Protego, an institutional cryptocurrency custodian, has failed to receive permanent approval for its conditional national trust banking charter, according to a report by Fortune. The United States Office of the Comptroller of the Currency (OCC) revealed that the firm didn’t meet pre-conversion requirements. Pre-conversion requirements included policies, procedures, systems, and other measures to ensure the safe and sound operation of the bank as well as minimum capital and liquidity requirements.
Protego, based in Washington state, was granted an 18-month conditional charter in February 2021, but with the expiration of its conditional charter, it cannot accept deposits. The company may reapply to the OCC, which is a division of the federal Treasury Department, or state authorities to operate as a state bank.
Protego Founder and Executive Chair, Greg Gilman, claimed that the company had met the financing requirement and could either reapply to the OCC or apply to state authorities to operate as a state bank.
If Protego had received the charter, it would have allowed the company to custody digital assets and perform credentialing functions, such as Know Your Customer (KYC) measures if it had become a national bank. However, Anchorage Bank is the only crypto firm that has secured a national banking charter.
Custodia Bank was denied a place in the Federal Reserve System on February 23, while Paxos also received a conditional national trust bank charter in 2021. A spokesman for Paxos confirmed that the company “continues to work constructively with the OCC” regarding its pending application.
Protego’s charter denial comes at a crucial time for the crypto industry. The industry has seen repeated setbacks in its attempt to gain banking charters, leaving the market with fewer options than anticipated. Investors in the crypto market must rely on centralized custodians to safeguard their assets, although a recent survey revealed that 89% still trust centralized custodians in the face of 2022’s collapses.
According to industry experts, the lack of regulation and banking charters makes institutional investors hesitant to enter the market. Policymakers and regulatory authorities must find a way to balance innovation and stability to encourage institutional investment.
Institutional investors, in particular, have become vital for the future development of the crypto industry. Still, the lack of regulations and banking charters have made them cautious about entering the market. The industry needs to address this issue to achieve long-term success.
In conclusion, Protego’s failed attempt to gain permanent approval for a national trust banking charter is a harsh reminder of the challenges the crypto industry faces. While the industry desires to innovate and compete, it cannot afford to cut corners on its regulatory obligations. The industry needs pragmatic policies that accommodate innovation and maintain stability to attract institutional investors and promote growth.