Debanked

Banks do not need to provide an explanation to shut down accounts owned by clients deemed "too risky," according to former CFTC commissioner Brian Quintenz.

On Sunday, Hayden Adams, CEO and founder of the popular decentralized exchange, or DEX, Uniswap (UNI), claimed that his JP Morgan Chase bank accounts were shut down with no explanation. In addition, Adams stated that the incident was personal in nature as he knew "many individuals and companies who have been similarly targeted simply for working in the crypto industry."

This week @jpmorgan @Chase closed my bank accounts with no notice or explanation

‍ I know many individuals and companies who have been similarly targeted simply for working in the crypto industry

Thanks for making it a personal

— hayden.eth (@haydenzadams) January 23, 2022

Former Commodity Futures Trading Commissioner Brian Quintenz responded with a comment suggesting that the move was likely an instance of "shadow de-banking of crypto by the Federal Reserves and Office of the Comptroller of the Currency bank examiners."

Quintenz explained that banks are contractually prevented from telling customers the reason for ending the business relationship if they deem them too risky. Although most users commiserated with Adams on the alleged debanking, others maintained that there is no universal right to a bank account and, therefore, banks have the discretion to act as they deem fit.

Likely a shadow de-banking of crypto by @federalreserve or @USOCC bank examiners, with direction from the top. If the examiner told a bank that a certain customer is too risky and the bank ended that relationship, the bank is contractually prevented from telling that customer why

— Brian Quintenz (@BrianQuintenz) January 23, 2022

Quintenz did not offer any further information to support his claim but provided a link to Wyoming Senator Cynthia Lummis' opinion piece published in the Wall Street Journal in November. In the article, Lummis criticizes the Fed for its failure to register several Wyoming-based, crypto-related special purpose depository institutions (SPDIs) as banks, thus preventing them from getting access to the federal payment system.

In another response to Adams' post, Kraken CEO Jesse Powell cited his own tweet from 2018 where he described how JP Morgan Chase had closed the crypto exchange's payroll account on a five-day notice sent by mail.

Customers' risk levels to a bank are typically assessed based on regulatory compliance. Although the motives for the debanking are unclear, the Securities and Exchange Commission initiated a probe last September into the DEX's developers regarding the marketing and investor services they provide.

Under U.S. financial regulation, broker-dealers are required to register with the Financial Industry Regulatory Authority (FINRA) before they can facilitate clients' trades. However, because funds are stored in consumers' wallets instead of the Uniswap DEX and cryptocurrencies are not classified as securities, Uniswap, like other DEXs and decentralized finance protocols, does not need to register with relevant regulatory bodies. According to CoinGecko, Uniswap is currently the largest DEX globally, with a 24-hour trade volume of $2.74 billion.