Dakota applies for trust bank charter to issue stablecoins

• Key insight: Dakota is the next fintech in line to request a national trust bank charter so it can issue stablecoins under federal oversight.
• Expert quote: "National trust banks do not need to wait for final GENIUS Act rules to issue, redeem and hold custody of stablecoins." —FS Vector's Jasper Sneff Nanni
• Forward look: The GENIUS Act officially takes effect on January 18 or 120 days after final rules are issued, whichever comes first.

Dakota, a neobank that launched an enterprise stablecoin offering in January, has applied for a de novo national trust bank charter from the Office of the Comptroller of the Currency. 

The fintech is one of several firms seeking national trust bank charters to directly issue stablecoins, including Morgan Stanley, Payward (the parent company for Kraken) and Coinbase. Earlier this month, the OCC granted Circle a national trust bank charter after it fulfilled the conditions of its initial approval.

The OCC has established that national trust banks can issue stablecoins prior to the GENIUS Act going into effect, according to Jasper Sneff Nanni, managing principal at consulting firm FS Vector. Dakota is an FS Vector client, although the firm did not advise on its charter application.

"The act established that national trust banks may be issuers once it takes effect," he told American Banker. "Some of the current round of national trust bank charter applications can be explained by proactive organizers who want to ensure they will be GENIUS Act-compliant when the January deadline rolls around without having to scramble and join a crowded licensing queue after a final rule is issued."

The GENIUS Act officially takes effect on January 18 or 120 days after final rules are issued, whichever comes first. The FDIC previously stated that it expected the first proposed rules to be released by the end of 2025. Rulemaking proposals from various agencies have been published over the first half of this year, but final rules have not yet been formally issued for the GENIUS Act. If rules are issued on or after Sept. 20 of this year, the law will become operative January 18.

Sneff Nanni said that any firm can apply to form a national trust bank today, but forming a non-bank issuer is reliant on the final rulemaking. "National trust banks do not need to wait for final GENIUS Act rules to issue, redeem and hold custody of stablecoins, though they do need to wait for final approval to open," he said.

Currently, Dakota offers stablecoin-related services to businesses through money transmission licenses. Upon opening, according to the filed application, Dakota National Trust Bank would offer fiduciary digital asset custody services, issue U.S. dollar-denominated stablecoins and provide related services such as transaction settlement.

"For you, that means fewer layers between your product and the financial services underneath it," Dakota CEO Ryan Bozarth said in a blog post on the company's website. "Fewer intermediaries mean more control, more reliability and a cleaner experience for the people you serve."

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The trust charter would not extend to depository services. Banking services for fiat currency are currently provided by Dakota through multiple global bank partners and FDIC insurance is provided through U.S. bank partners such as Lead Bank, according to a company representative. 

Michele Alt, partner at consulting firm Klaros Group, said that the OCC typically aims to complete its review of charter applications within five months. Similarly, the Comptroller's Licensing Manual states that "the OCC seeks to make a decision within 120 days after receipt of a complete application or as soon as possible thereafter." 

If the OCC chooses to grant Dakota National Trust Bank conditional approval, the company would have 18 months to build out its operations, obtain final approval and open its doors.

"I think it's highly likely that the OCC will issue final GENIUS rules within that time frame," Alt told American Banker. "If Dakota's business model involves stablecoin issuance, its organizers are wise to have taken the critical first step to become a bank in anticipation of those final rules."