ICBA sues OCC over crypto trust-bank charter rules

The Independent Community Bankers of America sued the Office of the Comptroller of the Currency on October 2, challenging the agency's use of national trust-bank charters for cryptocurrency businesses.

The case, filed in federal court in Washington, D.C., contests a rule published on March 2 and related January 2021 Interpretive Letter 1176, according to ICBA. The trade group also says it is asking the court to set aside Protego Holdings' conditional national trust-bank charter approval.

The dispute centers on two different readings of federal banking law: ICBA says the OCC has exceeded the authority Congress granted it, while the agency has said its rule aligns its regulations with powers it already has.

What the rule changed

In a February 27 bulletin, the OCC described the measure as clarifying that national banks limited to trust-company operations can conduct non-fiduciary activities alongside fiduciary activities. It changed the wording of its chartering regulation from references to fiduciary activities to trust-company operations and related activities.

The agency said the change neither expanded nor reduced its authority to charter a national bank. The rule took effect April 1, before the October lawsuit.

An OCC spokesperson declined to comment on the lawsuit, Reuters reported. The agency's earlier explanation of the rule is its published policy position, rather than a new response to ICBA's claims.

Why community banks object

ICBA argues that the trust-charter route gives crypto businesses the credibility of federal bank status without the same combination of safeguards and obligations imposed on insured community banks. Its objections include differences in deposit insurance, capital and liquidity requirements, consolidated supervision and Community Reinvestment Act obligations.

Those are the trade group's arguments. The OCC's final rule notes that most national trust banks are uninsured, but some hold deposits and have FDIC insurance. The dispute concerns the activities the agency can authorize under a trust charter; that label alone does not settle an institution's deposit-insurance status.

The outcome is still to be decided

ICBA is seeking to have the rule and interpretive letter declared unlawful and Protego's conditional approval vacated. Filing the case does not itself invalidate the rule or revoke a charter.

For readers following crypto's entry into banking, the important question is whether this particular federal charter route survives the challenge, and on what terms.