Federal Reserve Cracks Down on Customers Bank’s Crypto Strategy

August 9, 2024 Bitcoin.com

Crypto highlighted as ‘novel and complex’ risk to US banks: FDIC report

August 15, 2023 Coin Telegraph

The Federal Deposit Insurance Corporation has warned that uncertainty around crypto's legal status, the likelihood of fraud and contagion present key risks to United States banks.

Crypto-assets and their related activities present key risks to the United States banking system and warrant closer supervision, warns a leading U.S. financial regulator.

For the first time, cryptocurrency was given a dedicated section in the Federal Deposit Insurance Corporation’s annual risk review, calling digital asset risks “novel and complex.”

The Aug. 14 Risk Review 2023 report highlights what the FDIC argues are key risks to banks — and comes after it noticed an increased banking interest in crypto activities.

What are the emerging risks facing the banking system? Today, we published our 2023 Risk Review which takes a comprehensive look at key developments and risks facing banks, including a new section focused on crypto-asset risk. Read more ➡️ https://t.co/Ri442S9ERo. pic.twitter.com/5bY2VHuDof
— FDIC (@FDICgov) August 14, 2023

“The FDIC has been generally aware of the rising interest in crypto-asset-related activities through its normal supervision process,” it wrote.

However, with “significant market volatility in 2022,” more information is needed to understand crypto-related risks, it said.

“Crypto-asset-related activities can pose novel and complex risks to the U.S. banking system that are difficult to fully assess.”

Some of the key risks it identified included the uncertainty about the legal status of cryptocurrencies, the likelihood of fraud and possible contagion and concentration risk due to the interconnectedness of crypto businesses.

The FDIC also said the dynamic nature and rapid innovation of cryptocurrencies increased the difficulty of assessing risk in the space.

Another concern was the run-risk susceptibility of stablecoins which the FDIC said could expose stablecoin holding banks to deposit outflows.

The FDIC’s report follows the March banking crisis, which saw Silicon Valley Bank, Silvergate Bank and Signature Bank all collapse or be forced to close in the space of a week.

All three banks were notable for providing banking services to the U.S. crypto industry. SVB’s closure caused USD Coin (USDC) to depeg from the dollar after its issuer Circle disclosed it could not withdraw $3.3 billion worth of reserves from the bank causing a panic sell-off.

The FDIC and other U.S. regulators stepped in to backstop the banks and sell off their assets to other financial institutions.

Magazine: Unstablecoins: Depegging, bank runs and other risks loom

Australia’s Bendigo Bank blocks high-risk payments to crypto exchanges

July 31, 2023 Coin Telegraph

Aussie

Chainalysis policy lead Chengyi Ong warned crypto users may eventually have no choice but to deal with offshore unregulated exchanges.

Australia’s Bendigo Bank has become the fourth major bank in the country to announce blocks for “high-risk crypto payments,” citing the need to protect customers from investment scams.

The bank said on July 31 that it implemented new rules on instant payments to crypto exchanges that add “some friction to certain genuine payments,” according to its head of fraud, Jason Gordon.

It cited combatting fraudulent payments and enhancing protections for its 2.3 million customers as reasons for the blocks.

*Screenshot of Bendigo Bank's warning about investment scams. Source: Bendigo Bank*

A Bendigo Bank spokesperson told Cointelegraph that certain instant crypto transactions that it identifies as higher risk will be blocked, but the bank is not disclosing further details at this time.

The spokesperson said it identifies high-risk transactions by employing “a combination of factors” but refused to comment on specifics. The bank said it was not disclosing what exchanges may be affected by its changes.

Bendigo Bank’s blocks follow similar actions in recent months from three of Australia’s Big Four banks — Commonwealth Bank, National Australia Bank (NAB) and Westpac.

In an interview conducted before the recent Bendigo Bank announcement, Chainalysis APAC Policy Head Chengyi Ong warned that such actions would force Australia’s crypto public to interact with offshore exchanges.

Speaking to Cointelegraph, Ong argued that such blocks won’t stop criminal actors from using other platforms, crypto or not, while uncertainty over banking access could also drive crypto exchanges and users outside the jurisdiction of authorities.

Instead of cutting off exchanges, Ong says banks — alongside regulators, telecommunication providers and social media platforms — need to cooperate at every point of the scam lifecycle.

“[We need to target] all the potential attack vectors and all the potential points of interaction between a victim and a scammer. We have to tackle every single one of those touchpoints.”

Dr. Aaron Lane, senior lecturer with the RMIT Blockchain Innovation Hub, told Cointelegraph that the best thing banks can do for consumer protection is to constructively work with exchanges, adding:

"Debanking as a risk tool should be reserved for individual cases of serious and unacceptable risk, not a general posture towards an entire industry or asset class."

Australia has been weighing crypto-specific laws for over three years, and Dr. Lane urged lawmakers to take crypto law reform “out of the too-hard basket.”

Ong’s and Dr. Lane’s comments follow an official statement from the Department of the Treasury in June that included similar warnings.

The Treasury said it understands its inaction on debanking will stifle financial services competition and innovation and could “drive businesses underground and to operate exclusively in cash.”

Collect this article as an NFT to preserve this moment in history and show your support for independent journalism in the crypto space.

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Additional reporting by Brayden Lindrea.

Hong Kong govt pressures banking giants to accept crypto clients: Report

June 15, 2023 Coin Telegraph

Coin Telegraph

Hong Kong’s central bank reportedly asked major banks including HSBC, Standard Chartered and Bank of China why they aren’t accepting crypto exchanges as clients.

The Hong Kong Monetary Authority (HKMA), which serves as the region's central bank and regulator, has reportedly put pressure on major banks including HSBC and Standard Chartered to accept crypto exchanges as clients.

According to a June 15 report from the Financial Times, which cited three sources familiar with the matter, the HKMA questioned the UK-based firms as well as the Bank of China in a May meeting — asking the institutions why they weren’t taking on cryptocurrency exchanges as clients.

Less than a month before on April 27, the HKMA issued a circular to banking institutions urging them to pay attention to new market developments and encouraging them to adopt a more ambitious approach to new sectors such as the crypto market.

In the document, Hong Kong’s central bank specifically required the institutions to help crypto firms, which it calls “virtual asset service providers” (VASPs), in gaining access to banking services.

*HKMA circular to major banking institutions. Source: HKMA*

According to a source familiar with the content’s of last month’s meeting, the HKMA “encouraged the banks to not be afraid.” The source added that there is opposition to taking on crypto clients.

“We are seeing some resistance from senior executives at traditional banks,” they said.

Cointelegraph contacted the HKMA, HSBC and Standard Chartered for comment but did not receive an immediate response.

Hong Kong’s pro-crypto pressure comes amid a turbulent regulatory environment for exchanges in the United States.

On June 5, the U.S. Securities and Exchange Commission (SEC) sued Binance for violating domestic securities laws. The next day on June 6, the SEC sued Coinbase on similar allegations.

In a June 12 filing, Binance.US claimed that the SEC's lawsuit was placing significant pressure on its relationships with its banking partners in the U.S. Additionally, Binance Australia was recently forced to shut down all AUD services including withdrawals and deposits after its banking ties were severed by local payments provider Zepto.

Meanwhile, some lawmakers from Hong Kong appear more welcoming of crypto firms.

On June 10, Hong Kong Legislative Council member Johnny Ng expressed his support for embattled crypto firm Coinbase on Twitter and went as far as inviting it to establish operations on more friendly ground.

I hereby offer an invitation to welcome all global virtual asset trading operators including @coinbase to come to HK for application of official trading platforms and further development plans. Please feel free to approach me and I am happy to provide any assistance. pic.twitter.com/bcIi1IjMlc
— Johnny Ng 吴杰庄 (@Johnny_nkc) June 10, 2023

On June 1, Hong Kong enacted a new suite of crypto regulations that allowed for locally-licensed crypto firms to begin operations. From this point onwards, any firm with a valid license can service retail investors, allowing them to trade cryptocurrencies including Bitcoin (BTC) and Ether (ETH).

Asia Express: Yuan stablecoin team arrested, WeChat’s new Bitcoin prices, HK crypto rules

Blockchain Association files further FOIA requests over banking closures

April 17, 2023 Coin Telegraph

Blockchain Association

The crypto advocacy group wants clarity on recent regulatory action against digital asset-friendly banks.

More Freedom of Information Act (FOIA) requests seeking information on recently closed crypto-friendly banks have been submitted by cryptocurrency advocacy group the Blockchain Association (BA) to two regulators.

On April 14, the Association said that in addition to the FOIA requests, it has also filed Freedom of Information Law (FOIL) requests to the Federal Housing Finance Agency (FHFA) and the New York Department of Financial Services (NYDFS).

The organization is seeking further information on the de-banking of crypto companies following the seizure of Signature Bank and the failure of Silvergate Bank.

The BA said that its request to the NYDFS was to:

“Seek to understand whether the closure of Signature Bank was the result of the bank’s insolvency or a decision to send an anti-crypto message despite the bank being fully solvent.”

The Association also reported that it was investigating whether the failure of Silvergate “was the result of a politically-motivated decision by the Federal Home Loan Bank of San Francisco, which is overseen by the FHFA, to take the extraordinary and unusual action of pulling a loan made to Silvergate only months earlier.”

1/ Following last month's FOIA requests to investigate the possible de-banking of crypto firms, today, BA submitted additional public information requests to the FHFA and NYDFS.https://t.co/x6sPRkUhBx pic.twitter.com/ZSeCSBiIaR
— Blockchain Association (@BlockchainAssn) April 14, 2023

In early March, Silvergate’s parent company announced it would “wind down operations” for the crypto and tech-focused bank. Its peer Silicon Valley Bank collapsed on March 10 following a bank run, and the Treasury, Federal Reserve, and other agencies closed Signature Bank on March 12.

The Association initially filed for further information from the Federal Deposit Insurance Corporation (FDIC), the Board of Governors of the Federal Reserve System and the Office of the Comptroller of the Currency (OCC) regarding the de-banking on March 16.

On April 16, the Blockchain Association and the DeFi Education Fund filed a brief in a United States District Court over the sanctioning of Tornado Cash.

The Blockchain Association is an advocacy and lobbying group for the crypto sector, with around a hundred members that include industry executives, investors, companies, organizations, and projects.

In 2022 the Association spent $1.9 million lobbying the U.S. government according to campaign finance data firm OpenSecrets.

Cointelegraph contacted the Blockchain Association for further details but did not immediately receive a response.

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‘Nobody left to bank crypto companies’ — Crypto Twitter reacts

March 13, 2023 Coin Telegraph

Coin Telegraph

Prominent members of the crypto community have expressed uncertainty after the loss of crypto friendly banks.

Crypto companies could find it harder to access traditional banking partners with the loss of two major crypto-friendly banks in less than a week, according to some in the crypto community.

On March 12, the Federal Reserve announced the closure of Signature Bank as part of “decisive actions” to protect the U.S. economy, citing “systemic risk.” It came only days after the closure of Silicon Valley Bank, which was ordered to shut down on March 10.

A week prior, Silvergate Bank, another crypto-friendly bank, announced it would close its doors and voluntarily liquidate on March 8.

At least two of these banks were seen as important banking pillars for the crypto industry. According to insurance documents, Signature Bank had $88.6 billion in deposits as of Dec. 31.

Umm... so they shut down Signature bank...

Wasn't that like one of the last big banks working with #crypto companies?

Guys? Guys...
— Lark Davis (@TheCryptoLark) March 13, 2023

Crypto investor Scott Melker, also known as The Wolf Of All Streets, believes — like many others who took to Twitter following the news — that the collapse of the three banks will leave crypto companies “basically” without banking options.

“Silvergate, Silicon Valley and Signature all shuttered. Depositors will be made whole, but there’s basically nobody left to bank crypto companies in the US,” he said.

Silvergate, Silicon Valley and Signature all shuttered.

Depositors will be made whole, but there’s basically nobody left to bank crypto companies in the US.
— The Wolf Of All Streets (@scottmelker) March 12, 2023

Meltem Demirors, chief strategy officer of digital asset manager Coinshares, shared similar concerns on Twitter, highlighting that in just one week, “crypto in america has been unbanked.” She noted that SEN and SigNet “are the most challenging to replace.”

and just like that, crypto in america has been unbanked

Silvergate. Silicon Valley Bank. Signature.

in one week pic.twitter.com/nWLDxdOAAA
— Meltem Demirors (@Melt_Dem) March 12, 2023

The Silvergate Exchange Network (SEN) and Signature Bank’s “Signet” were real-time payment platforms that allowed commercial crypto clients to make real-time payments in dollars at any time.

Their loss could mean that “crypto liquidity could be somewhat impaired,” according to comments from Nic Carter of Castle Island Ventures in a March 12 CNBC report. He said that both Signet and SEN were key for firms to get fiat in, but hoped that other banks would step up to fill the void.

Others believe the closure of the three firms will create room for another bank to step up and fill the vacuum.

Jake Chervinsky, head of policy at crypto policy promoter the Blockchain Association, said the closure of the banks would create a “huge gap” in the market for crypto-friendy banking.

The closures of Silvergate, SVB, and Signature create a huge gap in the market for crypto-friendly banking.

There are many banks that can seize this opportunity without taking on the same risks as these three.

The question is if banking regulators will try to stand in the way.
— Jake Chervinsky (@jchervinsky) March 12, 2023

“There are many banks that can seize this opportunity without taking on the same risks as these three. The question is if banking regulators will try to stand in the way,” he added.

Meanwhile, others have suggested there are already viable alternatives out there.

This is false. United Texas Bank, Western Alliance Bank, JP Morgan Chase, and Bank of New York Mellon all have crypto businesses as customers, and there are probably more. https://t.co/Q27bkzq2n8
— yuga.eth (@yugacohler) March 13, 2023

Mike Bucella, General Partner at BlockTower Capital, told CNBC many in the industry are already changing to Mercury Bank and Axos Bank.

“Near-term, crypto banking in North America is a tough place,” he said.

“However there is a long tail of challenger banks that may take up that slack.”

Ryan Selkis, CEO of blockchain research firm Messari, noted the incidents have seen “Crypto’s banking rails” shuttered in less than a week, with a warning of the future for USDC.

“Next up, USDC. The message from DC is clear: crypto is not welcome here,” he said.

“The entire industry should be fighting like hell to protect and promote USDC from here on out. It's the last stand for crypto in the US,” Selkis added.

Crypto’s banking rails have been effectively shuttered in less than a week. Next up, USDC.

The message from DC is clear: crypto is not welcome here.
— Ryan Selkis (@twobitidiot) March 12, 2023

Circle, the issuer of the stablecoin USDC, confirmed on March 10 that wires initiated to move its balances at Silicon Valley Bank had not yet been processed, leaving $3.3 billion of its $40 billion USDC reserves at SV.

The news prompted USDC to waver against its peg, dropping below 90 cents at times on major exchanges.

However, as of March 13, USDC was climbing back to its $1 peg following confirmation from CEO Jeremy Allaire that its reserves are safe and the firm has new banking partners lined up.

Crypto Banks