or $50,000 is advisable).
XIII. Internal Audit and Control
Give plans for safeguarding assets and operations, i.e., development of adequate internal controls, control of access to boxes, etc.
XIV. Compliance with Bank Secrecy Act Anti-Money Laundering Programs
The prospective safe deposit company must establish policies and and procedures designed to ensure and monitor compliance with the Bank Secrecy Act (BSA) as amended by the USA PATRIOT Act and the anti-money laundering programs of Part 115 of the General Regulations. A compliance program must include, at a minimum, a system of internal controls to assure ongoing compliance, independent testing for compliance to be conducted by bank personnel or by an outside party, the designation of an individual or individuals responsible for coordinating and monitoring day-to-day compliance, and training for appropriate personnel.
XV. Counsel for the Proposed Safe Deposit Company
Give name and address. Will counsel receive a retainer?
XVI. Organizational Fees and Expenses
List all anticipated fees and expenses which will be incurred in connection with the organization of the safe deposit company. State separately the expenses of raising capital.
The funds for such fees and expenses must be provided by the incorporators and may not be deducted from subscriptions for the authorized shares of capital stock. If an Authorization Certificate is issued, the incorporators may be reimbursed by the safe deposit company for organization fees and expenses determined to be reasonable and proper. Such reimbursement may only occur after submission to the Department of an audit of such expenses by an independent C.P.A., and the receipt of specific written permission from the Superintendent.
(IMPORTANT: In no event shall the amount or payment of any fee in connection with the proposal be contingent upon any action, decision, or forbearance on the part of the Department.)
XVII. Estimated Assets and Liabilities, Income and Expenses
Furnish pro forma income and expense statements and balance sheets, for the first three years of operations.
XVIII. Description of Parent Organization
If the proposed safe deposit company is to be a subsidiary of another corporation, the following additional information concerning the ultimate control party should be included:
- A description of the type of business conducted;
- A discussion of its ownership and management, including whether there are any entities which have ownership interests of 5% or more; and
- Financial statements for the past three years.
XIX. Required Agreement
In consideration of the approval of the Organization Certificate, the incorporators must agree to certain guidelines with respect to the operation of the safe deposit company (hereinafter referred to as the "Company"). In this regard, an agreement must be submitted, executed by all of the incorporators, stating that they agree as follows:
1. The Company shall notify the Superintendent in writing, at least sixty days in advance, of the intent to employ a management company or make substantial changes in the management of the safe deposit company. No such change in the management of the safe deposit company shall be made without the prior approval of the Superintendent.
2. The Company shall require every person who is directly or indirectly the beneficial owner of more than 10 percent of any class of any equity security of the Company, or who is a director or officer thereof, to file, within ten days following the date on which he/she becomes such beneficial owner, director or officer, a statement with the Superintendent of the amount of all equity securities of the Company of which he/she is the beneficial owner, and within ten days after the close of each calendar month thereafter, if there has been any change in such ownership during such month, shall file with the Superintendent a statement indicating his/her ownership at the close of the calendar month and such changes in such ownership as have occurred during such calendar month.
3. The Company shall maintain at all times its vaults and boxes at a level consistent with industry standards, and shall employ security devices and procedures at a level at least equal to those prescribed by Regulation P of the Federal Reserve.
4. Once in each calendar year, the board of directors of the Company shall cause an audit of the books and records of the Company to be performed by an independent Certified Public Accountant. Such report shall contain, but not be limited to, an evaluation of the financial condition of the Company, and an evaluation of the adequacy of internal controls, security procedures, and security devices utilized by the Company. Specifically included in the report shall be a certified statement from the C.P.A. or other qualified consultant that the security procedures and security devices conform to the minimum standards for security as prescribed by Section 216.3 of Regulation P of the Federal Reserve. Such report shall be presented to the full board at the next regular meeting of the board following the completion of the report. A copy of the report shall be filed in the office of the Superintendent within ten days after such meeting.
5. The Company shall maintain its books and records in a manner consistent with industry standards and shall make such records readily available for inspection by the Department.
6. Except as specifically provided herein, (1) the Company will not require prepayment of rental fees in excess of the total required to secure possession of a box/vault for more than 15 months and (2) the Company will not offer leases for terms greater than one year which require substantially higher payments in the first year than in subsequent years without the prior approval of the Superintendent, provided, however, that no prior approval shall be necessary for a longer-term lease which (i) has a term of six years or less, (ii) may be canceled at any time, albeit without refund of annual rentals theretofore paid, and (iii) assuming no change in the fee schedule for one-year leases, provides for a first and second year rental which will not, in the aggregate, exceed the total rental which would have been paid under two consecutive one-year leases for the same size box.
7. The Company shall not offer any form of cooperative or condominium ownership without the prior approval of the Superintendent.
8. The Company shall obtain an investigative report on every officer and employee prior to employment. Such reports shall be kept on file and made readily available for inspection by the Department.
9. The Company will require all officers and employees to be bonded or will obtain employee fidelity insurance.
10. The Company will not make, directly or indirectly, orally or in writing, by any method, practice or device, any representation that it is chartered under the Banking Law, except that the Company may make a representation that it is chartered as a safe deposit company under Article Eight of the Banking Law.
11. The terms of this agreement shall not be amended without the prior approval of the Superintendent.