As Crypto Firms Grow, Calls for SPDI Charters



Having been hailed as the first crypto-friendly senator, Wyoming’s Cynthia Lummis lived up to that role on Dec. 1, asking her Republican colleagues to block the renominations of Federal Reserve Chairman Jerome Powell and Fed Governor Lael Brainard, accusing the central bank of “violating the law by delaying” approval of her home state’s bank-like SPDI charters for cryptocurrency companies.
The SPDI — Special Purpose Depository Institution — charter gives cryptocurrency exchange Kraken and “crypto bank” Avanti the ability to accept cash deposits to and from exchange accounts and custody customers’ crypto holdings.
But more importantly, they would — with Fed approval — allow SPDI charter-holders access to the Fed’s payment systems, making it far faster and cheaper to process customers’ orders.
That approval would bring with it the ability to provide access to the rails of the financial system. It is what the Fed has been delaying — for more than a year, which is where Lummis’ “violating the law” claim comes from — and what crypto companies want most from state banking charters issued by states like Wyoming and New York.
Riding the Rails
Access to Fed Master Account status — the rails of the financial system — is the prize for most crypto companies, rather than the ability to take FDIC-insured deposits.
“This would allow us to access the Federal Reserve System directly, reducing the costs and time for settling transactions,” USDC stablecoin-issuer Circle said in the August S-4 that it filed with the Securities and Exchange Commission in order to become a public company.
Read more: Circle’s National Bank Plans Signal Grand Stablecoin Ambitions
It’s not just a matter of cutting out he middleman, however. FinTechs generally and crypto firms in particular have been bedeviled by their inability to gain access to those rails through traditional banks.
In August, Reserve Trust CEO Dave Wright — whose firm is the first non-bank with a Fed Master Account — told Karen Webster that the ability to access those financial rails is a problem that FinTechs generally have been struggling with for more than a decade as banks turned away from B2B services as they sought to “de-risk” their balance sheets.
Stablecoins on Track
Master Account access also figures into the somewhat separate battle over whether the Office of the Comptroller of the Currency (OCC) should allow regular federal banks to custody stablecoins and use them to make payments.
Circle is seeking a federal banking charter that would allow it to become a fully-regulated “national digital currency bank.”
Also read: USDC Creator Circle Seeks Full-Reserve National Commercial Bank Status
That comes with other benefits, like exemption from the 50 states’ separate licensing requirements. Another is access to the regulatory oversight of anti-money laundering (AML) rules that have been a stumbling block for many crypto and fintech firms’ financial ambitions.
Among those ambitions are providing crypto services to traditional banks and investment companies, whose interest in providing crypto services to clients has been growing rapidly in 2021 as bitcoin began to be seen as a legitimate investment opportunity.
But that requires trust, and a national bank charter provides that comfort level. It’s why companies like Anchorage and Paxos applied for and received de novo bank charters form the OCC under Brian Brooks — whose policy is under heavy scrutiny from his predecessor, Michael Hsu.
States’ Rights
Wyoming’s SPDI regulatory oversight regime was created in cooperation with the Fed, Sen. Lummis said, noting that the state had more than 100 meetings with the Fed’s Board of Governors and the Federal Reserve Bank of Kansas City in creating what she called a “comprehensive regulatory framework.”
How strict and how effective that framework is remains a point of contention, with existing banking associations saying that state-issued charters have far lighter oversight than federal banks receive under federal regulations.
But with a Fed Master Account and the access to the financial systems rails it provides, state-chartered banks would gain not only financial access but respectability.
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