Paxos Trust Company Pursues National Trust Bank Charter
Paxos Trust Company, the firm behind PayPal’s PyUSD stablecoin, has applied to transform its limited covered trust charter in New York into a US National Trust Bank Charter. This move comes as Paxos revives efforts that lapsed in 2023.
If the application receives approval, the Office of the Comptroller of the Currency (OCC) could grant Paxos the authority to hold client assets and manage payments across the country under federal oversight, which could appeal more to institutional clients. It’s important to note that unlike traditional banks, National Trust Banks are not allowed to accept cash deposits or provide loans.
Charles Cascarilla, co-founder and CEO of Paxos, stated, “OCC monitoring helps us build on our historic commitment to maintain the highest standards of safety and transparency.”
Paxos’ Previous Charter Approval Has Lapsed
Paxos originally applied for the charter in December 2020 and received preliminary conditional approval in April 2021, allowing the company to address various pre-opening requirements, such as capital and compliance issues.
However, per OCC rules, this conditional approval expires if the bank does not open within 18 months without any extensions. Paxos’ approval officially lapsed on March 31, 2023.
In the meantime, the company has been operating under New York’s limited covered trust charter, which it has maintained since 2015. At that time, Paxos expressed its commitment to pursuing federal oversight when circumstances were favorable.
Regulatory Pressures and Concerns
Paxos did not specify the reasons behind the expiration of the OCC’s initial charter, though regulatory pressures were intensifying. In February 2023, the New York State Department of Financial Services (NYDFS) directed Paxos to stop issuing Binance USD due to compliance issues, leading the firm to distance itself from Binance.
This scrutiny peaked recently when the NYDFS settled with Paxos for $48.5 million, alleging the company failed to uphold money laundering agreements in its partnership with Binance. As part of the settlement, Paxos is expected to pay a $26.5 million fine and invest an additional $22 million to enhance its compliance program.
Paxos’ renewed application follows the recent establishment of a federal framework for stablecoin publishers under the Genius Act and amidst a wave of charter applications from other stablecoin firms like Ripple and Circle.
