Limited Purpose Trust Company Explained: 2025 Insights and Costs
Discover the role, powers, and modern applications of limited purpose trust companies, including how fintech firms leverage these charters in 2025.
Julia Kagan is a seasoned financial and consumer journalist, formerly serving as senior editor for personal finance at Investopedia.
What Is a Limited Purpose Trust Company?
A limited purpose trust company is a specialized trust entity chartered by state authorities to carry out designated fiduciary duties. These companies typically focus on specific trust-related tasks such as safeguarding securities or managing mortgage deposits. For instance, the Participants Trust Company operates as a mortgage depositor trust, exemplifying this focused role.
Understanding Limited Purpose Trust Companies
An iconic example is the Depository Trust Company (DTC) based in New York, established in 1973. The DTC securely holds securities for banks and investment firms, facilitating book-entry settlements and streamlining trade clearing processes. This reduces transaction costs and enhances efficiency. As of mid-2017, the DTC managed custody for over 1.3 million active securities valued at $54.2 trillion across more than 131 global jurisdictions, including the United States.
Powers and Limitations of Limited Purpose Trust Companies
The scope of authority granted to these companies varies by state. In New York, for example, limited purpose trust companies generally cannot issue loans or accept deposits unless these actions are essential to exercising other fiduciary responsibilities. Any operational restrictions are detailed in the company’s organizational certificate. This certificate outlines the specific business activities the trust company is authorized to perform, and any changes require approval from the state’s Superintendent of Financial Services.
Regulatory Advantages for Fintech Firms
In 2024, several fintech companies leverage limited purpose trust company charters to navigate complex regulatory landscapes. Notably, virtual currency exchanges like Gemini and itBit have secured such charters in New York. This strategy allows them to bypass traditional money transmitter licensing and avoid stringent capital requirements. However, these companies must obtain additional licenses to operate outside their chartered states.
Discover the latest news and current events in Banking as of 19-11-2020. The article titled " Limited Purpose Trust Company Explained: 2025 Insights and Costs " provides you with the most relevant and reliable information in the Banking field. Each news piece is thoroughly analyzed to deliver valuable insights to our readers.
The information in " Limited Purpose Trust Company Explained: 2025 Insights and Costs " helps you make better-informed decisions within the Banking category. Our news articles are continuously updated and adhere to journalistic standards.