Lorum, a correspondent institution that is currently serving financial institutions operating in the United States, has reportedly submitted an application for a US national bank charter. This is said to he part of a move that the company says will pave the way forward for it to return clearing as well as custody back to a fiduciary model.. Lorum also pointed out that the correspondent banking system is currently broken or not working properly, because the right institutions are not taking the responsibility for running it.
Regional and fintech-focused banking platforms are lending funds to institutions that use customer funds to finance mortgage portfolios and loan books. According to the company, this basically means that their incentive or motivation is to hold client funds and not necessarily move them.
Lorum added that it was established on a different objective: clearing, custody, cash management, and wholesale FX are considered to be fiduciary services, and may be run by an institutional service provider that maintains customer funds that’s fully backed by cash deposits / cash equivalents, with no actual lending book.
It has submitted an application with the Office of the Comptroller of the Currency (OCC) for a national trust bank charter that may bring the operation under direct OCC oversight and allow Lorum to support more direct participation in US dollar backed clearing infrastructure.
The type of model is said to be built around Named Account Custody, a structure that allows every account holder to have a legal and operational relationship to the custody framework in place, which Lorum claims reduces the opacity and chain risk of embedded clearing models.
George Davis, Co-Founder and CEO of Lorum, has explained that the banks serving this particular market are lending out the funds they are supposed to be moving.
Davis added that this is not a tech problem. He further claims that it is a structural one.
And that Named Account Custody was actually built to address this: a legal and regulatory link to all account holders with no intermediary chain and no lending book in the way. He also pointed out that a national trust bank charter is how they aim to deliver that at the scale the market requires.
