Zerohash, a crypto infrastructure provider handling backend operations for high-profile traditional financial firms including Morgan Stanley's E*Trade, has fallen short in its initial bid to join the ranks of newly established digital asset-focused U.S. trust banks. A federal trust charter would allow Zerohash to operate across state lines without securing individual state licenses, a significant advantage as competition intensifies among crypto infrastructure firms serving institutional clients.

The U.S. Office of the Comptroller of the Currency (OCC) quietly returned the Chicago-based company's application on July 17, according to OCC records, which do not reveal the specific cause. Under OCC policy, a "return" indicates that an application was "materially deficient," effectively ending the current process without a formal denial. The company did not publicly disclose the development when it occurred, nor had it voluntarily withdrawn the filing.

"The return of the application is an administrative process that allows us to refile this month," Zerohash said in a Wednesday statement to CoinDesk. "This approach was taken in coordination with the OCC and is not a substantive decision on the merits of our application, and it does not affect zerohash's current operations, which continue under our existing regulatory approvals."

The company indicated that its initial OCC application—submitted in March—may have been overly ambitious in scope, covering "a wide range of digital asset and fiduciary services." Zerohash stated that its next effort will take a more "sequenced" approach, starting with an application for "a more focused approval of national trust activities aligned with our intended rollout timeline." The firm is hoping to re-apply by the end of the month and expects a "swift review of the resubmission." The outcome of that resubmission, alongside the ongoing lawsuit from Zerohash's former compliance chief, will be closely watched by both competitors and regulators as a signal of how much scrutiny crypto infrastructure firms face when seeking federal banking credentials.

Regulatory Context and Industry Pushback

Zerohash's original application joined a rush of firms seeking provisional trust-bank approvals in the U.S., a trend amplified by the Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act, which formally established a legal structure for U.S. stablecoin issuers. The wave reflects broader interest from Wall Street institutions in embedding digital asset services into existing product lines through specialized infrastructure providers rather than building in-house capabilities.

Unlike outright denials—such as those recently received by fintech firms Wise and Bunq—a return does not come with a detailed explanation. Just a month before returning Zerohash's effort, the OCC issued an explanation of its decision-making process, including its approach to returning applications without registering a formal decision. The agency stated it will return a filing if it lacks necessary information on a company's finances or officers. Additionally, the OCC noted it "may return a filing as materially deficient if, after attempting to have the filer furnish all required information for the OCC to assess the statutory or regulatory criteria through an additional information request, the responses do not sufficiently respond to the requests."

The rapid pace of crypto-related trust bank applications has drawn criticism. When the Independent Community Bankers of America (ICBA) filed an objection to Zerohash's application in April, the group's letter noted: "In less than twelve months the OCC has conditionally approved or received applications from Circle Internet Group, Ripple, Paxos Trust, BitGo, Fidelity Digital Assets, Crypto.com, Payoneer (PAYO), and now Zerohash. This pace — eleven filings or approvals in under one hundred days in some windows — precludes deliberate, transparent policymaking."

A spokesperson for the OCC did not immediately respond to questions, and spokespeople for Morgan Stanley declined to comment.

Corporate Operations and Expansion

Despite the setback, a person familiar with Zerohash's operations noted that its business with E*Trade does not depend on securing a federal charter, as it already operates as a state-chartered trust bank. Beyond Morgan Stanley, the company powers crypto infrastructure for major firms such as BlackRock, Franklin Templeton, Stripe, Interactive Brokers, and DraftKings.

In May, sources told CoinDesk that Zerohash was pursuing further investment at a potential valuation above $1.5 billion. The company had also recently been in acquisition talks with Mastercard, though those discussions ultimately fell through.

Internally, Zerohash had been preparing for a federal expansion. The company had recently advertised jobs, including for a national trust officer and a chief operating officer, at a "Zerohash National Trust Bank" that it indicated had a "pending charter application" before the OCC. Furthermore, Zerohash Co-President Stephen Gardner's LinkedIn page lists him as CEO of the "zerohash national trust bank (pending)."

Compliance Controversy

While pursuing its charter, Zerohash has been quietly battling a legal challenge from its own former chief compliance officer, Edgar Guerra. In a California lawsuit, Guerra—a former Federal Reserve regulator—claimed he was fired in an attempt to mask compliance issues he had uncovered. Guerra indicated in the suit that he and his staff had internally identified more than 200 significant compliance gaps, including deficiencies in the firm's money-laundering controls, some of which had previously been noted but insufficiently remedied.

It remains unclear whether OCC officials were aware of or concerned about these compliance claims or the ongoing legal dispute, for which Zerohash's attempts to push into arbitration were preliminarily rejected. Zerohash declined to comment on the case, and a lawyer for Guerra did not immediately respond to a request for comment.

The lawsuit contrasts with the image the company projected in 2022, when Guerra—then six months into his role—told an interviewer that his company was "trying to comply" with a team of a couple of dozen compliance professionals supporting around 150 employees. At the time, Guerra said he was fortunate to be brought on by a leadership that was "really committed to making sure that compliance is a competitive advantage."