New York Trust Charter
Last week, BitGo obtained a New York Trust (becoming a New York Limited Liability Trust Company) from New York Department of Financial Services (NYDFS) to operate as an independent, regulated qualified custodian under New York State Banking Law. The Trust Charter enables BitGo to provide custodial services for New York clients who need to secure large amounts of digital assets with designated entities that offer the highest level of security, regulatory oversight and operational efficiency. Additionally, a New York Trust Charter allows a company to provide custodial services in many other states without obtaining additional licenses. To date NYDFS has only approved a handful of Trust Charters for companies engaged in virtual currency business activity, including Gemini, Coinbase and Paxos.
In a press release, NYDFS Superintendent of Financial Services Linda A. Lacewell said “New York’s dynamic and fast-moving crypto industry continues to mature and grow. . . The approval of this new charter is another step towards helping New Yorkers meet their need for digital asset custodial and related services and will promote the continued growth of the virtual currency industry in the State, helping diversify and innovate New York’s economy at a time when we are working to rebuild and recover New York’s economy.”
“We are extremely proud to receive the approval for a trust charter from NYDFS to serve the world’s premier financial organizations that are based in New York State,” said Mike Belshe, CEO, BitGo. “The past year has been exceptional for BitGo and the digital asset markets overall, primarily due to the influx of large financial services institutions that bring a new level of credibility, liquidity and stability to the crypto ecosystem.”
BitGo Adding to its Regulatory Arsenal
Interestingly, this is not BitGo’s first charter. In September 2018, BitGo received a South Dakota Trust Charter from the South Dakota Division of Bankings. BitGo confirmed to me that it will maintain both the New York Trust Charter and South Dakota Trust Charter. This is in part because there is value in having two trust charters to serve a diverse set of clients and the redundancy can preserve business continuity. Additionally, there are some important differences between the trust charters. For instance, South Dakota’s capital requirement is fixed, while New York’s capital requirement increases based on the amount of digital assets in its custody.
New York remains an appealing avenue because of the institutional investors. Belshe explained to me, “Bitcoin’s newfound attention this past year has left the impression that the digital asset industry has arrived. The new influx of institutional money fueling the Bitcoin surge is a welcomed development, but we are still in the early stages of building a new financial ecosystem.”
State and National Trust Charters (whether it be NYDFS, South Dakota or OCC) expand the services that cryptocurrency companies can offer, but there are still many outstanding questions that need to be resolved. For instance, it is unclear whether Trusts (state or federal level) can accept deposits and obtain FDIC insurance. Additionally, it is not yet determined whether Trusts or State Banking Charters are able to open accounts at the Federal Reserve and access its payment rails.
These questions, along with an analysis regarding how trust charters compare with other regulatory approaches, will be explored in my next piece. Stay tuned!