Rain Pursues a National Trust Bank Charter to Circumvent Third‑Party Banking Services

Rain, a fintech company that specializes in stablecoin payments, has announced its intention to apply for a national trust bank charter in the United States, specifically targeting the state of New York. The move is designed to give the company direct control over the custody of both digital assets and U.S.

dollars, thereby eliminating the need to rely on external, third‑party banks for essential financial services. By securing its own trust charter, Rain hopes to streamline the management of its stablecoin reserves, enhance regulatory compliance, and broaden the range of services it can offer to merchants, consumers, and institutional partners. ### Why a Trust Bank Charter?

A trust charter is a special type of banking license that permits an institution to act as a fiduciary for its clients, holding assets in trust and providing custodial services. In New York, the Department of Financial Services (NYDFS) oversees the issuance of such charters, and the regulatory framework is known for its rigor and high standards.

For a stablecoin payments provider like Rain, a trust charter offers several strategic advantages: 1. **Direct Custody of Assets**: Instead of storing digital tokens and fiat currency with partner banks, Rain would maintain its own vaults and custodial infrastructure. This reduces operational risk, lowers transaction latency, and gives the firm greater transparency over its balance sheets. 2.

**Regulatory Clarity**: Holding a charter means the company is subject to a well‑defined set of banking regulations, including anti‑money‑laundering (AML) and know‑your‑customer (KYC) requirements. This can build trust with regulators, investors, and users who may be wary of the perceived opacity of some crypto‑related services. 3. **Expanded Service Offering**: With a trust charter, Rain can issue and redeem dollar‑backed stablecoins directly, manage reserve assets, and potentially offer additional banking products such as interest‑bearing accounts, lending services, and payment processing solutions.

4. **Cost Efficiency**: By removing the reliance on third‑party banks, Rain can avoid fees associated with custodial services, interbank transfers, and compliance reporting that are typically passed on to the end‑user. ### How the Proposed Trust Bank Would Operate Rain’s envisioned trust bank would function as a hybrid institution, bridging traditional finance and the emerging digital‑asset ecosystem.

Its core responsibilities would include: - **Custody of Digital Assets**: Secure storage of stablecoins and other crypto‑assets using multi‑signature wallets, hardware security modules (HSMs), and cold‑storage solutions. The bank would also implement rigorous audit trails and real‑time monitoring to safeguard against theft or loss. - **Custody of Fiat Reserves**: Holding U.S.

dollars in segregated accounts that back each issued stablecoin on a one‑to‑one basis. These reserves would be kept in highly liquid instruments, such as Treasury bills or money‑market funds, to ensure immediate redemption capability. - **Reserve Management**: Actively managing the pool of assets that back the stablecoin, optimizing for liquidity, yield, and risk mitigation. This could involve short‑term investments, diversification across low‑risk securities, and dynamic rebalancing to maintain the peg to the U.S.

dollar. - **Issuance and Redemption**: Allowing users to convert fiat to stablecoins and vice‑versa through a seamless, on‑chain/off‑chain interface. The bank would handle the settlement process, confirming that each minted token is fully collateralized and that each redemption draws from the appropriate reserve.

- **Compliance and Reporting**: Implementing robust AML/KYC procedures, transaction monitoring, and regular reporting to NYDFS and other relevant authorities. The trust bank would also publish periodic attestation reports to demonstrate that its reserves remain fully backed. ### Potential Impact on the Stablecoin Landscape If Rain successfully obtains its trust charter, the implications could be significant for the broader stablecoin market: - **Increased Confidence**: A bank‑chartered entity managing stablecoins may allay concerns among regulators and the public regarding the solvency and transparency of these tokens. The presence of a regulated custodian can serve as a model for other issuers seeking legitimacy.

- **Competitive Edge**: By cutting out intermediary banks, Rain could offer lower transaction fees, faster settlement times, and higher reliability than competitors that still depend on third‑party custodians. - **Regulatory Benchmarking**: The New York trust charter could become a de‑facto standard for other stablecoin issuers worldwide, encouraging a wave of similar applications in other jurisdictions that value strong consumer protection.

- **Innovation in Financial Products**: With direct access to both fiat and digital assets, Rain could experiment with novel products such as programmable money, automated yield‑generation mechanisms, and cross‑border payment corridors that leverage blockchain efficiency. ### Challenges and Considerations While the benefits are compelling, the path to a national trust charter is not without hurdles: - **Regulatory Scrutiny**: NYDFS will conduct a thorough review of Rain’s governance, risk management, cybersecurity, and capital adequacy.

The firm must demonstrate that it can meet the stringent capital reserve requirements that apply to trust banks. - **Operational Complexity**: Building and maintaining a secure custodial infrastructure for both crypto and fiat assets demands significant technical expertise, continuous security audits, and substantial capital investment.

- **Market Perception**: Some market participants may view the move as an attempt to sidestep traditional banking relationships, potentially raising concerns among existing banking partners. - **Liquidity Management**: Ensuring that the reserve assets remain liquid enough to meet redemption demands, especially during periods of market stress, will be a critical operational focus. ### Timeline and Next Steps Rain has indicated that it will submit its charter application to NYDFS within the next quarter. The application process typically involves: 1.

**Pre‑Application Consultation**: Engaging with regulators to outline the business model, governance structure, and compliance framework. 2. **Formal Submission**: Providing detailed documentation on capital, risk controls, technology architecture, and the proposed board of directors. 3.

**Regulatory Review**: A period of several months during which NYDFS assesses the application, requests additional information, and may conduct on‑site examinations. 4.

**Charter Issuance**: Upon approval, Rain would receive the trust charter and could commence operations as a nationally chartered trust bank. Throughout this process, Rain plans to keep its community and stakeholders informed through regular updates, transparency reports, and public disclosures of its reserve holdings. ### Conclusion Rain’s pursuit of a national trust bank charter represents a bold strategic shift aimed at consolidating its role as a leading stablecoin payments provider. By establishing a regulated, in‑house custodial platform for both digital and fiat assets, the company hopes to enhance operational efficiency, reduce reliance on third‑party banks, and foster greater trust among regulators, partners, and users.

If successful, the initiative could set a precedent for how stablecoin issuers integrate with the traditional banking system, potentially reshaping the future of digital payments and financial inclusion.