The Bank Policy Institute (BPI) and ICBA warned that Coinbase’s trust charter raised legal and systemic concerns that required further disclosure.
The Independent Community Bankers of America (ICBA) is opposing Sony Bank’s bid for a national trust charter to issue stablecoins. The offer, according to the ICBA, exploits regulatory gaps that could put customers at significant risk.
Last week, ICBA sent a letter to the Office of the Comptroller of the Currency (OCC) claiming that Sony Bank intends to use Connectia Trust for cryptocurrency-related activities.
On October 6, Sony Bank filed to create Connectia Trust, a company that would offer digital asset custody services, retain reserve assets, and issue dollar-pegged stablecoins. According to the letter, Sony plans to utilize Connectia Trust to provide asset management services to select affiliates in a fiduciary capacity.
The group argued that Connectia Trust will not accept deposits or apply for Federal Deposit Insurance Corporation (“FDIC”) insurance. Connectia will instead conduct banking operations and related activities that are acceptable for a national bank.
Mickey Marshall, the ICBA’s Vice President and Regulatory Counsel, stated that Sony appears to have established Connectia Trust to conduct banking-like operations without accepting deposits, thereby benefiting from a U.S. bank charter while avoiding compliance with all U.S. bank laws.
ICBA flags risks in Sony stablecoin proposal
ICBA warned that the Japanese financial giant is exploiting traditional banking monitoring by taking advantage of regulatory gaps. Additionally, ICBA requested that the OCC reject Sony’s application, citing that the application relies on an illegal reinterpretation of the statutory authorities of national trust banks. Community bankers argued that Connectia might predictably generate consumer confusion and harm in the event of insolvency.
Connectia Trust joins an expanding list that includes Coinbase, Crypto.com, Circle, Ripple, Bridge (Stripe’s stablecoin arm), and Paxos. All of them are vying for federal charters as the stablecoin market soars above $311 billion following the passage of the GENIUS Act in July.
According to ICBA, Connectia’s stablecoin shares many features with bank deposits, including electronic transfers, point-of-sale spending, and one-to-one dollar redemption. However, it would not be subject to the Community Reinvestment Act and federal deposit insurance standards that apply to traditional banks.
The letter questioned whether Connectia’s eligibility for the Bank Holding Company Act is limited to institutions that operate “solely in a trust or fiduciary capacity.”
Mickey Marshall stated that Connectia intends to use its national trust bank charter to illegally imitate the deposit-taking operations of a traditional bank, without the conditions, limitations, and compliance obligations that typically accompany a national bank charter.
Additionally, the ICBA questioned Sony Corporation’s approximately 20% ownership in Connectia’s parent business, Sony Financial Group. The group claimed that Sony warrants further investigation to determine whether a controlling influence exists that would necessitate bank holding company regulation.
ICBA warned that a single failure in key reassembly or system migration could result in the permanent loss of access to billions of dollars in customer assets. Additionally, the group claimed that the OCC has not handled an uninsured national bank since 1933 and lacks the necessary expertise to handle a complex cryptocurrency collapse.
Coinbase trust charter faces regulatory pushback
ICBA submitted identical objections against Coinbase’s proposal for a trust charter. Coinbase applied for a national trust charter to the Office of the Comptroller of the Currency (OCC) on October 3.
Coinbase claimed that if licensed, it would be able to provide goods and services more quickly and further innovate to integrate digital assets into traditional finance. Factually, the licence helps companies that aren’t banks manage their own reserves and take care of assets for institutions.
The exchange added that if approved, the charter would continue to provide Coinbase with the opportunity to introduce new products outside of custody, such as payments and related services, encouraging wider institutional adoption. However, the Bank Policy Institute (BPI) and ICBA requested that the OCC deny Coinbase’s application for a national trust bank charter.
On November 3, the group submitted a separate letter to the OCC warning that Coinbase’s application raises systemic and legal concerns. The letter urged that the Coinbase application should be rejected unless the company provides more information about its business model.
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