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Senate Banking Chairman 'Concerned' by OCC's Crypto Charters

Sherrod Brown specifically pointed to the OCC trust charters granted to Paxos, Protego and Anchorage.

May 19, 2021 at 9:51 p.m. UTC
Updated Sep 14, 2021 at 12:58 p.m. UTC

Sen. Sherrod Brown (D-Ohio), the chairman of the Senate Banking Committee, told Acting Comptroller Michael Hsu that he is "concerned" about the Office of the Comptroller of the Currency's (OCC) granting national trust charters to "financial and non-financial companies."

Some of the companies seeking OCC charters are unable to meet the OCC's regulatory requirements, Brown said in the open letter, first reported by Politico. The lawmaker specifically pointed to the three crypto companies that have secured conditional OCC trust charters in the past five months: Paxos, Protego and Anchorage, and asked that Hsu "reassess" the conditional trust charters.

These companies market their "federally chartered status," Brown said.

"In other words, these companies suggest that the OCC’s approval of their charters guarantees their business model is as safe, stable and dependable for customers as a local community bank," Brown's letter said, adding:

"The fact is, given the many uncertainties present in the digital asset landscape as identified by other regulators, the volatility of digital asset valuations and the disproportionate influence individuals can have on entire cryptocurrency markets, the OCC is not in a position to regulate these entities comparably to traditional banks."

The senator also said it was "unclear" whether the OCC had conducted the "appropriate due diligence" before granting the three conditional charters, pointing specifically to former Acting Comptroller Brian Brooks' tenure.

Brooks, an appointee during the Trump Administration, encouraged crypto companies to seek a trust charter because it was "just a faster charter to get," Brown wrote.

"I urge you to review the procedures and guidelines followed within the OCC regarding the evaluation and approval of the Anchorage, Paxos and Protego charters to ensure that the OCC’s supervision and licensing standards remain both rigorous and equitable among charter applicants," Brown said.

Brown's letter comes on a day of extreme volatility in the crypto market, with bitcoin falling close to $12,000 before rebounding nearly $8,000. Much of the market remains in the red over the past 24 hours.

Hsu, who took office barely two weeks ago, already indicated that the OCC is reviewing how it approaches digital assets when he testified before the House Financial Services Committee earlier this week.

Importantly, the trust charters Anchorage, Protego and Paxos have are conditional. The OCC would have to grant a final trust charter after a number of months.

“Since its inception, Paxos has sought to be the most regulated, compliant and trusted operator in the crypto and blockchain infrastructure industry," Paxos spokesperson Rebecca McClain said in a statement, adding:

"Six years ago, Paxos was the first company to secure a New York Department of Financial Services (NYDFS) trust charter. That charter requires all customer crypto assets to be held in bankruptcy-remote, segregated accounts. Paxos is not involved in deposit-taking or consumer lending. All Paxos-issued stablecoins have been approved by our regulators and are fully backed by U.S. dollars and U.S. treasuries in FDIC-insured, U.S. bank accounts. The quality of our Board of Directors demonstrates our culture of compliance. We are held to the same BSA, KYC and AML standards as all NYDFS-regulated banks. This oversight includes regular on-site examinations. We look forward to working with Chairman Brown to ensure that all industry players meet these same high standards.”

UPDATE (May 19, 22:25 UTC): Updated with additional context.

DISCLOSURE

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