National Trust Banks – Revisited for Crypto and Payments

In the absence of modern charters and licenses, payments companies and other fintechs—both established financial services providers and new market entrants—must generally obtain 50+ money transmitter and possibly other state licenses to provide their services nationwide. Under the current U.S. financial regulatory framework, there are not many options that both work for their business models and have legal certainty.

For instance, becoming or owning a full bank would subject them to deposit insurance applications and requirements as well as bank holding company requirements and restrictions that are not typically desirable. Alternative models like the OCC's special purpose fintech charter would be tied up in costly litigation, and approval for an industrial loan company's (ILC) deposit insurance application would be at the changing whims of the FDIC.

Unfortunately, this has created a state of competitive inequality for U.S. fintechs and payments companies. Non-U.S. fintechs that are considered foreign banks under federal law can branch into the United States, for instance, using a federal branch with the OCC and Federal Reserve's approval. That's a powerful option for those that want to do essentially everything a national bank can do, other than accept insured deposits. But U.S. fintechs don't have that option.

The national trust bank charter, however, does offer some companies a path forward. It allows companies to offer custodial services, including safeguarding customer funds, handling settlements, and acting as fiduciaries, and operate under the oversight of one federal regulator, the OCC, rather than state-based regulatory frameworks, including state money transmitter licenses or specific virtual currency related licenses.

The OCC under each of the last two administrations has approved national trust bank applications for various companies, including those involved with digital assets and others that are engaged in more traditional activities.

• Crypto activities. During the first Trump Administration, three crypto companies—Anchorage Digital Bank, Protego Trust Bank, and Paxos National Trust—applied and received conditional approval for national trust bank charters. The approvals followed closely after the OCC's Chief Counsel Interpretive Letter 1176, which determined that the OCC has authority to expand the activities of national trust banks to include certain activities of state trust banks under the so called "boot strap" provision of 12 U.S.C. § 92a and the "business of banking" provision under 12 U.S.C. § 24.

  Today, only Anchorage remains as a national trust bank (Protego and Paxos failed to meet the conditional approvals, and their applications expired—but we suspect the OCC under a second Trump Administration will be more receptive and transparent about its expectations and how to meet them). We also note that under the Biden Administration, the OCC issued a consent order against Anchorage, which may serve as a roadmap for OCC expectations, at least until there is a substantial change in OCC management.

  Only one fintech/crypto company, First Blockchain Bank and Trust, applied for the charter under the Biden Administration—and it withdrew its application shortly after applying. Notably, during the Biden Administration, the OCC's chief counsel issued Interpretive Letter 1179, which nominally preserved crypto-related activities as legally permissible but subjected them to a pre-clearance process that practically precluded crypto-related activities. We expect the second Trump Administration to revisit this later interpretive letter and revert to the earlier, more permissive framework, if not further expand what is allowed under national bank powers. It is possible that the OCC keeps Interpretive Letter 1179's conditions, but softens their preclusive effect, since they are not, on their face, impossible to satisfy:

  • Supervisory non-objection requirement. Before engaging in activities such as cryptocurrency custody services, holding deposits backing stablecoins, or operating nodes on distributed ledgers, national banks must notify their OCC supervisory office in writing and receive written non-objection.
  • Demonstration of adequate controls. Banks must demonstrate that they have established appropriate risk management systems and controls to conduct the proposed activities in a safe and sound manner. This includes addressing risks related to operations, liquidity, strategic planning, and compliance with financial crimes and consumer protection laws.
  • Ongoing supervisory review. Once a bank receives supervisory non-objection, the OCC will continue to review these activities as part of its regular supervisory processes to ensure ongoing compliance and adequate risk management.
• Non-crypto activities. Traditional payments companies and non-banks involved in the payments ecosystem, particularly payroll entities (like, ADP (2019) and Paycom (2024)), have received conditional approval under both administrations.

The national trust bank charter remains a viable option for those interested—whether focused on novel or traditional activities.

Why Consider a National Trust Bank?

It's settled law. Under the National Bank Act, the OCC may charter a national bank that limits its operations to those of a trust company and related activities. This option provides certainty, unlike the proposed "special purpose national bank charter" which has been the subject of lawsuits and less-than-clear implementation for nearly a decade. The OCC maintains a list of active national trust banks.

National trust banks may serve customers nationwide, which we expect them to do digitally, but they can also open trust representative offices, if desired. These offices can't conduct traditional bank branch activities (i.e., directly receive deposits, pay checks, or lend money). But they might leverage other technologies to approximate these services and they can otherwise operate without regard to state requirements that restrict entry, offices, marketing, or otherwise attempt to limit the exercise of lawful national bank fiduciary business, including licensing requirements.

Provided a national trust bank doesn't meet the definition of "bank" under the Bank Holding Company Act (BHCA), a company that owns a national trust bank is not a bank holding company subject to the Federal Reserve's comprehensive regulation and supervision. That essentially means a commercial entity can own a national trust bank without the Federal Reserve's involvement for a bank or the FDIC's involvement for an ILC.

National trust banks that do obtain FDIC deposit insurance can comply with additional conditions to avoid meeting the definition of "bank" under the BHCA.

Other Considerations

We note that national trust banks must maintain certain capital and liquidity requirements that may be higher than those under a particular state's law. Supervision of a national trust bank, which is essentially similar to a national bank's supervision, may also be more robust than that of a state regulator.

Because national trust banks have more limited powers than full national banks or even ILCs, entities that want to engage in general lending activities should explore other charter types.

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If you have questions or would like to explore chartering or licensing options, please contact the authors or your DWT attorney contact.