Canadian crypto firms struggle to access Big Five banking services

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Many Canadian cryptocurrency companies face challenges obtaining basic banking services from the country’s largest financial institutions, which still deem the industry too risky.

The Globe and Mail spoke to more than a dozen companies in the crypto industry, ranging from crypto exchanges to crypto miners and digital asset custodians, and nearly all said they had struggled to open bank accounts and secure credit cards or lines of credit from the Big Five banks.

Some of the crypto executives were reluctant to speak openly and officially about their problems obtaining banking services from the Bank of Montreal, the Royal Bank of Canada, the Canadian Imperial Bank of Commerce, the Bank of Nova Scotia and the the Toronto-Dominion Bank because they thought it would jeopardize their chances of having a relationship with the banks.

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But almost all were tired and frustrated by the obstacles they face in dealing with the big banks, which they say have not kept pace with innovation in the industry and do not have clear policies. and consistent on what to do business with crypto companies.

It is extremely frustrating to be a legitimate business, to be regulated by FINTRAC, and to go through the process of becoming officially regulated by the securities authorities in a credit card, said Justin Hartzman, CEO and co-founder of CoinSmart, a Toronto-based crypto exchange. (FINTRAC stands for Financial Transactions and Reports Analysis Center of Canada.)

Mr Hartzman said CoinSmart was unable to open a bank account with a Big Five bank and is currently doing business with a smaller financial institution. We are determined to work with the big banks on a solution that matches their risk profile, he added.

The Canadian crypto industry has experienced explosive growth over the past two years as digital currencies gain acceptance among retail investors, spawning many new funds focused on digital assets and platforms. of crypto trading. Canada-based bitcoin mining companies such as Hut 8 Mining Corp. and Bitfarms Inc., for example, have achieved record revenues in recent quarters, capitalizing on the feverish pace at which investors and institutions have embraced the world of digital assets.

The size and scope of the industry has prompted regulators to start setting clear rules for crypto companies. As of June 2020, for example, all businesses that transact in virtual currency were required to follow FINTRAC’s know-your-customer rules and register their business with the regulator. At the end of March of this year, the Canadian Securities Administrators, a group representing securities regulators from all provinces and territories, warned crypto trading platforms that they should begin the process of trading. regulations by early summer. To date, only three companies Wealthsimple Inc., Netcoins Inc. and Coinberry Ltd. are fully regulated as crypto trading platforms.

Mitchell Demeter, co-founder and chairman of Netcoins, said that while it has been difficult for his business to obtain services from major Canadian banks, he hopes this will change given the regulatory status of the business. One of the main advantages of being regulated by the Ontario Securities Commission is that we hope it will open the doors to more banking services, he said.

According to Coinberry CEO Andrei Poliakov, his company’s status as one of three regulated cryptocurrency trading platforms had prompted some doors on Bay Street to open. When we started, no one understood this space. I can’t fault financial institutions for not taking on a business with a particular risk profile in the past, but I think that needs to change, he said.

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But an executive from a Toronto-based crypto exchange said the banks’ approach to crypto companies hasn’t changed much over the past four years, even with the cryptocurrency increasingly common among. retail investors and securities regulators developing a clear framework on how to regulate the industry. The Globe and Mail does not identify the source as it is not authorized to speak to the media.

The executive said his company successfully became a client of a small financial institution a year ago after being denied services from the big five banks, but recently learned that this institution was also starting to fail. slowly moving away from the service of crypto companies.

Some banks make it clear that they will not deal with crypto companies in any way. In an emailed statement, CIBC spokesperson Nima Ranawana said the bank does not provide basic banking services to businesses in the sector. National Bank of Canada, Canada’s sixth-largest bank, said it also does not provide credit cards, bank accounts or lines of credit to companies specializing in the issuance, trade or distribution of crypto. currencies.

Others appear to be vague in their stance on banking cryptocurrency companies. RBC said it assesses potential clients on a case-by-case basis to ensure compliance with the bank’s internal risk parameters. TD told The Globe that cryptocurrency is something the bank continues to watch closely. Scotiabank declined a request for comment and BMO did not respond to a request for comment.

Matthew McGuire, co-founder of Toronto-based anti-money laundering consultancy The AML Shop, believes the reason so many traditional banks are reluctant to engage with crypto firms is because they are not big enough to justify the risk factor.

The amount of supervision you are going to have to exercise over transactions, coupled with OSFI’s expectation that banks are cautious of money services businesses, is just not worth it unless the bank does. collects substantial fees in return, he said. (OSFI stands for Office of the Superintendent of Financial Institutions, the country’s banking regulator.)

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To complicate matters, there is no clear framework from OSFI on how banks should treat crypto companies, although the agency is currently consulting various financial institutions to develop a risk-sensitive approach to crypto assets. .

But not all of the crypto companies The Globe spoke to have been successful in engaging with a major financial institution. Ether Capital Corp., a Toronto-based crypto firm that provides exposure to the Ethereum public market by investing in digital asset, banks owned by one of the Big Five, which it has not identified. CEO Brian Mosoff said it helps his company have board members with a long history of involvement in mainstream finance. Som Seif, Founder and CEO of Purpose Investments Inc. and a household name on Bay Street, co-founded Ether Capital and is Co-Director of Investments.

Banks may be overweighting the risks of doing business with crypto companies right now, but once they get more involved in digital assets themselves, I think you’ll see them open up, said. Mr. Mosoff.

John Loeprich, CFO of 3iQ Corp., the first company to gain regulatory approval to list a crypto fund (The Bitcoin Fund) on a major exchange, said that while 3iQ has corporate bank accounts with the one of the big Canadian banks, the company struggled to reopen them in 2018. There is certainly a more intensive integration process by banks for financial companies dealing with crypto products, he said.

But I must congratulate our current bank for staying with us. Companies dealing with digital assets are subject to a much higher level of due diligence from banks, you really have to fight for what companies in other industries take for granted, he added.

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