Chairman’s Corner

KBA CHAIRMAN’S CORNER by James A. Hillebrand Chairman & CEO, Stock Yards Bank & Trust Co. 2021-2022 KBA Chairman Paddling Into 2022 There’s a poster in the Stock Yards Bank headquarters of a duck moving down a stream. Above the water, it’s calm, poised and determined - but underneath, it’s paddling as fast as it can to navigate the current. We cannot take anything for granted. Spend time asking yourself, what can we do to be more efficient? To be more accessible? To deliver more value to our clients and communities? To be better as a bank and as an industry?

I think about that poster a lot when I reflect on the past few years and look at what’s ahead for 2022.

Kentucky’s community bankers have kept a lot of businesses afloat, including their own, through the pandemic. Often, we make it look easy. We all know it hasn’t been.

Every banker in this state should be proud of how we have handled the past year. As we continue to strive for improvement as an industry, we continue to put our customers first and deliver value despite adversity. And as more obstacles emerge, like wage pressure and government regulations, we must continue to see each one as an opportunity to become more efficient and improve our value to customers.

While there is caution and concern for what’s to come in 2022, I am optimistic about our direction as we travel upstream together.

In 2022, we’ll see the fruits of our labor. Like you, Stock Yards Bank has worked hard on developing and executing our strategic plan over the past few years to have the financial strength and ability to take on choppy waters. We’re seeing more businesses with healthy balance sheets. We’re seeing an increase in mortgage lending. And we’re seeing customers adopt digital tools for a better banking experience.

This is all good news, but as an industry we can’t stop paddling.

Anyone that is coasting now will lag behind soon enough. If you’re not moving your bank forward to improve your customer’s experience, improve your technology and ensure the safety and soundness of operations, the coming years will be challenging. Ducks don’t float based on how well they paddle. They float because they are the right size to be naturally stable. If your bank is holding on to old technology or weighing itself down with out-of-date operational models, you risk going underwater.

The adoption of digital tools has soared due to the pandemic. Banks of all sizes will benefit from this shift in how we communicate with customers. It’s exciting to be able to provide more convenience to customers to reach them in the way they prefer.

Community banks need to deliver all the technology and functionality customers expect from a bank but in a personal and accessible way. The demise of the physical bank location has been talked about for years, but we still have them as a vital service delivery channel.

New tools will help make us buoyant. Not every bank transaction requires a conversation. Not every customer has the time to sit down to plan their financial goals and talk through their banking needs. And that’s OK. By providing more options, we provide more value. As we continue to boost our services, we want our customers to reach us the way they choose across a number of delivery channels and conveniences - whether that’s by phone, online, ATM, ITM, or in-person in a branch.

I’m thrilled to see how quickly customer-facing technology and what we use on the back end is improving our ability to support our customers. Every upgrade is a chance to serve our customers better. We believe that relationships are what sets us apart as community bankers, but building those relationships means finding paths to interact in new and adaptable ways.

AMENDING THE UNIFORM COMMERCIAL CODE TO ACCOMMODATE EMERGING TECHNOLOGIES

mpmfirm.com

John T. McGarvey

Mindy T. Sunderland

In 2019, the Uniform Law Commission (“ULC”) and the American Law Institute (“ALI”) appointed a drafting committee for amendments to the UCC to deal with digital assets, transactions in which the sale or lease of goods are bundled with the provision of services and/or the licensing of information, and certain discreet amendments required outside the field of emerging technologies. Assuming approval of the sponsoring bodies, the amendments will be presented for consideration and enactment by the states in the Fall of 2022. Most significant among the amendments is the creation of new Article 12, which includes a definition for “controllable electronic records” (“CER”). CERs are virtual currencies, non-fungible tokens, and digital assets with payment rights imbedded. A digital asset, as part of a controllable electronic record, would be negotiable, and transferable in a manner free of competing claims. Additionally, CERs can serve as collateral under Article 9 through perfection by control. Article 12 defines a controllable electronic record as “an electronic record that can be subjected to control…”. Under Section 12-105, a person has control of a CER if the CER, a record attached to or logically associated with the CER, or the system in which the CER is recorded, if any, gives the person the power to avail itself of substantially all of the benefit of the CER, the exclusive power to prevent others from availing themselves of substantially all of the benefit of the CER, and the ability to transfer control of the CER to another person. Further, the system in which the CER is recorded must enable the person to readily identify itself as having those powers and that person may be identified in any way, including by name, identifying number, cryptographic key, office, or account number. The definition of a CER specifically does not include electronic chattel paper, electronic documents, investment property, transferable records under E-Sign or the UETA, deposit accounts, or intangible money. One of the primary drivers for the Amendments to Accommodate Emerging Technologies is the advent of intangible money including virtual currencies. Unfortunately, the cryptocurrency industry has offered standalone statutes in several states to facilitate their industry without regard to the damage some of that legislation does to existing provisions of the UCC. The current definition of “money” would only include virtual currency if the virtual currency is authorized or adopted by a government as legal tender. The problem thereby created is that existing Article 9 allows a perfection of a security interest in money only by possession of the money. Obviously, intangible money by its very definition excludes physical possession. Control, as provided in the Amendments, will allow perfection of a security interest in virtual currency. The draft amendments allow the normal perfection rules to apply if the intangible money is in a deposit account. However, if the intangible money is not in a deposit account, control must be established through a means like a CER to perfect a security interest. The essential purpose of the UCC is to facilitate commerce. As commerce has increasingly become electronic, and distributed ledger technology has been added to the business lexicon, the law must quickly follow. Currently, with no law to provide the certainty essential to business and commerce, people are agreeing to use Bitcoin, and other forms of virtual currency, as both a medium exchange and a store of value. Yet, there is currently no law to govern disputed claims to electronic records and the rights and benefits attached thereto. These amendments aim to address these deficiencies.

Morgan Pottinger McGarvey is a leading banking and finance law firm representing financial institutions, businesses and individual clients throughout Kentucky and Indiana.