Over the past few years, we’ve witnessed an alarming upsurge in the number of nonbank financial technology firms applying for national bank trust charters. We can track this trend back to a shift in policy in 2021 (Interpretive Letter #1176) in which the Office of the Comptroller of the Currency (OCC) reinterpreted the trust charter to eliminate its exclusive focus on fiduciary activities and redefined it to create an opening for digital asset firms to apply.

There are many fundamental issues with this interpretation, including:

1. Safety and Soundness Concerns: The digital asset providers applying for this charter bring unique risks that require sufficient supervisory and regulatory safeguards. Trust banks are not required to meet the same kinds of regulatory and capital standards that apply to federally insured full-service banks. Granting carte blanche to these higher-risk entities also exposes the banking system to deposit drainage and increased fraud.
2. Policy Inconsistency and Risk: The charter was designed for one purpose: conventional trust companies providing custodial services for trust beneficiaries. Opening up access to digital asset firms does not align with that intent or statutory parameters. That lack of policy consistency creates risks in the banking sector.
3. Unfair Competitive Market: Nonbank financial technology firms are using these charters to circumvent traditional regulatory requirements. The charters allow these firms to function like banks but without the regulations that are required of banks. This creates an uneven and risky playing field. 

ICBA has called on the OCC to rescind Interpretive Letter #1176 and undertake a formal rulemaking on the national trust charter to clarify its scope and alignment with congressional intent. We are also continuing to comment on individual applications as they come through; engaging repeatedly with the OCC to voice concerns; and providing education through media interviews, press releases, blog posts and more to keep a focus on this alarming trend. 

We need your help, too. Stay engaged on this topic. Comment on applications and remain aware of emerging issues. Educate your legislators. Armed with knowledge, we’ll be better able to respond.

It will take our unified voices for this issue to be addressed. Fortunately, when it comes to advocating for the safety and soundness of our banking system, community bankers always rise to the challenge.