https://fortune.com/crypto/2023/03/17/crypto-bank-protego-didnt-meet-requirements-for-national-trust-charter-occ-says/

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Regulators *cryptocurrency

Crypto bank Protego didn't meet all requirements for national trust
charter, OCC says

BYLeo Schwartz
March 17, 2023, 4:54 PM UTC
 
 
 
 
[Michael-J][Michael-J]
Acting Comptroller of the Currency Michael J. Hsu.
Graeme Sloan--Sipa USA/Reuters
 
 
 
 

In February 2021, the Office of the Comptroller of the Currency--a
U.S. Treasury bureau tasked with overseeing federal banking--granted
conditional approval for the application of Washington-based Protego
Trust Company to convert into a national trust bank.

After the OCC extended its conditional approval once, until Feb. 4,
2023, a spokesperson told Fortune on Friday that Protego didn't meet
its pre-conversion requirements, meaning its conditional approval
expired.

The failure of Protego's conversion to become a federally chartered
bank, which would have allowed it to custody digital assets and grant
it other credentialing privileges, is another setback for the crypto
industry's banking aspirations in the United States.

Currently, Anchorage Digital is the only crypto firm to have received
a national banking charter from the OCC, and Wyoming-based Custodia
was denied membership to the Federal Reserve system in January.

Protego and another firm in the process of applying for an OCC
national bank trust charter, Paxos, were the subject of rumors
following the Fed's rejection of Custodia, with speculation that the
OCC would follow suit.

In early February, Protego's founder and executive chair, Greg
Gilman, described it as "categorically untrue" that Protego had been
asked to withdraw its application by the OCC, and sources familiar
with the matter told Fortune they didn't believe Paxos had been asked
to withdraw its application--or been denied.

"Paxos continues to work constructively with the OCC," a Paxos
spokesperson told Fortune. An OCC spokesperson said that it does not
comment on pending applications.

The situation is more complicated with Protego.

As part of its conditional approval, Protego had financing
requirements--a combined $54 million in tier 1 capital and liquidity,
in addition to adequate operation capital, Fortune has learned--that
it had to secure prior to operation.

"[The] pre-conversion requirements included policies, procedures,
systems and other measures to ensure the safe and sound operation of
the bank as well as meeting minimum capital and liquidity
requirements," the OCC spokesperson told Fortune.

According to a person with direct knowledge of the matter, Protego
had signed definitive agreements for investment in excess of that
amount, which it submitted to the OCC on Feb. 3--the day before its
conditional approval was set to expire--as part of a certificate of
completion. The next day, the OCC informed Protego that it was not
yet authorized to operate as a national trust bank, meaning it did
not have an opening date. As part of this communication, the OCC did
not tell Protego that the firm had failed to meet the conditional
approval requirements.

On March 1, CoinDesk reported that Protego had laid off more than
half of its workforce but that its charter was still in play.

On Friday, the OCC released its weekly bulletin with an addendum that
Protego's time had expired for a conversion--the first public
acknowledgment of the application--which an OCC spokesperson confirmed
to Fortune.

In a phone call with Fortune, Gilman said Protego now has two
potential paths. The first is to meet the requirement with its
chartering authority in its home state of Washington to operate as a
state bank. The second would be reapplying with the OCC, especially
because in Gilman's view Protego has met its capital requirements.

The expiration of Protego's application still represents another
significant setback for the crypto industry in the U.S. Last week,
two of the main U.S. crypto-friendly banks collapsed, with Silvergate
announcing it would voluntarily liquidate and New York regulators
taking control of Signature.

The OCC appears to also be closing its doors to crypto firms. Under
the Trump administration's acting comptroller, Brian Brooks, the
agency oversaw conditional approvals of several companies. His
successor, Michael Hsu, reversed course, indicating he would roll
back pro-crypto policies and ordering a review of the agency's
actions.

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