FinTechs: Bundle Special Purpose Charters to Access the US Market.

There has been a dramatic change in the U.S. financial institutions regulatory environment concerning fintech offerings, in particular crypto related assets, stablecoin custody and issuing, and payments activity. The Office of the Comptroller of the Currency (OCC) has provided authorization for regulated institutions to engage in crypto-asset custody services, holding dollar deposits serving as reserves backing stablecoins, and acting as nodes on an independent node verification network (distributed ledger) to verify customer payments and to facilitate such payment transactions on a distributed ledger.  The GENIUS Act permits issuing and redeeming stablecoins, managing reserve assets and providing custodial services through an existing regulatory structure or through the newly created Permitted Payment Stablecoin Issuer license.

The industry is also experiencing an openness to these activities for non-banking entities, in different manifestations, through various charters, including the OCC National Trust, the Connecticut Innovation Bank, the Puerto Rico International Financial Entity and the Georgia Merchant Acquirer Limited Purpose Bank.  If you are a crypto related entity or a Markets in Crypto Assets Exchange Traded Funds (MiCA ETF) licensed entity and want to establish a presence in the U.S. you are witnessing a welcoming landscape and options in which to conduct your business. If you are a payments company you can free yourself from BIN-sponsor partners. Assuming your entity is not a banking entity, foreign or domestic, since charter options do not include US depository institutions, foreign branches or foreign agencies, you would need to consider the above mentioned or other special purpose charters and unique state charters for your proposed U.S. product offerings.

OCC National Trust Charter: This is a federal charter which permits trust company activities and related activities provided those related activities do not cause it to be defined as a bank under the Bank Holding Company Act. This means there is no ability to promote or accept deposits or credit facilities. The National Trust Charter permits fiduciary activities, asset management, custody of assets (including crypto assets), and allows certain financial services to hedge funds, private equity funds, venture capital funds, investment managers and family offices within the alternative investment industry.  Importantly, the National Trust Charter grants eligibility to obtain a Federal Reserve Master account for payment activities.

Connecticut Innovation Bank: This is a state-chartered special purpose bank whose activities are best suited for wholesale and merchant banking.  Innovation banks may not conduct retail banking activity, and are not eligible for FDIC insurance.  They can engage in all types of corporate and commercial lending, financial advising, private equity, trade finance, foreign exchange and international money transfer. Although technically eligible for a Federal Reserve Master Account, Innovation Banks are Tier 3 institutions, and although Numisma Bank was granted a Master Account, Tier 3 institutions are less likely to achieve Master Account status.

Puerto Rico International Financial Entity: This is a Puerto Rican special purpose charter that permits a wide range of banking activity in Puerto Rico for non-Puerto Rican residents. It includes retail accounts, although deposits are not FDIC eligible, broad corporate and commercial activity, and any type of activity permitted under Regulation Y or K outside of Puerto Rico.   OCIF, the Puerto Rican Banking Commission, is also promoting a crypto friendly environment with the recent approval of FV Bank International, Inc., which became the first IFE to launch products for depositing, transferring and dealing with digital currencies starting with Ether, USDC and USDT. But like the Connecticut Innovation Bank, IFEs are only Tier 3 eligible for Federal Reserve Master Accounts making it challenging to obtain.

Georgia Merchant Acquirer Limited Purpose Bank: This is state chartered limited bank permitting entities to obtain principal membership in credit and debit networks but does not permit the general business of banking. Stripe recently obtained this special purpose license. This license does not grant eligibility for a Federal Reserve Master Account.

When considering entering the U.S. market, an entity does not necessarily have to choose only one charter.  It may be advantageous to bundle charters to gain the broadest suite of product offerings.  Charter Bundle options could include:

OCC National Trust Bank, for custody services and to obtain a Federal Reserve Master Account;

•  with either (for crypto companies):
  • a Connecticut Innovation Bank or a Puerto Rico IFE,
• or with (for a payments company):
  • the Georgia Merchant Acquirer Limited Purpose Bank

Charter bundle options would depend upon your strategic plans for the US product offerings and intended client base.  Each application would need to stand on its own merit and the applicant would need to demonstrate sufficient expertise and resources to conduct business through multiple entities.

So even if your institution is not eligible to obtain a banking charter, there are special purpose charter bundle options in the US to establish a robust presence in the marketplace.

Atlantis International is a cross-border business advisory firm that brings strategic expertise and inspired vision to the corporate, FinTech and Financial Services industries that seek to establish, enhance and maintain a commercial presence in the U.S.  marketplace.