Crypto custodian Anchorage has secured conditional approval for a national trust charter from the U.S. Office of the Comptroller of the Currency (OCC), making it the first national “digital asset bank” in the U.S.
The safekeeping, management and trading of digital assets have been regulatory stumbling blocks for large financial institutions – but those obstacles are gradually being removed. The OCC, a part of the Treasury Department charged with keeping banks safe but also competitive, has now issued three interpretative letters that lay the groundwork for banks to custody crypto, participate in blockchain networks and become payment providers using the tech.
"In granting this charter, the OCC applied the same rigorous review and standards applied to all charter applications," the bank regulator said in a statement. "By bringing this applicant into the federal banking system, the bank and industry will benefit from the OCC’s extensive supervisory experience and expertise."
“We are a national bank. The only difference is our business line, that we’re doing crypto assets versus doing other assets,” Anchorage President Diogo Mónica said in an interview. “The benefit of having a federally chartered bank is that it preempts all the state laws. The clarity of being regulated by the oldest regulator for banks in the United States … sends a very clear message.”
Acting OCC chief Brian Brooks, speaking at a public event earlier Wednesday, expressed his belief that banks and financial services more broadly will transition to being blockchain-based.
“I think what’s necessary is the creation of crypto banks that are able to hold stablecoins that reflect value of a fiat currency, but that doesn’t change the native asset, and you need to have real cryptocurrencies over here where they interact directly with each other, with no need to ever off-ramp,” Brooks said. “Fiat will ultimately be a legacy thing of the past.”
Anchorage’s trust company unit first applied for a national charter from the OCC last November, and it joins Kraken and Avanti in being crypto-native banks, although the latter two are special-purpose depository institutions organized under Wyoming state law. Fellow crypto startups BitPay and Paxos have also applied for federal charters through the OCC.
The new bank is being ushered in under the auspices of Acting Comptroller of the Currency Brian Brooks, who’s headed up the regulator since this past summer. It’s the capstone to a multi-month effort to bring the crypto industry closer to the traditional banking world.
“Blockchains, fundamentally, are banking because what they’re doing is allowing the transaction of value across networks,” Brooks said at Wednesday’s event. “They’re [just] doing it in an orthogonally different way.”
During his tenure, Brooks, the former general counsel of Coinbase, has expressed his view that crypto startups may be better regulated under a federal framework, rather than at the state level.
“We’ve had a dual banking system in this country for 150 years. There are many, many banks chartered by the states out there because it's the right business model for what they're focused on,” Brooks told CoinDesk in June. “If you’re focused on the local and regional business, it makes sense to have a state charter. If you’re focused on a national business, it probably makes more sense to have a national charter.”
Georgia Quinn, Anchorage’s general counsel, told CoinDesk the process of applying for a national charter was made easier by the fact that the startup was already operating as a registered trust company in South Dakota.
“We were already a state-chartered bank and so already had an operating history and a lot of the relevant procedures and policies in place so it wasn’t a de novo application, it was just the conversion of a state trust into a national trust,” she said. “I really can’t stress enough the advantage we had from already operating as a trust company.”
Granting crypto companies a bank charter has been a stated goal for Brooks since May, when the then–First Deputy Comptroller told an audience at CoinDesk’s Consensus: Distributed that in his view, “it looks a lot like crypto is banking for the 21st century.”
The advantages are clear: rather than require companies to apply for 49 state money transmitter licenses piecemeal, a national charter will allow businesses to operate throughout the country at once.
It also lets Anchorage develop new services, Mónica and co-founder Nathan McCauley told CoinDesk.
“It means that there’s a crypto-native company that offers crypto services like lending, staking and now it’s allowed to actually be connected directly to the core of the financial system,” Mónica said. “We can go out and do all sorts of businesses, wrapped assets that financial institutions can do today, but backed by crypto assets.”
Anchorage stated in a blog post accompanying the announcement that its new federally chartered bank “unequivocally will meet the definition of Qualified Custodian.”
Qualified custodians are legal entities in the U.S. that maintain client funds and hold securities in specific, defined ways. Federal regulators like the Securities and Exchange Commission (SEC) can designate entities as qualified custodians, while state regulators cannot.
Crypto companies have long had issues becoming qualified custodians, due to questions about how digital asset service providers can comply with aspects of the Securities Investor Protection Act of 1970 – specifically, how brokers can prove that no other entity has access to its own private keys.
Mónica said any doubts around the management of cryptographic keys were now removed and this would pave the way for the largest, most risk-averse investors such as pension funds to enter the arena.
“Aside from crypto funds and hedge funds and VCs that are paid to take risk and to be on the bleeding edge, you have large institutions that are paid not to take risk,” Mónica said. “This means all of the doubts are now solved and in black and white.”
Kristin Smith, executive director of lobbying group the Blockchain Association, welcomed the news.
“Today’s announcement is a recognition that not only can banks engage with crypto, but that crypto companies can function as banks,” Smith said in a statement. “This is the most important step yet towards the full modernization of our financial services system.”
Out the door
The news comes as Brooks is rumored to be planning his departure from the federal regulator later this week. While Brooks has been nominated to serve a full term heading up the agency by President Donald Trump, it is expected that incoming President Joe Biden will pull the nomination.
There is already legislator pushback against many of the letters Brooks has overseen, with Rep. Maxine Waters (D-Calif.), the chair of the House Financial Services Committee, asking Biden to ensure his nominees revoke many Trump-era rules and regulations, including all of the OCC’s recent crypto guidance.
A federal charter is one issue that would be more difficult for Brooks’ successor to overturn.
It’s unclear who Biden will tap to lead the OCC. The President-elect has announced he will nominate former Federal Reserve Chair Janet Yellen to be Treasury Secretary. The Senate Finance Committee will hold a confirmation hearing for her on Jan. 19, a day before Biden is sworn in.
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Yellen or Biden could designate an acting comptroller to lead the agency until someone is nominated to fill a full five-year term. Brooks was initially appointed to the OCC by current Treasury Secretary Steven Mnuchin.
Biden has reportedly nominated former Commodity Futures Trading Commission Chair Gary Gensler to lead the SEC, perhaps indicating that he may look for someone with less of a deregulatory focus.
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