The Office of the Comptroller of the Currency (OCC) granted crypto-focused Protego Trust Company, a Washington state trust company, conditional approval to convert to a national trust bank earlier this month, marking only the second time that a federal bank charter has been approved for a crypto firm – and the first since the January departure of Brian Brooks, the “crypto-friendly” former acting comptroller of the OCC and former chief legal officer of Coinbase.
Protego Trust Company was the first, and to-date only, digital asset-focused trust company chartered by the state of Washington. Upon the effectiveness of the conversion, Protego Trust Company will become Protego Trust Bank, National Association (Protego). State trust companies may convert to a national trust bank with the approval of the OCC.
Protego seeks to provide its clients the ability to hold, trade, lend, and issue digital assets. While Protego’s services will initially be limited to Bitcoin and Ethereum, and Protego’s clients will initially be limited to institutional investors, high net worth individuals, digital asset exchanges, and certain digital asset issuers, in a statement, Protego indicated it anticipates expanding to support additional cryptocurrencies and clients after launch.
Though Protego will designate Washington as the state in which it acts in a fiduciary capacity, it will provide nationwide services to its customers through offices in Seattle, Boston, and New York, and – of course – through the internet.
In addition to custodial services, Protego plans to offer the following services in a fiduciary capacity:
(1) determining whether a customer should claim forked assets;
(2) staking its customers’ assets to earn rewards; and
(3) participating in the governance of certain blockchains that permit participants to use their digital assets to cast votes for decisions regarding blockchain protocols.
The Protego approval adds to the list of recent crypto-friendly actions by the OCC. Late last year, the OCC issued two groundbreaking interpretative letters affirming the authority of national banks to provide cryptocurrency custody services and to hold stablecoin reserves (see our prior article here). Building on this foundation, in early January the OCC issued an interpretative letter affirming the authority of financial institutions to conduct payment activities and other bank-permissible functions using distributed ledger technology (blockchains) and related stablecoins. Later in January, the OCC conditionally approved the first conversion of a crypto-focused, state-chartered trust company to a federally-chartered trust bank, Anchorage Digital Bank, National Association (Anchorage). The OCC issued its conditional approval of Anchorage on January 13, 2021, just a day before Brooks stepped down as acting comptroller.
Though the Protego submission was undoubtedly submitted and began undergoing review during Brooks’ tenure, it is notable to see an approval post-Brooks. And, while there remains ambiguity with regard to how a post-Brooks OCC (and other US regulators) will act on crypto and digital asset issues under the Biden administration, the Protego approval indicates the OCC may continue to be receptive toward federally-charted banks providing crypto services. For now, at least, the national charter route for crypto-banks appears to remain open.
Under the terms of the approval, Protego has 18 months to meet all pre-conversion regulatory requirements and consummate the conversion. These requirements include:
- Having in place systems, policies, practices and procedures, acceptable to the OCC, to ensure the safe and sound operation of Protego, all of which must be continuously reviewed by the board of directors;
- Obtaining adequate fidelity bond coverage;
- Applying for membership in the Federal Reserve System;
- Ensuring all other required regulatory approvals have been obtained; and
- Ownership of qualifying shares by Protego’s directors in accordance with The National Bank Act.
The OCC also imposed the following conditions on its approval of the conversion:
- Protego must limit its business to the operations of a trust company, and activities related or incidental thereto, and may not engage in activities that would cause it to be a “bank” under the Bank Holding Company Act;
- Protego must enter into, and thereafter implement and adhere to, a written Operating Agreement with the OCC, in a form acceptable to the OCC, within three business days after the conversion;
- Within three business days after the effective date of the Operating Agreement between Protego and the OCC, Protego must enter into a written Capital and Liquidity Support Agreement (CSA) with two affiliates and the OCC, on terms and conditions acceptable to the OCC, setting forth the affiliates’ obligation to provide capital and liquidity support to Protego if and when necessary;
- Within three business days after the effective date of the Operating Agreement between Protego and the OCC, Protego must enter into a written Capital Assurance and Liquidity Maintenance Agreement (CALMA) with two affiliates, on terms and conditions acceptable to the OCC, setting forth the affiliates’ obligation to provide capital and liquidity support to Protego if and when necessary.
The OCC has the authority to enforce these conditions under federal law, including through the assessment of civil money penalties.