WASHINGTON — Circle's
Fintech companies had hoped for years that the Office of the Comptroller of the Currency would deliver a special charter with some of the benefits of a bank but not all of the regulatory hurdles, such as needing Federal Deposit Insurance Corp. approval.
But legal challenges to the
With its plan to become a "full-reserve national commercial bank" built on its digital currency infrastructure, Circle appears willing to go the full distance on getting a charter even if it means facing as much regulation as a more traditional institution.
“Certainly, there will be no special-purpose charters anytime soon," said Karen Petrou, managing partner of Federal Financial Analytics. "The acting comptroller [Michael Hsu] has made that very clear.”
Circle's intended purpose for a bank isn't exactly clear, and it has yet to file an application. But a blog post Monday by CEO Jeremy Allaire suggested the company is looking for validation from the full spectrum of U.S. bank regulators. He said the bank would operating "under the supervision and risk management requirements of the Federal Reserve, U.S. Treasury, OCC, and the FDIC."
Yet it remains an open question if Circle will have to apply for federal deposit insurance, a hurdle that most fintech firms seeking banking powers have tried to avoid.
While other firms have sought a path of limited banking powers in exchange for limited regulation, some analysts say Circle's application could offer a different approach to digital-asset companies and other fintechs seeking access to the banking system.
“This is a true digital asset-based company that is seeking a charter — more than a trust, fiduciary activity, custody services charter — that wants the full scope and capabilities of a bank,” said Cliff Stanford, a partner at Alston & Bird.
Others say nonbanks no longer see the slate of fintech-friendly charters put forward by regulators in recent years as viable.
Under the Trump administration, former acting Comptroller of the Currency Brian Brooks had signed off on trust charters for numerous crypto service firms, which exclude deposit insurance. Another fintech firm, Figure Technologies, had attempted to use a
But since taking the helm of the OCC, Hsu has indicated he wants the agency to be more cautious, telling lawmakers in May that he shares concerns with those worried about fintechs having "the benefits of banking without its responsibilities."
“Now is not the time to be going for [special-purpose] licenses,” said Isaac Boltansky, director of policy research at Compass Point. “All the folks who were able to get charters at the end of the Trump era — whether it was LendingClub or Paxos, Protego or Anchorage — I think they got through the door right before it got effectively shut for the time being.”
While Circle could gain access to the Fed's payments system with a bank charter — thereby helping it expand services to customers — details are scarce about its plans. A key focus of Circle in recent years has been the stablecoin founded by the company known as US Dollar Coin, or USDC.
Paul Clark, partner at Seward and Kissel, said it was possible being a national bank could make it easier for the company to issue future digital currencies or stablecoin products, but it wasn’t exactly a necessity.
“You don't need to be a national bank to do that and, in fact, it's not even clear what banking activity — at least from the press release — they're engaging in, or would propose to engage in,” Clark said.
Other analysts said it was possible that crypto companies interested in bank charters might be in for a rude awakening when they realize the full heft and impact that national bank oversight could have on their enterprise.
“It’s my own view — and I suspect, over time, the OCC’s — that if an entity is able to meet the managerial capabilities, financial strength and capital requirements, and operational risk management requirements demanded of a bank with crypto activities,” said Petrou, “there’s no reason why they shouldn’t” be granted a bank charter.
But Petrou said she doubts “that any crypto trader fully understands the scope of the obligations it would entail to become a full-service national or state-chartered bank.”
“I think there's no doubt that the U.S. would take the
Yet Dante Disparte, Circle’s chief strategy officer and head of global policy, said in an interview that “no one wants to become a bank for sport.”
“Wanting to become a fully chartered commercial bank, I think, comes with a healthy appreciation of, what does it take to be a bank, what are the prudential standards you have to adhere to, and so on,” Disparte said. He also noted that Circle believes "working inside the perimeter of the U.S. regulatory and policy environment is critically important."
Brooks issued some of the country’s first national trust charters for digital asset firms with a focus on crypto custody services.
“Those trailblazers that got those approvals are part of the story here,” Stanford said. “The OCC has become knowledgeable about [crypto], and perhaps Circle saw an opportunity here and wanted to pursue it.”
Even though the OCC has dominated much of the conversation around fintech chartering over the past several years, there are still unanswered questions that need to be addressed by all of the prudential regulators, Stanford said.
“It’s not just the OCC,” Stanford said. “The Federal Reserve and [getting] permission to access the payment system is an important gatekeeper, not to forget the FDIC to the extent there are deposits intended here.”
Virtually all full-service banks in active operation today have to maintain deposit insurance with the FDIC, which comes with its own set of regulations and capital requirements. But in an interview, Disparte suggested that Circle’s model may not rely on deposit insurance.
“The premise of a fully reserve-backed digital currency like USDC, even by today's standards for how we are regulated and certainly by what we expect to be the future standards, in which we're not participating in fractional reserve banking or maturity transformation or leverage of these deposits, or what would be construed as deposits necessitating deposit insurance, isn't an activity we anticipate carrying out,” Disparte said. “Therefore, you could argue that adding deposit insurance would be unnecessary.”
A number of crypto-related efforts currently underway among the financial regulators could ultimately impact the viability of Circle’s bank. The prudential regulators have been working in an interagency group to define the
Hsu has also conducted an
“The folks who worked on some of those OCC trust charters are of the view that it will be difficult to reverse them, and then at that point, if you see a similar charter application, it will be difficult to reject because obviously you have the precedent,” said Boltansky.
But if Hsu wants the approvals reworked or thrown out altogether, there’s little that could prevent the agency from changing its position.
“I'm of the view that if you have enough lawyers in a room, paying them their billable hours, they'll come up with a justification for whatever you want,” Boltansky added. “Hsu has been pretty clear that at a minimum, he's going to look at any new applications with structural skepticism.”
Other analysts say that even the deepest of skepticism coming from the bank regulators will be unlikely to fully prevent the introduction of a national crypto bank for the foreseeable future. “We're eventually going to have to come to terms with this, but I think it's going to be a two-sided understanding,” Petrou said. “Crypto companies that want banks and the keys to the payments kingdom are going to have to really understand not just what being a bank means, but what being a crypto bank is going to mean, because the rules are going to be a lot tougher.”
