The state Division of Banking is rolling out a plan to ensure trust companies are better complying with federal law.
The move comes after the Financial Crimes Enforcement Network, or FinCEN, fined a South Dakota registered trust company $1.5 million for failing to report suspicious transactions.
In late April, FinCEN, fined The Kingdom Trust Company for violations of the Bank Secrecy Act. FinCEN said Kingdom Trust failed to monitor clients that had elevated risks of money laundering.
In the state Banking Commission’s most recent meeting, Director Bret Afdahl said the division has a plan to reach out to companies to prevent compliance failures.
“We’re going to send the order out to everybody. Have them do a self-assessment of where they’re at," Afdahl said during the May 3 meeting. "Then, we’re going to follow up with companies to make sure they’re taking steps to get to where they need to be.”
South Dakota has 15 trust examiners that monitor 115 trust companies. The state reports those companies manage just under $600 billion worth of assets, which is down slightly from last year.
The Division of Banking is required to examine a trust company once every three years. Afdahl said FinCEN investigated The Kingdom Trust Company by piecing together indictments from other jurisdictions.
While examining, Afdahl said the banking division focuses more on safety and soundness of a trust company than compliance with various federal laws.
“The more we do in this area we’re not going to be doing something else until we can marshal some additional resources. It’s always a tradeoff. But there is significant—as we see here—compliance risk, financial risk, and then, for the state, reputational risk," Afdahl said, referencing the FinCEN consent order. "Certainly not lost on us.”
It’s unclear when the state last examined Kingdom Trust. Officials say that information is protected under state law.
This is the first dip in assets held in trust in South Dakota since 2008. Assets have grown by roughly $100 billion annually since 2018. Officials say the dip in assets—which is a snapshot at the end of every year—is due to the decline in value of digital assets. The value dropped following the collapse of cryptocurrency exchange FTX in November.
