Banks want OCC to tap brakes on crypto trust charters

Key insight: Traditional banks are urging the Office of the Comptroller of the Currency to take its time in reviewing national trust charter applications from crypto firms like Coinbase, which filed an application Oct. 3.

Supporting data: Coinbase says it has $425 billion in platform assets, larger than existing national trust charter holders like Anchorage, marking a potentially significant expansion of OCC oversight.

Forward look: While approvals are not guaranteed, experts say bringing crypto under federal supervision could promote transparency.

As Coinbase becomes the latest digital asset firm to vie for a national trust charter from the Office of the Comptroller of the Currency, traditional banks are urging regulators to carefully consider the ramifications of approving such charters, which they generally oppose.

Paige Pidano Paridon, executive vice president of the Bank Policy Institute, says the banking industry is urging caution as regulators weigh Coinbase’s application and others like it.

“There are many unanswered questions given that scant information has been made available to the public about this and similar novel charter applications,” said Pidano Paridon. “We’re confident that regulators are carefully weighing the important legal, regulatory and public policy questions before taking action on any application that could introduce risks to consumers or the financial system.” 

Coinbase’s Oct. 3 filing marks the latest instance in a growing wave of crypto-related trust charter applications, joining Circle, Ripple, and Paxos. Anchorage Digital remains the only crypto firm to have received OCC approval for a national trust bank, granted in January 2021 during the Trump administration’s first term. The company, the largest U.S. based digital currency exchange, says it hopes the charter, if granted, would enable them to expand offerings to customers, but that they do not aim to be a bank.

“Coinbase has no intention of becoming a bank. It is our firm belief that clear rules and the trust of our regulators and customers enable Coinbase to confidently innovate while ensuring proper oversight and security,” the company said in a statement announcing the move. “If approved, the charter would continue to open up opportunities for Coinbase to launch new products beyond custody, including payments and related services, with the confidence of regulatory clarity, fostering broader institutional adoption.”

Jenny Small, a former OCC lawyer and current partner at Otteson Shapiro, said the agency now supervises about 60 national trust charters, but just a handful deal with digital assets. She says the nine digital asset de novo applications OCC has pending before it are each unique in scope and type, but that Coinbase’s size would mean a major increase in the assets overseen by the agency.

“Some of the applicants are applying for full-service charters and some are leveraging the lessons learned from the Anchorage charter and applying for a national bank trust charter and a lot of that depends on whether they want to take deposits and apply for FDIC insurance as well,” Small said. “These nine applications represent a notable surge in national trust charters filings within a short period of time. Compare this to just the past ten years with a trickle of charter applications … particularly if the OCC grants conditional approval to Coinbase.”

In its application, Coinbase reported $425 billion in assets on its platform — a significantly larger firm compared to Anchorage’s smaller footprint. Allowing in a firm of that magnitude, Small says, marks a departure from the OCC’s traditionally cautious stance on digital-asset supervision, but also “highlights where the OCC’s risk-based supervision is most relevant, evaluating not only the size of an institution, but also the nature of its risks and the strength of its risk management practices.”

The OCC’s trust charter authority has evolved in recent years. Interpretive Letter 1176, issued in 2021, clarified the standards for chartering digital-asset trust banks. But as Small explained, even in a fintech-friendly regulatory climate, approval is not guaranteed.

“Every application receives full and thoughtful consideration, and no two are ever quite the same,” Small said. “The OCC brings in its top experts to evaluate each proposal, assess the associated risks and mitigation strategies, and ensure alignment with applicable laws and regulations. A willingness to consider innovative ideas doesn’t mean lower standards.”

Ian Katz, an analyst with Capital Alpha Partners, said one of the issues at play is the access a national trust charter could unlock. The designation would make firms like Coinbase eligible to apply for a coveted Federal Reserve master account, granting them direct access to the Fed’s payment settlement rails.

“A national trust charter would make the firms eligible to apply for a coveted Fed master account. The charter wouldn’t mean they would get approved, but in this increasingly crypto-friendly regulatory environment, they would have a shot,” Katz wrote in a note. “The charter would also allow the crypto firms to custody their own assets rather than using other firms, and eliminate the need to obtain state money-transmission licenses, which is a lot of work.”

That increasing interest in trust charters from crypto firms has gotten the banking industry’s attention. In July, the American Bankers Association sent a letter to the OCC urging the agency to pause its review of these applications pending a broader review of whether these applicants’ business plans align with the purpose of the national trust charter. 

Small says the concept of a trust bank has evolved alongside financial innovation. The OCC began exploring special-purpose charters in 2016 and, under then-acting Comptroller Brian Brooks in 2020, examined the legal and practical groundwork for a proposed “payments charter.” Though that initiative never launched, Small said it laid the foundation for later developments in Letter 1176 in 2021, which clarified how the OCC would evaluate and charter national trust banks. That guidance paved the way for several de novo applications to move forward, with a few receiving conditional approval. 

“[Anchorage] was a non-depository state trust company that engaged in fiduciary and custodial activities relating to digital assets and crypto currencies. While it was not chartered as a de novo … many of the same standards would have applied,” Small said. “Naturally, with the change in tone on financial innovation and digital assets with the current administration and the evolution of the financial services industry, national trust charters would be an expected foothold to gain entry into the national banking system, bringing oversight and consistent standards to this slice of the industry.”

Critics of allowing fintechs to gain national trust charters have argued the move grants crypto and fintech firms competitive advantages without the same oversight, FDIC protection or congressional mandate that traditional banks face. Some applicants have even proposed using this authority to let customers access funds held in trust with a debit card — an idea that banking industry voices like Mickey Marshall, regulatory counsel at the Independent Community Bankers of America, say stretches the original intent of the charter. Small says the OCC has some experience with digital assets and that she is confident the agency could adapt.

“Most of the [60 national trusts OCC regulates] engage in more traditional fiduciary activities, but a few offer crypto or digital asset type services,” Small said. “The OCC has a good knowledge base on evaluating and communicating expectations for fiduciary activity, especially related to digital assets.”

As to how the wave of charters could affect competition, Small says she sees “both pros and cons.” Bringing crypto activity under federal oversight could enhance transparency and consistency across the banking system, but it may also pressure traditional banks to expand into digital-asset services. 

“Bringing these activities into the regulated space could benefit the broader banking system by increasing transparency, establishing consistent oversight, and better aligning with consumer expectations,” Small said. “At the same time, traditional banks may feel pressure to enter areas like crypto custody to stay competitive. My advice has always been for banks to focus on their core strengths and execute them with excellence.”