Morgan Stanley gets conditional approval for trust charter

• Key insight: The OCC has conditionally approved Morgan Stanley's national trust bank application to set up a subsidiary for digital asset custody.
• What's at stake: The agency has processed a high number of trust charter applications and approvals such as this one in recent months.
• Expert quote: "The approval will create a sense of urgency for wealth management competitors who want to stay on equal footing." —FS Vector's Jasper Sneff Nanni

Morgan Stanley now has approval from regulators to set up a digital asset-focused trust bank.

The company received conditional approval from the Office of the Comptroller of the Currency to establish a trust bank dedicated to digital assets, according to federal filings released Wednesday. The trust, named in the application as the Morgan Stanley Digital Trust National Association, or MSDTNA, will be a wholly owned subsidiary of Morgan Stanley and be headquartered in Purchase, New York.

The financial services firm initially applied for a de novo national trust bank charter in February as one of dozens of financial companies to do so since the beginning of this year. As one of the largest wealth management firms in the country, Morgan Stanley's conditional trust charter approval stands out as an example of traditional financial institutions exploring the feasibility of branching into digital assets.

The trust would support an initiative announced last fall where Morgan Stanley said it would partner with a crypto infrastructure provider called Zerohash to let its E-Trade brokerage clients trade popular cryptocurrencies. 

"The main activities of MSDTNA will be custody of certain digital assets and to conduct certain activities incidental to the business of banking, including the purchase, sale, swap and transfer of digital assets to support client investment activities," the OCC conditional approval letter said. "In addition, MSDTNA will facilitate the staking of digital assets on a fiduciary basis and act as a collateral administrator to support digital asset lending offering by an affiliate."

The OCC previously finalized a proposal codifying the agency's stance that nationally chartered trusts may engage in "business of banking" activities, including non-fiduciary custody of assets, without being a full-fledged bank as defined by the National Bank Act. The stance has created controversy within the industry, and some bank trade groups have requested that the OCC pause on approving new trust bank charters until concerns surrounding the scope of this type of charter are addressed.

Jasper Sneff Nanni, managing principal at consulting firm FS Vector, told American Banker that Morgan Stanley's interest in building a trust bank subsidiary indicates the strategic importance of digital assets to the company's wealth management business. 

"This is probably less about broadening the services offered and more about reducing reliance on third-party custodians and exchanges," he said. "This will allow them to control costs and enforce consistency and reliability in client delivery."

The approval's conditional requirements, according to a federal filing, include limiting MSDTNA's operations to those of a trust company and not a bank as defined by the Bank Holding Company Act, maintaining a minimum of $50 million in Tier 1 capital and conforming its proposed activities to both the GENIUS Act and "any other applicable laws and regulations that take effect in the future." The latter is likely a reference to the CLARITY Act, which is still pending in Congress.

"I would expect a firm with the pedigree of Morgan Stanley to move relatively quickly through the preopening phase," Nanni said. "The approval will create a sense of urgency for wealth management competitors who want to stay on equal footing."