There has been a quiet outcry in the crypto space, and it’s not the Bitcoin price surge.
Rather, it is the constant accusations from the American cryptocurrency exchange Coinbase, as well as other stakeholders in the cryptocurrency sector, that the Federal Deposit Insurance Corporation (FDIC) is deliberate to hinder access from the cryptocurrency sector to banking activities.
The crypto industry has maintained for years that it was excluded from US banking services, and the latest airing of grievances comes as the face of crypto regulation in the US is set to transform with the arrival of the new administration of President-elect Donald Trump.
Documents released Friday (Jan. 3) by the FDIC challenge growing allegations of “unbanking” and shed light on the regulatory mindset governing financial institutions’ relationships with crypto companies. The additional “pause” letters show that the FDIC’s requests to banks did not prevent them from providing banking services to crypto companies, but rather focused on compliance and information requests related to financial institutions overseen by the FDIC engaged or considering engaging in crypto-related activities. .
“They are demonstrating a coordinated effort to shut down a wide variety of crypto activity – from basic BTC transactions to more complex offerings,” Coinbase’s general counsel tweeted on X, before calling for a Congressional investigation .
Yet while the content of the letters runs counter to industry complaints about widespread “debanking,” the situation has reignited debates about the uneasy relationship between traditional financial institutions and the emerging crypto-FinTech ecosystem.
Learn more: Crypto and FinTech cry foul over debanking – Could the real problem lie in the risk?
Regulatory compliance is the elephant in the crypto industry’s room
The published “pause” letters suggest that, from 2022 to 2023, the FDIC advised financial institutions to exercise caution when dealing with digital assets, particularly direct investments or services related to unregulated crypto activities .
The FDIC’s recommendations were likely not blanket bans but rather risk-based guidelines, urging banks to carefully assess their crypto risk exposure before proceeding. Their issuance came against a backdrop where a wave of high-profile crypto bankruptcies, scams and market volatility has left regulators wary of systemic risk.
Notably, the FDIC also released an internal document outlining the agency’s formal process for receiving, reviewing, and responding to notifications of crypto activity. The memo recognizes the rapidly evolving cryptoasset landscape and the need for a flexible and collaborative approach to supervision. He emphasizes that the list of crypto-related activities is not exhaustive and may be updated as new activities emerge.
The note refers to the definition of crypto-related activities as “acting as a custodian of crypto-assets; maintain stable coin reserves; issue cryptocurrencies and other digital assets; act as market makers or exchange or repurchase agents; participate in settlement or payment systems based on blockchain and distributed ledgers, including the execution of node functions; as well as related activities such as research activities and loans.
The FDIC did not immediately respond to PYMNTS’ request for comment.
Learn more: Regulatory uncertainty leads mid-market CFOs to focus on compliance and risk management
In its own 2024 annual report, the US Financial Stability Oversight Council (FSOC) took pains to illustrate the risks of the crypto space for the traditional banking sector. Writing earlier on the issue, PYMNTS argued that while current demands for debanking might resonate with the frustrations felt by many sectors of the cryptocurrency and FinTech industries, the reality might be far more nuanced than that. a political attack against these sectors.
“Innovation generally moves faster than regulation, and the growing tension between traditional banks and future-oriented FinTech and crypto companies can also be partly attributed to the inevitable consequences of outdated regulatory frameworks, stricter knowledge of your customer (KYC) and a fight against money. money laundering (AML) standards, as well as increased fraud risks,” this report states.
At the same time, without access to robust banking services, crypto companies may struggle to convert digital assets to fiat, manage liquidity, and support customer transactions. This scarcity of banking partners can lead companies to rely on a shrinking pool of service providers, which would exacerbate vulnerabilities and concentrate risks.
Read also: Why banks might want to have a Blockchain strategy
Implications for the Future of Crypto Banking
Traditional banks have a strong incentive to play it safe. The FDIC’s own 2024 Final Consent Orders show that compliance issues, particularly regarding anti-money laundering (AML) and know-your-customer (KYC) requirements, remain a key – and often costly – safeguard.
Rather than a coordinated effort to eliminate crypto and FinTech companies, the current climate may instead reflect the increasing difficulties of a paradigm shift and the complexities inherent in integrating new technologies into established systems.
While claims of deliberate debanking may resonate with some, the reality likely lies in the interplay of regulatory uncertainty, risk management and broader developments in the financial sector.
As the crypto-FinTech space matures, the hope is that collaboration, rather than conflict, will define the relationship between these two pillars of the financial world.
