Protego did not meet charter requirements, OCC says

Acting Comptroller of the Currency Michael J. Hsu. Graeme Sloan—Sipa USA/Reuters

In February 2021, the Office of the Comptroller of the Currency—a U.S. Treasury agency tasked with overseeing federal banking—granted conditional approval for the application by Washington-based Protego Trust Company to convert to a national trust bank.

After the OCC extended its conditional approval once to February 4, 2023, a spokesperson said Fortune on Friday that Protego did not meet pre-conversion requirements, meaning its conditional approval expired.

Protego’s failed conversion to become a federally chartered bank – which would have allowed it to hold digital assets, along with other credentialing privileges – is yet another setback for the crypto industry’s US banking ambitions.

Currently, Anchorage Digital is the only crypto firm to receive a national banking charter from the OCC, and Wyoming-based Custodia was denied membership in the Federal Reserve system in January.

Protego and another firm in the process of applying for an OCC national bank trust charter, Paxos, were the subject of rumors following the Fed’s rejection of Custodia, with speculation that the OCC would follow suit.

In early February, Protego founder and executive chairman Greg Gilman described as “categorically untrue” that Protego had been asked to withdraw its application by the OCC, and sources familiar with the matter said Fortune they did not believe that Paxos had been asked to withdraw the application or had been refused.

“Paxos continues to work constructively with the OCC,” a spokesperson said Fortune.

The situation is more complicated with Protego.

Protego had funding requirements, which Fortune has learned was a combined $54 million in tier 1 capital and liquidity in addition to sufficient working capital, which it had to secure before operating as part of its conditional approval.

“[The] pre-conversion requirements included guidelines, procedures, systems and other measures to ensure safe and sound operation of the bank as well as meeting minimum capital and liquidity requirements, the OCC spokesperson said. Fortune.

According to a person with direct knowledge of the matter, Protego had signed definitive agreements for investments beyond that amount, which it submitted to the OCC on Feb. 3, the day before the conditional approval was set to expire, as part of a certificate of completion. The next day, the OCC informed Protego that it was not yet authorized to operate as a national trust bank, meaning it did not have an opening date. As part of this communication, the OCC did not tell Protego that the firm had not met the conditional approval requirements.

On Friday, the OCC issued its weekly bulletin with an addendum that Protego’s time had expired for a conversion — the first public confirmation of the application — which an OCC spokesperson confirmed to Fortune.

In a telephone conversation with Fortune, Gilman said Protego now has two potential paths to follow. The first is to meet the requirement with its chartering authority in its home state of Washington to operate as a state bank. The other would be to reapply with the OCC, especially because, in Gilman’s view, Protego has met its capital requirements.

The expiration of Protego’s filing represents yet another significant setback for the crypto industry in the U.S. Last week, two of the main U.S. crypto-friendly banks collapsed, with Silvergate announcing it would voluntarily liquidate and New York regulators taking control of Signature.

The OCC appears to be closing its doors to crypto firms as well. Under Trump administration Acting Comptroller Brian Brooks, the agency oversaw conditional approvals of several companies. His successor, Michael Hsu, reversed course, indicating he would roll back pro-crypto policies and order a review of the agency’s actions.