American Bankers Association encourages partnerships with crypto firms in new report

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The American Bankers Association (ABA) released a new report that suggests banks are considering partnerships with crypto firms based on increased industry profitability and customer interest. The report is 20 pages long and provides a high level overview of crypto with a glossary, maps crypto business activities to banking products and services. The ABA further suggests crypto use cases for banks with revenue models and regulatory issues for each use case.

The report categorizes crypto assets into four categories: cryptocurrencies, stablecoins, central bank digital currencies, and non-fungible tokens. Decentralized Finance (DeFi) is also mentioned.

Crypto use cases for banks

The crypto use cases listed for banks are:

Store of Value – The report describes how companies that facilitate Store of Value earn income by buying and selling on their platforms. Custodian / Wallet Provider – The report explains that crypto companies allow users to store their cryptocurrencies in a digital wallet and could in theory charge a service fee. Interest-bearing accounts – The customer lends their crypto for interest and a bank could earn a fee or a percentage of the crypto earned. Payments – Banks might charge a fee for these services similar to a debit or credit card transaction. Loans – Banks could provide crypto loans to borrowers for a fee. Exchange Trading – Income models include billing transaction fees, registration fees for adding crypto to a platform, and deposit fees. Broker-dealer – Income from collecting the spread on transactions for crypto assets classified as securities. Insurance – Decentralized insurance allows a group of investors to share the risk among themselves in exchange for the insurance premium. Network Utility – Describes utility tokens as providing instant income to the entity creating the token and selling it because it receives either a different form of crypto asset or payment in a traditional currency Asset Management – This case Use for banks would allow a service charge on a crypto wallet.

Illustration of physical Bitcoin gold coin on United States dollar banknotes. Visual representations … [+] bitcoin digital cryptocurrency with the USD banknote. Bitcoin with the symbol BTC, XBT is a popular digital currency that has grown and is widely used, accepted by banks, markets and other services and stores as a means of payment. The exchange rate today for 1 bitcoin blockchain is US $ 34.588. On January 7, 2021, the price of Bitcoin crossed 40,000 for the first time and the next day, January 8, 2021, Bitcoin traded with an all-time high of $ 41,973, while the next day the price briefly traded. fell 26%, but reduced losses to trade. around $ 33,400, or $ 200 billion in trade value in the cryptocurrency market in 24 hours, according to U.S. financial media. Eindhoven, The Netherlands January 13, 2020 (Photo by Nicolas Economou / NurPhoto via Getty Images)

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Regulatory environment for crypto

The report offers insight into crypto offering or selling, money transmission, and tax reporting. The offering or sale of a cryptocurrency is regulated by the SEC only if the offer or sale is constituted as a guarantee by state or federal law or if it is considered a transmission. money under the law of a state or conduct otherwise making the person a money services business under federal law. right. For money transmission, the report explains how FinCEN requires money service business (MSB) registration and state money transfer license (MTL) requirements. For tax returns, it is explained that the IRS treats cryptocurrency as property.

The report also comments on the lack of regulatory clarity for crypto. The report points out that, however, the uncertain regulatory treatment of many crypto assets and the novelty of business models can often create unclear or disparate requirements that can leave significant gaps in regulation and oversight. Readers were provided with an overview of the FDIC’s request for information and OCC’s crypto interpretation letters, although a comment indicates that Acting Controller Michael Hsu has said he will reassess this. interpretation. Questions posed by the report include whether cryptos are considered securities and recent FinCEN and Financial Action Task Force (FATF) requirements.

The report also highlights gamification, DeFi, and environmental concerns as a big risk for the industry. When it comes to gamification, and based on the scrutiny faced by toll-free online retail brokers such as Robinhood, the report says crypto is a likely target when paired with the non-commercial nature. regulated of the crypto spot markets. For DeFi, regulators are struggling with who should take responsibility and a reference to SEC Commissioner Hester Peirces’ safe harbor proposal has been made. Finally, according to the report, energy use is high in proof-of-work systems and with the current theme of using the financial system to help mitigate climate change issues, this could be a problem.

A banking illustration on the carpet of a bitcoin automated teller machine (ATM) kiosk in Barcelona, ​​… [+] Spain, Tuesday February 23, 2021. Bitcoin soared, helped by favorable comments from Ark Investment Managements Cathie Wood and news that Square Inc. has increased its stake in the cryptocurrency. Photographer: Angel Garcia / Bloomberg

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Possible partnerships / Crypto solutions

When it comes to banks’ engagement with digital assets, the report states that, … banks are looking for opportunities to provide their customers with access to these assets through their banking relationship. Customer interest is driving banks to consider offering access to crypto products. The report refers to a survey conducted by institutional crypto trading and custodian firm NYDIG which found that 80% of Bitcoin holders would move their Bitcoin to a bank.

With the increasing profitability of the crypto industry, banks have found it more lucrative to take crypto firms as partners and their customers as customers, while crypto firms need banks to provide access to the market. payment system for on-board and unloading escrow deposits, the report says. Suggested partnerships include payments where a blockchain-powered payment network could enable faster and more efficient cross-border transactions or how blockchain technology could enable cheaper and more secure lending processes. Other activities include KYC / AML, digital identity, reporting, and banking, where a bank could offer business banking services to crypto companies.

The report can be viewed here on the ABA website and it should be noted that updates will be made as changes occur in the industry.

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