Anchorage Digital Bank Approved As First National Crypto Bank

The Office of the Comptroller of the Currency (OCC) has issued a conditional approval last week for Anchorage Digital Bank to become the first federally chartered crypto bank.

In his Press release, the OCC noted that the Anchorage approval “demonstrates that the national banking charters under the National Bank Act are broad and flexible enough to accommodate evolving approaches to financial services in the 21st century. ”This statement aligns with the position taken by the OCC in recent interpretive letters, providing a strong argument for enabling domestic banks to offer a variety of innovative financial services, primarily involving digital assets, as offering such services are only an extension of traditional banking activities.

anchor business model specifically focuses on forming partnerships with other banks to enable these partner banks to offer digital asset services to their customers. Given the massive growth in public interest in digital assets over the past year alone, more banks are likely to be interested in strategic partnerships to deliver innovative digital asset products and services to customers without having to to develop the internal systems and the expertise to do so.

In the conditional approval letter, the OCC lists as one of the pre-conversion requirements that Anchorage must apply for (but not necessarily receive) for membership in the Federal Reserve system. There are several additional conditions that Anchorage will need to meet, primarily focused on ensuring that the bank has sufficient capital and liquidity to operate in a safe and healthy manner. Not all of these conditions are public, but some of the more notable conditions of the Operating agreement (which is public) are:

  1. Minimum capital of $ 7 million, of which at least 50% must be held in qualifying liquid assets;

  2. In addition to this capital requirement, a liquidity requirement of the greater of (i) 180 days of operating expenses and (ii) $ 3 million of eligible liquid assets;

  3. No dividend without the prior approval of the OCC; and

  4. No material deviation from the business plan approved by the OCC without the prior approval of the OCC.

Several other companies have filed applications with the OCC for national trust charters, which the OCC is expected to make rulings on in the weeks or months to come.

While the development is certainly remarkable as Anchorage becomes the first national crypto bank, two digital asset companies have already received banking charters last year. Kraken and Avanti each obtained the new Special Purpose Depository Institution charter from Wyoming. Another thing these companies all have in common is that none of them will need to get FDIC approval to begin offering their services. The OCC has the discretion to require a national trust bank to carry FDIC insurance (the majority of national trust banks have FDIC insurance). Notably, the OCC does not require Anchorage to be FDIC insured.

Financial institutions looking to offer innovative digital asset services must weigh the pros and cons of pursuing a state charter versus a national charter, as both have pros and cons. The National Charter grants clear authority to engage in national activities, but the Wyoming Charter comes with potential access to a regulator who is at the forefront of regulating digital assets and has an incentive to maintain competitiveness. of the charter newly created by the State.

While there is a lot of recent news regarding fintechs and other startups entering the banking arena, the OCC announcement and recent interpretive letters have also paved the way for traditional banks to start offering services. of digital assets. Many of the world’s largest financial institutions are licensed by the OCC.

It is not clear whether the OCC’s digital asset and pro-innovation agenda will slow down now that Brian Brooks has resigned as interim controller of the currency.

The primary focus of the OCC under the Biden administration will largely depend on who has the privilege of running the agency. There have been reports that Mehrsa Baradaran, professor of law at the Irvine School of Law at the University of California, is one of the main candidates. If Baradaran becomes the new controller, his tenure can be expected to be strongly focused on equal access to financial services – that would be a very timely and appropriate goal for the agency.

Regardless of who takes over the leadership of the OCC, they will undoubtedly take over at a time when technology and innovation are transforming the financial services industry at an exponential rate.

Copyright © 2021, Hunton Andrews Kurth LLP. All rights reserved.Revue nationale de droit, volume XI, number 19