Crypto Companies Face Bank Opposition Over National Trust Charters

Crypto companies are facing unexpected opposition as they seek to obtain bank licenses, with traditional banks calling for more transparency and regulatory clarity before any decisions are made. The US banking and credit union coalitions have written to the Office of the Comptroller of the Currency (OCC) requesting a delay in decision-making on crypto companies applying for national bank charters. The coalition, which includes the American Bankers Association, argues that issuing such charters would be a significant departure from decades-old banking rules.

Crypto companies, such as Circle Internet Group, Ripple Labs, and Fidelity Digital Assets, are seeking to be accepted as national trust banks. This would allow them to process payments more quickly and operate under federal jurisdiction nationwide. However, traditional banking organizations argue that the business models of these applicants are incompatible with the fiduciary responsibilities traditionally associated with national trust banks. They contend that custodial services of digital assets do not involve fiduciary activities and that adopting this new model could threaten the integrity of the US banking industry.

Banks are demanding more disclosures about crypto applicants before any charters are approved. They claim that the current public information is insufficient for a meaningful assessment of the proposed business activities. The groups caution that allowing crypto companies to become national trust banks without seeking to play traditional fiduciary roles would be a significant policy change by the OCC. They argue that this change should not proceed without a formal public notice and comment period.

The trade associations also express concerns that accepting such charters could set a precedent, leading to a wider group of companies demanding national trust charters. This could destabilize the finance sector, particularly since the custodianship of digital assets differs from traditional banking activities. They warn that such a fundamental shift would expose the US banking system to significant risks.

Industry experts foresee potential legal battles and increased competition if crypto companies succeed in obtaining national trust bank charters. Caitlin Long, founder of Custodia Bank, noted that the minimal capital requirement and less regulatory burden associated with trust charters could lead to lawsuits. She suggested that traditional banks might turn into trust companies to avoid more rigorous capital regulations, intensifying competition.

Logan Payne, a crypto-regulating attorney, pointed out that new stablecoin laws are spurring issuers to apply for national trust bank charters. These charters provide a federal license that encompasses a broader range of activities than stablecoin issuance, shielding them from obtaining numerous state-level licenses. This regulatory incentive is expected to drive more crypto companies to seek banking charters, increasing their presence in the financial system.

Despite regulatory shifts, traditional banks remain cautious. Large institutions are entering the cryptocurrency services market slowly, often restricting their activities to pilot programs or collaborations until more definitive regulatory guidance is available. Some banks are considering offering stablecoins or crypto services, but concerns about anti-money laundering regulations and global regulatory harmonization persist.