Regulatory Roundup #14

Summary

The banking industry is fighting crypto on two fronts at once and is losing one of them.

Kraken’s Wyoming-chartered bank became the first digital asset institution in US history to receive a Federal Reserve master account on March 4, gaining direct Fedwire access for the first time. That landed alongside eleven OCC national trust bank charter applications or approvals in 83 days - among them Circle, Ripple, Fidelity, and Morgan Stanley. The banks’ counterpunch on the legislative front was less accommodating: the American Bankers Association formally rejected the White House’s CLARITY Act compromise on March 5, with President Trump accusing them of holding the bill hostage. Winning a Senate procedural fight while Kraken connects to Fedwire is a particular kind of victory.

Elsewhere this week: the Treasury told Congress that crypto mixers have legitimate privacy uses - a remarkable reversal from the department that sanctioned Tornado Cash in 2022. The SEC sent its token taxonomy to the White House for review. The OCC dropped a 370-page GENIUS Act rulemaking. VARA issued a cease-and-desist against KuCoin in Dubai. And in Hong Kong, the HKMA is finally ready to issue its first stablecoin licenses, seven months after the register opened empty.

🔦 Spotlight

💵 The bank run (in reverse): eleven charter applications, one Fed master account, and a two-front war

For most of crypto’s history, its relationship with the banking system was defined by what it could not get: a bank account that would not be closed without notice, access to payment rails without intermediary risk, and a regulatory home that gave counterparties confidence. That picture is changing, fast, and the incumbent banks are not happy about it.

In eighty-three days, eleven companies filed for or received conditional OCC national trust bank charter approvals. The list reads like a who’s-who of crypto infrastructure and TradFi convergence: Circle, Ripple, BitGo, Paxos, and Fidelity Digital Assets received conditional approvals in a single December batch - the first time the OCC had approved multiple crypto-native firms at once. Bridge (Stripe’s stablecoin subsidiary), Crypto.com, and Protego followed in February. Then came Morgan Stanley, which filed for a de novo national trust bank on February 18 to house Morgan Stanley Digital Trust, National Association, a custody and digital asset execution vehicle. Payoneer and Zerohash filed in the days that followed.

A national trust bank charter is a meaningful regulatory home. It confers federal preemption, comprehensive OCC oversight, and - crucially - the ability to engage in nonfiduciary activities like custody and safekeeping without also taking deposits or making loans. The OCC finalized a rule on exactly this point on April 1, removing any ambiguity about whether trust banks could offer crypto custody alongside their fiduciary work. For Morgan Stanley, the play is obvious: its E*Trade platform plans to launch direct spot trading in Bitcoin, Ethereum, and Solana in the first half of 2026. For crypto-native firms, federal charter status means a counterparty can point to OCC oversight rather than an offshore entity structure when a bank or institutional client asks “who regulates you?”

The master account is the more structurally significant milestone. On March 4, the Federal Reserve Bank of Kansas City approved a limited-purpose “skinny” master account for Kraken Financial, Kraken’s Wyoming-chartered special purpose depository institution. This makes Kraken the first digital asset-focused bank in US history to connect directly to Fedwire - the central bank’s real-time gross settlement system - without routing through a correspondent bank. The account is genuinely limited: no interest on reserves, no access to the discount window, initial one-year term. But those restrictions are beside the point. The operational significance is that Kraken can now settle dollar transactions over sovereign payment rails, eliminating its dependence on third-party banks whose relationships with crypto firms have historically been fragile.

The contrast with Custodia Bank is instructive. Custodia applied for a master account the same month as Kraken - October 2020 -  met every standard the Federal Reserve asked of it, was denied in early 2023, and lost a subsequent legal challenge. Kraken’s application, identical in vintage, succeeded in a materially different political environment. The implication for other firms seeking similar access is not lost on the market. The Banking Policy Institute immediately condemned the Kansas City Fed’s decision, warning that it “ignores public comment” and extends payments infrastructure to institutions not subject to full banking regulation. The ABA went further, calling the account “deeply concerning.” From an industry relations perspective, one might note that the same ABA, days earlier, had rejected the White House’s own CLARITY Act compromise.

The banks are now engaged on two simultaneous fronts. In Congress, they are blocking the legislative framework that would give crypto firms a statutory home in US financial law - the stablecoin yield dispute remains the live flashpoint. At the OCC and Fed, they are fighting the chartering and payments-access process that allows crypto firms to embed themselves in the banking system by other means. The result is an uncomfortable strategic picture: the more banks succeed in blocking legislation, the more crypto firms pursue existing regulated infrastructure instead. The CLARITY Act deadlock is, inadvertently, accelerating the trust bank application pipeline.

For institutional counterparties and trading firms, the practical implications are significant. A crypto firm with an OCC trust charter is supervised by a federal regulator to a known standard, making it a more credible custody, settlement, and liquidity counterparty. A crypto firm with a Fed master account can settle fiat domestically without the correspondent bank risk that has disrupted crypto markets several times. Neither development resolves the broader legislative uncertainty, but together they mark a genuine shift: the question is no longer whether crypto can become financial infrastructure, but how much of the existing infrastructure it will occupy before Congress decides what to call it.

🌎 Global Developments

🇺🇸 United States

⚖️ CLARITY Act: the ABA kills the White House compromise

The CLARITY Act is stalled again, and this time the proximate cause is the banking industry rather than a Senate procedural fight. On March 5, the American Bankers Association (ABA) formally rejected the compromise text the White House had spent weeks brokering between Republican and Democratic Senate negotiators. The White House had set March 1 as a deadline for compromise language; that deadline passed without a published text, and two days later President Trump posted on Truth Social accusing banks of holding the bill “hostage” while warning that failure would drive crypto activity to China. The ABA’s rejection landed regardless.

The sticking point is unchanged from January: whether stablecoin issuers and platforms can pay yield or rewards on stablecoin balances. Banks argue that permitting this would undermine their deposit franchise and create an unlevel regulatory playing field. Crypto firms argue it is protectionism wrapped in a compliance hat. Neither side has moved. The Senate Banking Committee’s markup, postponed indefinitely after the January drama covered in Issue 11, has no new date. With midterm gravitational pull strengthening as the calendar advances, the window for a clean legislative outcome is narrowing.

🏷️ SEC token taxonomy goes to the White House

On March 3, the SEC submitted a Commission-level interpretation titled “Commission Interpretation on Application of the Federal Securities Laws to Certain Types of Crypto Assets and Certain Transactions Involving Crypto Assets” to the White House’s Office of Information and Regulatory Affairs for review. OIRA review must be completed before the Commissioners hold a final vote. The guidance is expected to establish a token taxonomy - a framework for categorizing crypto assets by whether they fall under SEC jurisdiction as securities, or are to be treated differently.

This builds on a January 28 staff statement on tokenised securities taxonomy, and on a joint SEC-CFTC event at which both chairs committed to making “Project Crypto” a shared initiative, with a formal MOU expected to follow. CFTC Chair Selig confirmed that his staff are working with SEC counterparts on joint codification of the proposed taxonomy. For market participants, a Commission-level interpretation - rather than staff guidance - would carry greater legal weight and durability, though Congress has not yet provided the statutory foundation that would make the most ambitious parts of the agenda durable.

📜 OCC publishes 370-page GENIUS Act NPRM

On February 25, the OCC published a notice of proposed rulemaking to implement the GENIUS Act, covering the full waterfront of requirements for permitted payment stablecoin issuers under OCC jurisdiction: licensing mechanics, capital and liquidity standards, reserve requirements, redemption obligations, operational safeguards, governance expectations, and foreign issuer treatment. At over 370 pages, it is comprehensive. The comment deadline is May 1.

A few headline points: the NPRM treats stablecoin issuance as analogous to applying for a bank charter in its documentation and governance expectations, not to launching a product. Foreign issuers serving US customers face registration, comparability determinations, and OCC access to records. AML/CFT and sanctions obligations are reserved for a separate Treasury-coordinated rulemaking. The Fed separately published a proposed rule removing “reputational risk” as a standalone basis for bank supervision - effectively a structural anti-debanking measure, open for comment until April 27.

370 pages of proposed rules, 211 specific questions for comment, and a May 1 deadline. Stablecoin issuers who were hoping the hard part was over after the GENIUS Act passed may wish to sit down.

🔒 Treasury tells Congress: mixers have legitimate uses

In a development that would have been unimaginable two years ago, the Treasury published a 32-page report to Congress on March 5 (submitted under the GENIUS Act’s requirement to study innovative approaches to detecting illicit finance) acknowledging that crypto mixers can serve lawful financial privacy purposes. The report states plainly that individuals may use mixers to protect personal wealth, shield business payments, or preserve anonymity for charitable donations on public blockchains. This from the department that sanctioned Tornado Cash in 2022 and designated international mixing services as primary money-laundering concerns in 2023.

The report does not abandon the illicit finance concerns: North Korean cybercriminals stole at least $2.8 billion in digital assets between January 2024 and September 2025, and mixing remains central to their laundering chains. But the policy asks are notably calibrated. Treasury does not recommend new restrictions on non-custodial mixers, declines to finalize FinCEN’s 2023 recordkeeping rulemaking on mixers, and instead urges Congress to create a digital asset “hold law” - a targeted safe harbor allowing institutions to temporarily freeze suspicious assets during brief investigations - and to clarify which DeFi actors face AML/CFT obligations. The Tornado Cash sanctions were lifted in March 2025 following an appellate court ruling that OFAC had exceeded its authority. This report completes the intellectual pivot: privacy technology is not inherently criminal, and the appropriate regulatory response is targeted enforcement infrastructure, not blanket prohibition. For institutional compliance teams, the practical upshot is political cover to engage with privacy infrastructure that was previously considered untouchable.

🇪🇺 European Union

🏛️ MIS package: the long march begins

The European Commission’s Markets Integration and Supervision package - which would move all MiCA-authorized CASPs under direct ESMA supervision, departing from the existing national competent authority model covered in Issue 10 - has now entered formal Council and Parliament review. The legislative journey is expected to run well into 2027 at minimum. The political terrain is complicated: several member states with significant NCA investments in MiCA implementation infrastructure are uncomfortable with the full centralization proposal, particularly the provision that would move supervision of all CASPs - not just “significant” ones - to ESMA from the outset.

One possible legislative outcome is a compromise closer to the Single Supervisory Mechanism model in banking, preserving ESMA’s direct supervisory role for the largest and most cross-border firms while leaving domestically-focused platforms under national oversight. Other elements of the package with direct market relevance include the creation of Pan-European Market Operator status (a single license for cross-border trading groups), DLT Pilot Regime modernization, and provisions allowing securities transactions to settle in MiCA-compliant e-money tokens. Those components may prove more politically durable than the CASP supervision overhaul, and are worth tracking as Council positions develop through spring.

⏰ MiCA’s July cliff: the final countdown

July 1, 2026 marks the expiry of the last national transitional periods under MiCA. After that date, any CASP continuing to provide services without a MiCA authorization will be operating unlawfully across the EU. ESMA has already warned national regulators to treat last-minute applications with heightened scepticism and to be prepared to enforce against unauthorized services once the window closes. Poland, which vetoed its MiCA implementing law for a second time in February (covered in Issue 13), has no functioning national process to receive and process CASP license applications, creating an existential question for domestic firms about their legal status after July 1. Polish crypto companies are reportedly exploring contingency licenses in Lithuania, Estonia, Latvia, and Malta.

For firms relying on grandfathering arrangements across the remaining member states, ESMA’s message is unambiguous: orderly wind-down plans must be in place, and the default assumption after the deadline is enforcement action, not administrative grace.

🌍 Middle East

🇦🇪 United Arab Emirates

🚨 VARA drops the hammer on KuCoin

Dubai’s Virtual Assets Regulatory Authority issued a cease-and-desist order against KuCoin in early March, requiring it to immediately halt virtual asset services to UAE residents. The order names KuCoin and three associated entities - Phoenixfin Pte Ltd, MEK Global Limited, and Peken Global Limited - for providing services without the required VARA authorization. UAE users reportedly lost access to the platform following the order, though VARA has not indicated that assets held on the exchange are frozen; the order targets future service provision, not existing balances.

The enforcement action follows a consistent VARA pattern: the regulator fined 19 crypto firms in October 2025 for unlicensed operations, with fines ranging from AED 100,000 to AED 600,000. KuCoin’s regulatory difficulties are not limited to the UAE: Austria’s Financial Market Authority separately barred KuCoin EU from onboarding new clients in February over inadequate AML compliance staffing, citing insufficient transaction monitoring capacity. The same exchange facing enforcement from both Dubai and Vienna in the same quarter is a signal worth noting: the era of large global exchanges operating across major markets without local authorization is closing, and regulators are increasingly reaching for enforcement rather than warning letters. 

🌏 Asia-Pacific

🇰🇷 South Korea

🔑 The taxman loses the keys

On February 26, South Korea's National Tax Service (NTS) accidentally exposed the private keys to wallets containing $4.8 million in seized cryptoassets during an investigation into tax evasion. Deputy Prime Minister Koo Yun-cheol has ordered an interagency review of practices for managing the custody of cryptoassets seized in law enforcement proceedings. The episode is a useful reminder that operational security for state-held digital assets is a policy gap that regulators have not fully mapped, even as they develop increasingly sophisticated frameworks for supervising private sector custody.

South Korea has spent considerable legislative energy this year building institutional guardrails for corporate crypto exposure and exchange governance; how the government manages its own seized asset holdings is apparently a separate conversation. The NTS spends considerable energy tracking citizens' crypto holdings for tax purposes. It is somewhat harder to track assets whose private keys you have just published.

🇭🇰 Hong Kong

💵 HKMA prepares to issue its first stablecoin licenses

Seven months after the Stablecoins Ordinance came into force in August 2025, the HKMA’s register of licensed stablecoin issuers remains empty - but not for much longer. Financial Secretary Paul Chan confirmed in February that the HKMA will issue its first batch of licenses in March 2026, with HKMA chief executive Eddie Yue describing the review of applications as nearly complete. The initial cohort will be deliberately small; officials have described “very few” approvals in the first round, with criteria focused on risk management quality, AML controls, and the strength of backing assets.

Among the credible applicants: a joint venture of Standard Chartered’s Hong Kong arm, Animoca Brands, and telecoms provider HKT operating as Anchorpoint Financial; Ant Group’s digital technology unit; and Bank of China Hong Kong. The HKMA has not confirmed identities of applicants and has cautioned that early approvals should not be read as endorsements of specific business models. The regime itself is substantive: 1:1 reserves in high-quality liquid assets held on trust, redemption at par within one business day, no interest payments to holders, and a minimum of HK$25 million paid-up capital.

Running alongside the stablecoin licensing track is a separate legislative initiative: the SFC and Financial Services and Treasury Bureau plan to introduce legislation to the Legislative Council this year establishing licensing frameworks for virtual asset dealers and custodians, aligned with existing standards for securities brokers. Between the stablecoin first-batch approvals and the incoming dealer and custodian rules, Hong Kong is systematically building out the most comprehensive virtual asset regulatory stack in the region - trading platforms (twelve licensed), stablecoin issuers (licenses imminent), and dealer/custodian frameworks (legislation incoming).

🇦🇺 Australia

📤 Travel Rule goes live March 31

Australia’s AML/CTF reform package brings Travel Rule obligations for digital currency exchanges from March 31, 2026: any crypto transfer above AUD 1,000 requires collection and exchange of originator and beneficiary data, overseen by AUSTRAC. However, a parallel consultation on transitional rules for the broader Independent Virtual Token Service regime is proposing to push full implementation back to 2028 or 2029. The practical question for exchanges serving Australian clients is therefore immediate: the March 31 Travel Rule deadline is live now, while the wider IVTS compliance architecture remains in flux. Firms should plan for the March 31 deadline and not assume the broader transitional delay provides cover for the Travel Rule obligations themselves.

🇯🇵 Japan

📊 FIEA bill in the Diet - watch this space

Japan’s FIEA reclassification bill - which would move approximately 105 designated cryptocurrencies from the Payment Services Act to the Financial Instruments and Exchange Act, alongside a flat 20.315% capital gains tax rate and a three-year loss carry-forward - was formally introduced to the current Diet session following the close of FSA public consultation in late February. The substance was covered in detail in Issue 13. The legislative question is now timing: if the bill passes in the current session, the tax change would apply to transfers of Specified Crypto Assets from January 1 of the year following the amendment’s entry into force. Major asset managers including Nomura and SBI are reportedly preparing spot Bitcoin ETF applications in anticipation. One Diet joke writes itself: Japan's parliament is about to put crypto on a strict regime. After years of 55% tax rates, the industry would happily take it.

🔎 Things to Watch

• 🇺🇸 CLARITY Act: will the Senate deliver by April, or will the stablecoin yield fight and midterm gravity pull it off course?
• 🇺🇸 GENIUS Act implementation: final regulations due by 18 July 2026. Treasury rulemaking on reserves, disclosures and anti-abuse tooling is underway.
• 🇺🇸 California DFAL: license applications open 9 March via NMLS; compliance deadline 1 July 2026.
• 🇵🇱 Poland: MiCA transition period expires 1 July 2026. Without implementing legislation, domestic CASPs face an existential legal vacuum.

Coming into view:

• 🇬🇧 Further FCA policy statements making final rules for the UK crypto regime.
• 🇪🇺 EU Markets Integration & Supervision (MIS) package negotiations: the future of centralized ESMA supervision for all CASPs.

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