FDIC denies Zerohash's bid to become U.S. trust bank

Zerohash, the infrastructure arm of Morgan Stanley, was rejected in its bid to become a U.S. trust bank, CoinDesk reported on Tuesday. The pitch, submitted to the Federal Deposit Insurance Corporation (FDIC) in late 2023, sought to grant the firm a trust‑bank charter that would allow it to hold and safeguard crypto assets for institutional clients under U.S. regulatory oversight.

The rejection comes amid a push to bring more crypto custody services under the same regulatory umbrella as traditional banking. Trust banks are licensed institutions that can hold client assets, issue securities, and provide custody services, all protected by FDIC insurance. The crypto sector has been lobbying for a trust‑bank framework to give investors confidence that their digital holdings are safe and compliant. Zerohash, which manages infrastructure for crypto exchanges and has a track record of secure custody, hoped the charter would cement its position as a trusted custodian for institutional investors.

The FDIC cited “insufficient evidence of the firm’s ability to meet the trust‑bank capital and risk‑management requirements.” In its decision, the agency noted that Zerohash’s current capital base and governance structure did not align with the stringent standards applied to established trust banks. Industry observers point out that the U.S. has only a handful of trust banks, and adding a crypto‑centric player could shift the balance of custody services. Morgan Stanley’s spokesperson said the firm remains committed to expanding crypto custody, but will explore other regulatory pathways.

If Zerohash cannot secure a trust‑bank charter, it may turn to a bank‑chartered custody model or seek a partnership with an existing trust bank that can provide the required regulatory cover. The outcome will affect the broader crypto market, where institutional demand for insured custody is rising. A successful trust‑bank application could set a precedent for other crypto firms, while a rejection may slow the pace of regulatory integration and keep custody services in the hands of a smaller set of banks.