TLDR
- Paxos has filed for a US national trust bank charter, renewing efforts after a previous 2021 approval lapsed
- The charter would allow Paxos to operate nationwide under OCC oversight
- The application follows recently passed stablecoin legislation (GENIUS Act)
- Paxos recently paid a $48.5 million settlement related to its Binance partnership
- Circle and Ripple have also applied for similar banking licenses
Paxos, the company behind PayPal’s PYUSD stablecoin, has submitted an application to convert its New York trust charter into a national trust bank charter. This move comes as stablecoin regulations are taking shape in the United States, with the recent passage of the GENIUS Act providing the first federal framework for stablecoin issuers.
The application to the Office of the Comptroller of the Currency (OCC) represents Paxos’ second attempt at securing federal oversight. The company had received conditional approval in 2021, but that approval expired in March 2023 without Paxos launching operations under the charter.
If approved, the national trust bank charter would enable Paxos to custody customer assets and settle payments across all US states under federal regulation. Unlike traditional banks, Paxos would not be permitted to accept cash deposits or issue loans as a national trust bank.
“OCC oversight will help build on our historic commitment to maintaining the highest standards of safety and transparency,” said Charles Cascarilla, Paxos co-founder and CEO, in a statement regarding the application.
Paxos has operated under a New York limited-purpose trust charter since 2015, which restricts its operations to New York State. The company views federal oversight as a path to unlock new growth opportunities while maintaining strong regulatory compliance.
Regulatory Challenges
Paxos has faced several regulatory hurdles in recent years. In February 2023, the New York Department of Financial Services (NYDFS) ordered the company to stop issuing Binance USD (BUSD) stablecoins due to compliance concerns.
This regulatory action forced Paxos to end its partnership with Binance, one of the world’s largest cryptocurrency exchanges. The situation culminated in a $48.5 million settlement with NYDFS announced last week.
Under the settlement terms, Paxos will pay $26.5 million to New York State and allocate an additional $22 million toward upgrading its compliance program. The settlement resolved allegations that Paxos failed to uphold anti-money laundering provisions in its Binance partnership.
The NYDFS charged that BUSD was illegally used by US customers, leading to the enforcement action against Paxos.
Industry Trend Toward Banking Licenses
Paxos is not alone in seeking federal banking oversight. Other major players in the cryptocurrency and stablecoin space, including Circle (issuer of USDC) and Ripple, have recently filed similar applications for national trust charters.
These applications come in the wake of improved regulatory clarity around stablecoins with the signing of the GENIUS Act. Additionally, in May, the OCC announced it would allow national banks to manage, buy, and sell crypto assets under their custody.
“Approval of the application would bring Paxos under federal oversight and allow us to offer more rigorous, efficient solutions to customers at a crucial time when stablecoin legislation finally exists at the federal level,” a Paxos spokesperson told Decrypt.
Beyond stablecoins like PYUSD and PAXG, Paxos provides tokenization, custody, and trading services to major financial institutions. Its clients include Mastercard, Interactive Brokers, and MercadoLibre.
Ripple CEO Brad Garlinghouse recently commented on his company’s similar move, stating: “True to our long-standing compliance roots, Ripple is applying for a national bank charter from the OCC.”
The OCC, as the primary regulator of national banks in the United States, would provide oversight if these applications are approved. For companies like Paxos, federal regulation could help build trust with institutional clients and facilitate nationwide operations.
