Ripple, Circle Face Resistance From U.S. Banking Associations Over Banking License

Several U.S. banking associations are urging federal regulators to reconsider the idea of granting national banking licenses to crypto-related entities.

These associations, representing a wide range of financial institutions, have raised concerns about the risks associated with allowing firms like Ripple and Circle to engage in banking activities under a national trust charter. The debate centers on whether these firms meet the criteria traditionally required for national trust banks.

U.S. Banking Associations’ Concerns 

Major U.S. banking groups, including the American Bankers Association (ABA), Independent Community Bankers of America (ICBA), and others, have voiced opposition to the approval of banking licenses for firms such as Ripple National TR Bank and Circle’s digital asset initiatives.

In a recent letter to the Office of the Comptroller of the Currency (OCC), these organizations called for a delay in reviewing the applications, arguing that the public has not been provided enough information to assess the potential risks properly.

The associations specifically highlighted the lack of transparency in the public portions of the applications submitted by these crypto firms. They stated that the information made available was insufficient for the public to fully understand the business models of these companies, which are seeking a national trust charter. This lack of clarity, according to the banking groups, prevents meaningful public input during the comment period.

Questions Around Fiduciary Activities by Ripple, Circle

A key issue raised by the banking associations is whether firms like Ripple and Circle can meet the fiduciary requirements typically associated with national trust banks. Under U.S. law, trust banks are expected to engage primarily in fiduciary activities such as managing trusts and estates.

The banking associations argue that crypto firms, which primarily provide custody services for digital assets and other related activities, do not meet these fiduciary criteria.

According to the OCC’s guidelines, custody services are not considered fiduciary activities. The banking groups argue that granting banking licenses to firms that offer services like digital asset custody would mark a significant departure from established policies and set a precedent that could affect the broader banking system.

The associations also pointed out that without a clear understanding of the applicants’ business models, it is difficult to assess how their operations will align with the responsibilities of a national trust bank.

Request for Public Scrutiny and Transparency

The banking coalitions have stressed on increasing transparency of the OCC examination. They have demanded to publish more clear data about the business plans of Ripple, Circle, and other crypto companies that want to become banks are offered the national banking charters. They also demanded the extension of the comment periods so as to give the stakeholders ample time to study the proposals carefully.

The letter emphasizes that moving ahead with national trust charters by firms not principally involved in fiduciary business would substantially shift the regulatory environment.

According to the associations, this manner of policy shift cannot be executed without public examination and consultation. They have directed the OCC to postpone its conclusion until more information is presented.

Possible Impact on U.S. Banking System

If the OCC were to grant national banking charters to crypto firms without fiduciary activities at the core of their business models, it could set a precedent that other companies may follow. According to the banking groups, this may pose a significant threat to the financial system of the U.S.

They feel that it may result in a scenario where by those that are not normally members of the banks system may start to provide similar services as the national banks do but without the same regulatory scrutiny.

The associations have also indicated that granting crypto firms a national trust charter would undermine the integrity of the banking system. According to them, companies with few fiduciary operations may gain an unhealthy competitive edge, and the resultant regulatory oversight crack may jeopardize the monetary system.