In recent years, some states have started to approve limited purpose banking charters for firms offering cryptoasset services to customers. Well-known among these are the Wyoming Special Purpose Depository Institution (“SPDI”) charter and the New York limited purpose trust company charter. This article provides a brief overview of these developments, as well as the use of M&A by cryptoasset-focused firms to acquire a bank charter.
In September 2020, the Wyoming Division of Banking (“WDoB”) approved Kraken Bank to become the first SPDI. In October 2020, Avanti Bank & Trust (now called Custodia) also was approved for a SPDI charter by the WDoB to engage in cryptoasset activities, including providing a stablecoin-type product called Avit. As of June 2022, there were nine virtual currency businesses operating under a New York limited purpose trust company charter, including Coinbase, Fidelity, Gemini, and Bakkt.
At the federal level, under former Acting Comptroller of the Currency Brian Brooks, the Office of the Comptroller of the Currency (“OCC”) accepted two conversion applications and one de novo national trust bank charter from cryptoasset firms proposing to engage in cryptoasset activities. On January 13, 2021, the OCC granted its first conditional approval to Anchorage Trust Company, a South Dakota non‑depository public trust company, for conversion to a national trust bank operating under the title of Anchorage Digital Bank, National Association. On February 4, 2021, the OCC granted conditional approval for Protego Trust Company, a Washington state trust company, to convert to a national trust bank under the title Protego Trust Bank, National Association. And on April 23, 2021, the OCC granted preliminary conditional approval for the de novo charter of Paxos National Trust. These approvals came on the heels of an interpretation issued by the OCC’s Chief Counsel that the OCC has authority to expand the activities of national trust banks to include certain activities of state trust banks under the “bootstrap” provision of 12 U.S.C. § 92a and the “business of banking” under 12 U.S.C. § 24 (Seventh).
The national trust banks that received approvals proposed to engage in a range of cryptoasset custody and related activities, including providing fiduciary custody of digital assets, custody and management of stablecoin reserves, custody of client cash deposits, settlement of transactions, on-chain governance services, transaction validation, staking services, payment exchange, and other agent services. Moreover, some banks proposed to offer platform services, including running a client-to-client trading platform for assets under custody, operating a client-to-client lending platform, and managing a platform for the origination and issuance of new digital assets whereby asset owners can digitize existing and prospective assets. Finally, some banks also would provide certain “know your customer” services, such as customer identification, sanctions screening, enhanced due diligence, and customer risk rating.