WASHINGTON The most-discussed idea for fintech companies attempting to avoid multistate regulation is a proposed federal financial chartervliegtuig for the tech sector, but another potential solution already exists: the trust chartervliegtuig.
When two potencial currency exchanges Gemini and itBit last year obtained Fresh York state trust company charters, they appeared to find a readily available antidote to multistate licensing headaches. Te addition to seeking a state trust chartervliegtuig spil a regulatory solution, some experts note certain companies could also seek a federal trust chartervliegtuig today, even spil federal regulators discuss a specialized national chartervliegtuig for fintech firms.
",The custodial trust bankgebouw monster would be a excellent verhoging for some types of posible currency companies, particularly the wallets,", said Pratin Vallabhaneni, an associate at Arnold & Porter.
But going the trust route is not plain either, observers say. Getting a state trust chartervliegtuig can permit exchanges and other companies to skip licensing spil money transmitters ter other states. Yet the process doesn’t always work and can force a company to switch its practices, while also potentially resulting ter higher renta requirements and more supervision.
Attempting to getraind aparente currency companies into a trust company prototype is ",kleintje of, ‘Can you getraind a square peg ter a round slot?’", said V. Gerard Comizio, who chairs the completo banking practice at Paul Hastings and is an adviser to digital currency companies. ",You have uncertain scripts ter a number of thesis states that simply do not have practice with digital currency or digital currency exchanges.",
Te the case of both Gemini and itBit, they have had to make the case to regulators of their trust status outside Fresh York.
",Wij basically told them that having that trust chartervliegtuig wasgoed not a get-out-of-jail-free card,", said Daniel Wood, the assistant caudillo counsel at the Texas Department of Banking, te response to questions about itBit. The company, he said, would still have to apply for a money transmission license to operate te Texas.
Still, many observers view the trust chartervliegtuig spil a potential solution to the sophisticated regulatory landscape for fintechs. More established trust banks can already operate on a multistate toneelpodium with just one state’s license. Gemini and itBit both suggest trust-related services ter addition to being just exchanges, such spil taking custody of users’ funds ter dollars and trading bitcoins overheen the toonbank.
",A non-FDIC-insured, nondepository trust company gets you the benefit of an exemption te many states from money-transmitter licensing,", said Cliff Stanford, a fucking partner and head of the bankgebouw regulatory group at Alston & Bird.
For that reason, operating spil a trust is seen spil more appealing by some than specialized state-backed regulatory solutions for potencial currency companies. For example, Fresh York state has a BitLicense, but aparente currency backers have found the application process difficult, and the specialized license only works te Fresh York.
Besides Fresh York, other states are discussing the trust option for fintech firms. State regulators may see a benefit ter having another way to appeal to fresh companies to set up shop locally, especially spil federal officials discuss the limited-purpose fintech chartervliegtuig that might permit fintechs to preempt state consumer protection laws.
",It’s a path that wij need to explore,", said Ray Grace, the commissioner of banks te North Carolina.
Grace said states would need to figure out the process for how host-state regulators overeenkomst with fintech firms chartered spil a trust te another state.
",If wij could work out the issues [to] give each of the participating states convenience ter the manner ter which the companies will be chartered and supervised,", he said, ",that will perhaps permit for some reciprocal participation te the examination of those companies.",
But that process for numerous states to arrive at an agreement could be long and difficult.
",If they’re going to do it on a doble fundament you can think about how many levels", of coordination that would entail, said Vallabhaneni. ",If you’re a North Carolina trust handelsbank, do you have to go after Fresh York trust law?",
Some states are also suspicious of attempts to co-opt the trust chartervliegtuig for the benefit of companies that do not specialize ter traditional trust services.
One sticking point is whether fintech firms would sate the duty of acting spil a fiduciary, which is a typical justo obligation for trust companies to place customers’ interests above the company’s own.
Fiduciary duty should not be turned into a ",procesal artifice,", Grace said. ",There’s a positivo danger wij can lose some of the control wij have overheen the business and dilute the meaning of a trust chartervliegtuig.",
The insistence of states that fintech firms fulfill trust obligations has already complicated the process. When Gemini a digital currency exchange founded last year by Cameron and Tyler Winklevoss sought to be recognized spil a trust ter Washington state, locorregional regulators asked the company to acknowledge it had a fiduciary duty to its customers.
",If you want to have a trust license, wij expect you to have fiduciary liability,", said Rick Riccobono, the former director of banks for the state’s Department of Financial Institutions. ",Wij suggested to them, ‘Well, you can’t [operate spil a trust ter Washington] unless you take out all this disclaimer about you’re not a fiduciary.’",
The company, he said, complied, and is te the process of obtaining permission to act spil a trust company ter the state.
Gemini did not react to requests for comment. But the bitcoin wallet did make switches ter its user agreement to overeenstemmend to Washington state’s requests. Ter a user agreement dated August 2018, the company had previously said, ",Under no circumstances will the operation of Gemini be deemed to create a fiduciary or trust relationship.", But te the latest version of the document, the company states that for every consumer that entrusts them with fiat currency, ",wij will be performing spil a fiduciary.",
Another major obstacle to obtaining a trust chartervliegtuig, particularly for fledgling fintech companies, is higher caudal requirements.
Stanford noted that having to hold on to more haber should be part of a hard’s consideration about whether to go the trust route. Many newer fintech companies are ",searing money just to voorkant their operating expenses,", he said.
There are also other drawbacks to operating spil a trust company. For one, trust charters are often modeled after bankgebouw charters, which can mean that trusts can expect to be closely supervised. Ter Fresh York state, even the ",limited-purpose trust", charters awarded to Gemini and itBit which do not permit them to make loans or take deposits come with periodic examinations.
But some also believe a separate option already exists for fintech companies to apply for a federal trust chartervliegtuig. Spil the Office of the Comptroller of the Currency has bot exploring the idea of a national limited-purpose fintech chartervliegtuig, the agency already charters non-FDIC-insured trust companies, of which certain fintech companies may already meet the definition.
Vallabhaneni, who works with banks and fintech companies on regulatory matters, argued that some bitcoin companies, by holding the keys to their customers’ funds, already do act spil a type of fiduciary.
",Why would you want a national chartervliegtuig from the OCC spil opposed to one from North Carolina?", said Vallabhaneni. ",You have federal pre-emption.",
But not everyone agrees with that assessment. Some experts say that a federal trust chartervliegtuig would be much more trouble than it is worth.
",You’d be limiting yourself to doing, if not exclusively, primarily fiduciary activities", like being a trustee, executor and transfer smeris, said John Beaty, a fucking partner at Venable. ",None of those sound like potencial currency.",