The Office of General Counsel issued the following opinion on May 30, 2006, representing the position of the New York State Insurance Department.
Re: Non-resident agents premium account in New York State
Does the New York Insurance Law or other law prevent a non-resident agent duly licensed in the State of New York from maintaining a bank account for premium funds in a bank duly authorized to do business in New York?
No, under Section 20.3 of N.Y. Comp. Codes R. & Regs. tit. XI, part 20 (2005) (Reg. 29), an agent is required to maintain a premium account in a bank duly authorized to do business in New York, and no New York Insurance Law prevents a non-resident agent duly licensed in the State of New York from maintaining a bank account for premium funds in a bank duly authorized to do business in New York, nor are we aware of any other law that would preclude the use of an account in a New York bank.
The inquirer is a newly licensed non-resident agent in New York, who understands that the Insurance Law requires his/her agency to maintain a premium account in a bank duly authorized to do business in New York. The inquirer states that all of the major banks his/her agency has contacted have said that since September 11, 2001, the Banking Law has changed, making it impossible for an out-of-state business to set up a bank account in New York State.
Section 20.3 of N.Y. Comp. Codes R. & Regs. tit. XI, part 20 (2005) (Reg. 29) states:
(b) Every insurance agent and every insurance broker is responsible as a fiduciary for funds received by such agent or broker in such capacity; all such funds shall be held in accordance with the following paragraphs:
(1) An agent or broker who does not make immediate remittance to insurers and assureds of such funds shall deposit them in one or more appropriately identified accounts in a bank or banks duly authorized to do business in this State, from which no withdrawals shall be made except as hereinafter specified (any such account is hereinafter referred to as "a premium account").
There is no provision of the Insurance Law that would result in a licensee being unable to meet the requirement in Section 20.3.
We contacted Gene Brooks, Assistant Counsel, at the New York State Banking Department, who advised us that he was unaware of any New York Banking Law that would prevent non-resident agents duly licensed in New York from opening a premium account in a bank duly authorized to do business in New York.
However, after September 11, 2001, federal regulations were enacted to verify the identity of customers opening new bank accounts.1 Under Federal regulation 31 C.F.R. § 103.121 (2006), a bank, savings association, and credit union, and certain non-federally regulated banks, must implement a written Customer Identification Program (CIP). A bank must establish a Customer Identification Program (CIP) to identify each of its customers "to the extent reasonable and practicable." 31 C.F.R. § 103.121 (b)(2) (2006). However, we do not understand the regulations to prevent the use of an out-of-state bank.
The Department suggests that an agent inquire of the banks what specific law they are referring to if they refuse to open an account for an agency. Also, the agent might want to go to his/her local bank and ask it to contact a correspondent bank in New York to help the agent establish a relationship with a New York bank in order to facilitate opening a bank account.
For further information you may contact Senior Attorney Elizabeth Barrett at the New York City Office.
1 Section 326, Verification of Identification, of the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA PATRIOT ACT) Act of 2001, Pub. L. No. 107-56, 115 Stat. 272, 317-318, amended 31 U.S.C. 5318. 31 U.S.C. 5318 (l)(1) (6) (2006), requires the Secretary of the Treasury to prescribe regulations implementing the minimum standards for financial institutions to implement a customer identification program to verify the identities of customers opening new accounts.