Paxos Trust Company is behind PayPal's PYUSD stablecoin, having submitted an application to convert its New York limited purpose trust license to a national trust bank license. The company's previous application expired in 2023.
If approved, a federal license issued by the Office of the Comptroller of the Currency (OCC) would allow Paxos to hold client assets nationwide and settle payments under federal supervision, which could enhance its appeal to institutional clients. Unlike traditional banks, national trust banks cannot accept cash deposits or issue loans.
Paxos co-founder and CEO Charles Cascarilla stated: "OCC's oversight will help us adhere to the highest standards of safety and transparency."
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Paxos's 2021 approval expired before launch
Paxos first applied for the license in December 2020 and received preliminary conditional approval from the OCC in April 2021. This approval allowed the company to begin meeting a series of pre-opening requirements, including capital, compliance, and operational benchmarks.
However, under OCC rules, conditional approval will expire if a bank does not open within 18 months. Paxos's approval expired on March 31, 2023. During this time, Paxos continued to operate under its New York limited purpose trust license held since 2015.
Regulatory hurdles and fines related to Binance
Paxos did not specify the reason for the expiration of its first OCC approval, but regulatory pressure was increasing at that time. In February 2023, the New York Department of Financial Services (NYDFS) ordered Paxos to stop issuing Binance USD due to compliance issues, increasing regulatory scrutiny and forcing it to terminate its partnership with Binance.
Last week, NYDFS reached a $48.5 million settlement with Paxos, accusing it of failing to comply with anti-money laundering regulations in its partnership with Binance. According to Thursday's announcement, Paxos is required to pay a $26.5 million fine to New York State and allocate an additional $22 million to enhance its compliance program.
Paxos's new application was submitted weeks after the GENIUS Act established the first federal framework for stablecoin issuers, and also following a wave of applications from other stablecoin issuers such as Ripple and Circle.
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