Zerohash's bid for a U.S. trust bank charter was returned by regulators due to material deficiencies, prompting plans for a revised application.
Zerohash, a provider of cryptocurrency infrastructure for major financial firms, including Morgan Stanley’s E*Trade, has encountered a significant hurdle in its pursuit of a U.S. trust bank charter.
Company to Revise Application for Faster Approval
According to reports, the U.S. Office of the Comptroller of the Currency (OCC) has returned Zerohash's application, citing "material deficiencies" that prevent it from moving forward, effectively pausing the current charter attempt. This action does not amount to a formal denial, but it signals that Zerohash must refine its approach.
Zerohash plans to resubmit its application by the end of the month with a more focused scope to expedite the approval process. The company reassured that the return of the application is a procedural step that will allow them to refile soon. Their existing operations remain unaffected under current regulatory approvals.
The OCC's feedback indicates that Zerohash's initial application was too ambitious, encompassing a broad range of digital asset and fiduciary services. The company is now looking to streamline its request in line with its operational timeline.
Previously, Zerohash was among numerous companies seeking trust bank charters, particularly following the introduction of the Guiding and Establishing National Innovation for U.S. Stablecoins Act. The OCC returned the application on July 17, without detailing specific reasons.
In contrast to outright denials faced by other fintech companies, a returned application lacks a comprehensive explanation. Zerohash did not voluntarily withdraw its application, which was an available option. The OCC did not provide comments regarding the application status, and Morgan Stanley representatives opted not to comment either.
In addition to its charter ambitions, Zerohash is also seeking funding at a valuation surpassing $1.5 billion and has engaged in discussions with Mastercard for potential investment, which ultimately did not come to fruition. The company serves a range of notable clients, including BlackRock, Franklin Templeton, Stripe, and DraftKings, and operates as a state-chartered trust bank, with its relationship with E*Trade remaining intact despite the federal charter situation.
Complicating its efforts, Zerohash is embroiled in a legal dispute with its former chief compliance officer, who alleges significant compliance failures within the company, including over 200 gaps in anti-money laundering controls. It is unclear whether the OCC took these issues into account during its review.
The forthcoming resubmission is critical for Zerohash as it seeks to secure its position within the rapidly changing digital asset banking sector.
