Coinbase Wins Final OCC Trust Bank Charter

What Coinbase’s OCC trust charter allows

The trust bank can hold digital assets in a fiduciary capacity, meaning it takes on duties to the customers whose assets it safeguards. Under the OCC’s April decision, it can receive, hold and transfer cash and crypto for customers within their custody accounts. Dollar balances held in custody are to sit at outside banks in accounts set up for the benefit of clients.

The charter is for an uninsured trust bank. Coinbase said in April the bank would operate without retail deposits or fractional-reserve banking. Staking, trading and financing remain services offered by separate Coinbase affiliates. The trust bank can connect custody clients to those services in relation to the assets it holds for them.

The OCC’s April decision set a $60 million minimum for the bank’s core capital during its first three years. It also required a separate pool of liquid assets to cover 180 days of operating costs under a wind-down scenario. Those requirements apply to the trust company’s own finances.

The same decision requires the bank to obtain written clearance from the OCC before significantly changing its business plan during that initial period. The bank must give its supervisory office at least 60 days’ notice unless it files a separate application for the change.

Coinbase plans a three-year custody transfer

Coinbase’s existing custody company received its New York limited-purpose trust charter in October 2018. The OCC decision describes a plan to move that company’s entire custody business into the new federal trust bank over its first three years of operation. The change moves oversight of the business from the New York Department of Financial Services to the federal regulator as clients transfer.

The public charter application describes two custody arrangements. One keeps digital assets in wallets with addresses unique to each customer. The other pools assets in shared wallets so clients can trade while their assets remain in custody.

Coinbase lists banks, asset managers and government institutions among the existing custody business’s customers. The filing says the new trust company will operate without physical branches and will serve clients online. It also identifies digital asset payments and ways for clients to use certain blockchain programs from custody accounts as areas the company plans to explore.

Coinbase reported $376.6 billion in customer crypto and payment stablecoins across its platform at Sept. 30 in its quarterly filing. That companywide figure includes assets beyond the New York trust company. Coinbase did not disclose how much will move to the federally chartered bank in its November announcement.

Coinbase follows Circle and Ripple into federal oversight

Circle received final approval for its national trust bank in July as part of its plan for federal oversight of the reserves backing USDC. Ripple’s trust charter took effect Oct. 26. Coinbase’s application puts the emphasis on custody for institutional clients, a business the company already operates under a state charter.

The Independent Community Bankers of America opposed the Coinbase approval on Monday. The trade group argues that the OCC’s broader approach lets firms offer services resembling deposits without the protections required of insured banks.

In a separate suit filed Oct. 2, the group challenged the underlying chartering rule and agency guidance in federal court. It also asked the court to set aside the OCC’s conditional approval for another applicant, Protego. The OCC’s Coinbase decision cites the agency’s longstanding authority to charter banks that limit their operations to trust company activities.

The Crypto Fear & Greed Index rose to 32 out of 100 on Tuesday from 29 on Monday, remaining in the Fear range.

Coinbase gave no date for the first group of custody clients to move. For institutions already using the New York trust company, the next milestone is a schedule that identifies when their accounts will transfer.