Paxos aims to move from New York to federal oversight

Andrew Harrer/Bloomberg

Paxos, a crypto-focused nonbank financial firm, announced Monday that it is seeking a national trust charter under the Office of the Comptroller of the Currency.

If approved, the move would shift Paxos from state to federal oversight by converting its New York Department of Financial Services trust charter into an OCC charter and placing Paxos under federal oversight, according to a Paxos release.

"For over a decade, Paxos has set the bar for regulatory oversight and compliance," said Charles Cascarilla, CEO and co-founder of Paxos, in the release. "By applying for a national trust bank charter, we are continuing to offer enterprise partners and consumers the safest, most trusted infrastructure available. This is rooted in our belief in the transformative power of blockchain as a force for financial freedom. OCC oversight will help build on our historic commitment to maintaining the highest standards of safety and transparency."

Established in 2015, Paxos was the first digital asset firm to receive a limited-purpose trust charter from regulators in New York, with Paxos launching the first regulated stablecoin in 2018. The company says the OCC charter could reinforce what it termed its global reputation for safety and transparency and expand access to its blockchain infrastructure and tokenized assets.

"All Paxos-issued assets will remain fully backed by bankruptcy-remote reserves held in U.S. dollars, U.S. Treasuries, and cash equivalents, ensuring guaranteed 1:1 redemption," the release noted. "Our customers can expect uninterrupted service and a seamless transition as we pursue this new chapter of federal oversight."

The announcement comes days after Paxos was fined by its New York regulator for anti-money laundering shortcomings. NYDFS fined Paxos $48.5 million for problems in its partnership with the largest cryptocurrency exchange, Binance, as well as weak internal compliance controls. The oversight failures enabled $1.6 billion in illicit transactions tied to sanctioned entities. The company said the issues were historical and have been remediated.

Regulators have been signaling increasing openness to fintechs entering the banking perimeter in the Trump administration. The OCC approved an agreement in which SmartBiz Loans bought Detroit-based Centrust Bank, acquired the community bank's national OCC-granted charter and changed its name to SmartBiz Bank in March. 

"A safe, sound and fair fintech business model has a place in today's federal banking system," said then Acting Comptroller of the Currency Rodney Hood of the SmartBiz deal. "This conditional approval demonstrates the OCC's commitment to a regulatory framework that supports innovations in banking that expand access to financial services for consumers and communities across the country."

Hood's permanent successor, Comptroller of the Currency Jonathan Gould, is expected to sustain the OCC's fintech-friendly regulatory posture. His background as an executive of blockchain firm Bitfury and service as OCC's Chief Counsel under the first Trump administration mean he is likely to continue the effort to integrate digital assets into traditional banking. 

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In nomination hearings before the Senate Banking Committee, Gould criticized previous regulatory approaches as stifling innovation and warned against deterring banks from working with crypto firms. In his opening statement to the Senate, he promised to spur innovation at the OCC.

"My top priorities will be ensuring national banks support our economy, depoliticizing the banking system, improving bank supervision, and embracing innovation within the agency and the banking system," Gould said. "I will do everything in my power to ensure the continued relevance of our national banking system and its ability to support our national economy consistent with the President's vision."