Zerohash, a cryptocurrency infrastructure provider for major firms like Morgan Stanley’s E*Trade, has faced a setback in its attempt to secure a U.S. trust bank charter.
The company plans to reapply with a revised scope for quicker approval.
According to a recent report by CoinDesk, the U.S. Office of the Comptroller of the Currency (OCC) returned Zerohash's application, indicating that it contained "material deficiencies." While this does not constitute a formal denial, it effectively halts the current charter bid.
Zerohash has stated its intention to refine the application and resubmit by the end of the month, with hopes for a more streamlined review process. "The return of the application is an administrative process that allows us to refile this month," the company noted. They emphasized that this does not impact their existing operations, which continue under current regulatory approvals.
The OCC's decision means Zerohash will need to take a more focused approach in its next application, which it admits was overly ambitious in its initial scope that included a wide range of digital asset and fiduciary services. The firm aims to start with a narrower request aligned with its rollout timeline.
Previously, Zerohash had been among many firms vying for trust bank charters amid a surge of applications, particularly after the introduction of the Guiding and Establishing National Innovation for U.S. Stablecoins Act. However, the OCC returned Zerohash's application on July 17, without specifying the exact reasons.
Unlike outright denials experienced by other fintech companies, a returned application does not come with a detailed explanation. Zerohash had not withdrawn its application voluntarily, as was an option. A spokesperson for the OCC did not respond to inquiries regarding the application status, and representatives from Morgan Stanley declined to comment.
In addition to its charter efforts, Zerohash has been pursuing funding at a valuation exceeding $1.5 billion and has been in discussions with Mastercard for potential investment, which ultimately did not materialize. The company provides crypto infrastructure for prominent clients including BlackRock, Franklin Templeton, Stripe, and DraftKings. It operates as a state-chartered trust bank, and its relationship with E*Trade is unaffected by the federal charter situation.
Complicating matters, Zerohash is also involved in a legal battle with its former chief compliance officer over allegations of compliance issues within the firm. The officer claims to have identified over 200 significant compliance gaps, including deficiencies in anti-money laundering controls. It remains to be seen if the OCC was aware of these issues during its review process.
For Zerohash, the upcoming resubmission is crucial as they aim to establish themselves in the rapidly evolving landscape of digital asset banking.