Morgan Stanley's infrastructure partner Zerohash rebuffed in pitch to be U.S. trust bank

Zerohash, the crypto infrastructure provider that handles backend operations for Morgan Stanley's E*Trade, had its application for a U.S. trust bank charter returned by the Office of the Comptroller of the Currency last month. The OCC deemed the filing "materially deficient," according to agency policy, which allows the Chicago-based company to refile rather than face a flat denial.

The company said in a Wednesday statement that the return was an administrative step taken "in coordination with the OCC" and that it plans to resubmit this month with a narrower scope. "This approach ... is not a substantive decision on the merits of our application," Zerohash said. The initial filing had covered "a wide range of digital asset and fiduciary services," the company noted, while the next effort will take a more "sequenced" approach focused on "national trust activities aligned with our intended rollout timeline."

The OCC returned the application on July 17, records show, without disclosing the specific cause. Unlike denials – which Wise and Bunq received – a return does not come with a detailed explanation. Zerohash did not voluntarily withdraw the filing, and it had not publicly disclosed the return until now. A spokesperson for the OCC did not respond to questions. Morgan Stanley declined to comment.

The setback comes as Zerohash faces a whistleblower lawsuit from its former chief compliance officer, Edgar Guerra, a former Federal Reserve regulator. Guerra claims he was fired after flagging more than 200 compliance gaps, including weaknesses in money-laundering controls. Some shortcomings had been previously noted and insufficiently remedied, the suit alleges.

Zerohash declined to comment on the case. A lawyer for Guerra did not respond to a request for comment. In a 2022 interview, Guerra said the company had about two dozen compliance professionals at a staff of roughly 150 and that leadership was "really committed to making sure that compliance is a competitive advantage."

It is unclear whether the OCC was aware of the lawsuit or the compliance claims when it reviewed Zerohash's application. The agency issued new guidance in June on returning applications, saying it will send back a filing if it lacks necessary information on finances or officers, or if responses to additional information requests are insufficient.

Zerohash already operates as a state-chartered trust bank. A person familiar with its operations said the E*Trade business does not depend on a federal charter. The company also powers crypto infrastructure for BlackRock, Franklin Templeton, Stripe, Interactive Brokers, and DraftKings. It had been in acquisition talks with Mastercard earlier this year that fell through, and it was pursuing funding at a potential valuation above $1.5 billion as of May, sources told CoinDesk.

The OCC's recent wave of provisional charters for digital-asset trust banks has drawn criticism. The Independent Community Bankers of America filed an objection to Zerohash's application in April, arguing that the pace of approvals – eleven filings or approvals in under one hundred days in some windows – precludes "deliberate, transparent policymaking."

Zerohash said it looks forward "to swift review of the resubmission." The company's next filing will face scrutiny not just from the OCC but also from the unresolved compliance dispute that could resurface in the application process.