Final Ultimatum! 40 Wall Street banks join forces to crack down, the crypto compliance "backdoor" deadline is April 1st—are $BTC and $ETH hanging by a thread?

A war over who qualifies to enter the U.S. financial system is escalating from regulatory battles to legal confrontations. An industry group representing forty major banks, including JPMorgan Chase, Goldman Sachs, and Citigroup, is seriously considering suing the Office of the Comptroller of the Currency (OCC) to prevent it from issuing banking trust licenses to crypto companies and fintech startups.

Once the lawsuit is filed, it will be the most significant legal conflict in U.S. banking regulation since 2020. The core issue is whether the crypto industry can obtain a federal license that allows it to compete on equal footing with traditional banks.

The spark for the conflict was ignited in December last year. At that time, the OCC conditionally approved trust bank licenses for five native crypto companies, including Circle, Ripple, BitGo, Paxos, and Fidelity Digital Assets. This was the first time federal regulators broadly opened such channels to crypto firms.

Since then, a surge of applications has followed. In just 83 days, eleven companies submitted applications, including crypto and fintech firms like Crypto.com, Bridge, Zerohash, as well as traditional financial giants like Morgan Stanley. In February, Crypto.com’s application received conditional approval.

More controversially, a crypto firm linked to the Trump family, World Liberty Financial, also applied in January to establish a trust company and directly issue its USD 1 stablecoin. Despite pressure from senators citing conflicts of interest, the OCC refused to delay the process.

Opposition groups are expanding. A joint committee representing regulators from all 50 states has taken a hard stance, with its chair publicly criticizing the OCC for assembling a “Franken license,” turning a narrow trust license into a backdoor for full banking services, and indicating that litigation is a possible option.

The Community Bankers Association also strongly opposes, arguing that new license holders will compete unfairly with traditional banks under looser regulations. The American Bankers Association has called for a halt to the approval process. The core argument against these licenses is that their use has far exceeded their statutory and historical scope.

The legal dispute centers on a 2021 interpretive letter from the OCC, which redefined the scope of trust bank activities, substantially lowering the barriers for crypto firms to obtain licenses. The letter was drafted by the then-chief legal officer, who is now the director enforcing the rule.

On February 27, the OCC proposed further rule revisions, changing the language from “trust activities” to “trust company operations and related activities,” with the new rules set to take effect on April 1. Critics argue this wording further blurs the boundaries of permissible activities.

Opponents’ legal challenge claims that the OCC’s reinterpretation and wording changes effectively alter the rules without following the formal rulemaking process required by the Administrative Procedure Act, including public notice and comment. This is seen as a major procedural flaw.

The OCC director defends the move, stating that trust companies have long provided both fiduciary and non-fiduciary custody services, and that stablecoin reserves are narrow, segregated, and do not create credit. He emphasizes that the law requires approval of all applicants meeting statutory criteria, regardless of their technology.

At the surface, the dispute appears to be about approval standards, but at its core, it’s about access rights. Traditional banks fear regulatory arbitrage: crypto firms can operate nationwide in payments, custody, and stablecoin issuance with just a trust license, without bearing the same capital, consumer protection, or deposit insurance costs as traditional banks.

The crypto industry’s logic is clear: obtaining a unified federal compliance status is key to mainstreaming. If this channel is closed, firms will face high costs and fragmented regulation by having to apply state-by-state.

Currently, the Federal Bank Policy Institute has not officially filed suit, but sources say its legal team is preparing. The Conference of State Bank Supervisors also reserves the right to sue. The upcoming responses from the OCC, the rule revisions taking effect on April 1, and the handling of controversial applications will be critical points to watch.

The outcome of this conflict will have far-reaching implications for the institutional adoption and compliance narratives of major cryptocurrencies like $BTC and $ETH. It’s not just a legal battle; it’s a redefinition of the boundaries and rules between the old and new financial systems.

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