Legal Expert Says Bank Charters Are Crypto’s Credibility Play

Watch more: TechReg Talks: Davis Wright Tremaine’s Steve Gannon

The pursuit of bank charters by FinTechs and cryptocurrency-focused firms is accelerating, driven less by novelty and more by pragmatism. As these companies look to expand beyond niche services into core financial activities, charters are increasingly viewed as the most direct way to achieve scale, credibility and regulatory clarity.

Charter Options Are Expanding, but They Are Not Equal

FinTechs and crypto banks considering entry into regulated banking face several charter pathways, including national trust bank charters, industrial loan companies (ILCs) and state trust bank charters. According to Steve Gannon, partner at Davis Wright Tremaine LLP, each option carries different implications for supervision, geographic reach and long-term strategy.

“I’d say the national trust bank charter probably is the preferred course,” Gannon said in an interview with Competition Policy International, a PYMNTS firm. He pointed to recent approvals by the Office of the Comptroller of the Currency (OCC) and additional applications moving through the process. “It allows consistency, and it gives you more flexibility as well.”

State trust banks, he noted, are generally limited to operating within a single state. Although Gannon said ILCs are becoming more viable as attitudes shift at the Federal Deposit Insurance Corporation (FDIC), he described the process as slower and more fragmented than the federal trust bank route.

Regulators Signal Openness to Innovation

The growing appeal of national trust bank charters is closely tied to changes in regulatory posture. Gannon pointed to recent OCC statements expressing support for novel and innovative activities conducted through trust banks, a signal that federal regulators are prepared to engage with new business models rather than resist them.

For cryptocurrency-focused firms, that openness matters. Many are built around faster transaction speeds, global movement of funds and new custody structures that do not fit neatly into legacy banking models. A federal charter provides a framework in which those innovations can be evaluated and supervised on a consistent basis.

Why FinTechs and Crypto Banks Favor National Trust Bank Charters

Beyond regulatory tone, FinTechs and crypto banks are gravitating toward national trust bank charters for concrete operational reasons. Gannon said these charters allow firms to operate nationally and provide services to other banks, an important consideration for companies whose business models depend on scale and interoperability.

“You saw in some of the charter applications that firms are chartering national trust banks so that they could provide services to state-chartered banks,” Gannon said.

The structure also offers a strategic runway. Gannon said trust banks can serve as a preparatory step for firms that may ultimately seek a full national bank charter. “Working with the OCC over a period of time would help prepare them for that,” he said, describing the trust charter as both an endpoint and a bridge to broader banking powers.

For FinTechs and cryptocurrency banks, that optionality is critical. It allows firms to start with a narrower mandate while building supervisory relationships, governance discipline and operational maturity under federal oversight.

No Shortcuts on Safety and Soundness

Despite increased momentum, Gannon emphasized that crypto-focused applicants face the same foundational requirements as any other bank. Regulators, he said, continue to focus on capital adequacy, liquidity, management talent and operational processes.

“The elements that they’re going to consider are common ones,” Gannon said. “Is there enough capital? Is there enough liquidity? Do you have appropriate talent in place? Do you have the right processes in place?”

He cautioned that crypto firms cannot expect special treatment. “There’s no magic fairy dust that they can sprinkle over a charter application and say this makes it faster or easier,” Gannon said. “They have to go back to basics and make sure they get those right.”

Explaining New Technology to Traditional Supervisors

One challenge unique to crypto-focused applicants is explaining how compliance is embedded into technology. Gannon said smart contracts often hard-code controls that traditionally sit in policies and procedures, but regulators cannot be expected to intuitively understand those mechanisms.

“You can’t necessarily assume that a federal regulator is going to know all about smart contracts,” he said, adding that firms have to be prepared “to walk them through exactly how this works so you can satisfy the regulators that, by granting the charter, they’re not injecting some sort of infection into the system.”

From Reputational Risk to Financial Reality

Gannon said regulators have formally stepped away from supervising on the basis of reputational risk, instead grounding decisions in safety and soundness tied to material financial impact. While reputational concerns may still exist informally, he said the shift gives firms clearer and more objective standards to plan around.

Heavy compliance investments by crypto banks do not always translate cleanly into supervisory comfort. Gannon said recent legislative efforts, including the GENIUS Act and pending market structure reforms, are adding clarity that should narrow that gap.

He also addressed the role of confidential supervisory information, arguing that while confidentiality is essential, overly broad interpretations can stifle innovation.

“There does need to be a better balance,” Gannon said, adding that improved information sharing could benefit both regulators and regulated institutions.

A Dialogue-Driven Path Forward

Looking ahead, Gannon said the durability of FinTech and crypto bank charters will depend on sustained dialogue rather than static rules. Rapid infrastructure development makes continual engagement essential.

“Developers are developing 24/7 around the globe, and they’re simply not going to stop,” he said. The opportunity and challenge is for regulators and the industry to keep in sync so the continuing dialogue “can help the industry comply with regulatory demands,” he told CPI.