Paxos’ hopes of becoming a national bank die, application for charter expires

Details from the United States Office of the Comptroller of Currency (OCC) show that Paxos’ application for a national banking charter, under “2020-NE-Charter-318305”, expired on March 31.

Paxos national banking charter application expires

Paxos, a stablecoin issuer regulated by the New York Department of Financial Services (NYDFS), had applied for a license under the Charter National Bank Under Holding Company (Trust Bank). 

The OCC received the application on Dec. 8, 2020, and gave them the “preliminary conditional approval” on April 23, 2021. However, by the time the application expired on March 31, 2023, Paxos had not been granted a license to operate a nationally chartered bank under “Paxos National Trust,” a brand name they had proposed.

If they had received a charter, Paxos would be free to launch and run a bank nationwide while regulated by federal laws.

The OCC is a subsidiary of the United States Treasury Department tasked with, among other things, issuing charters and licensing. Their licensing division collaborates with other divisions to “render independent decisions, supported by a strong record of facts and in compliance with applicable laws and regulations.”

With the Preliminary conditional approval they received two years ago, Paxos had to split operations in two. One entity was regulated nationally, while the other maintained its existing regulatory structure. 

At this time, the stablecoin issuer was permitted to do several things, including continuing their stablecoin issuing services, running an exchange, and, most importantly, storing clients’ USD and cryptocurrencies.

The OCC also gave Paxos 18 months when they were required to implement their business plan. Among other requirements Paxos had to state under their business plan, they were to “describe the institution’s business and any special market niche, including the products, market, services, and nontraditional activities.” 

Regulatory challenges 

The expiry is a month after Paxos denied widespread rumors that they had been asked to withdraw their application. Paxos clarified that they were working “constructively with the OCC.” 

However, less than a week later, on Feb. 13, the NYDFS ordered Paxos to stop minting new BUSD tokens. BUSD is a stablecoin that tracks the value of USD. Even though the directive didn’t impact the product, it was news that the United States Securities and Exchange Commission (SEC) had sent a Wells Notice to the issuer, stating that BUSD was a security. 

Because of the rising regulatory action, Paxos also ended its association with Binance, a cryptocurrency exchange.