crypto business news: crypto firms scramble to find banking partners as willing lenders dwindle

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Crypto firms have scrambled to find banking partners after three crypto-friendly lenders in the United States collapsed last month, creating a risk that their business will focus on smaller financial institutions.

It’s a scenario that worries US regulators, who have expressed doubts about the safety and soundness of banks’ business models heavily focused on crypto customers after the implosion of Silvergate Capital Corp, Signature Bank and Silicon Valley Bank. .

US regulators have also told banks to be mindful of liquidity risks from crypto-related deposits, which could be subject to rapid outflows if customers try to redeem their crypto assets for real money.

Mainstream banks have grown increasingly wary of crypto customers following a series of high-profile meltdowns, including the bankruptcy of major exchange FTX in November last year, and a lack of regulation. .

“Crypto and Web3 start-ups tell us they just can’t get a business bank account,” said Marcus Foster, head of crypto policy at Coadec, a body representing UK start-ups. Foster said the problem had recently become “significantly escalated”.

This has left digital asset companies no choice but to seek out smaller financial institutions, some in remote corners of global finance.

Find out the stories that matter to you A spokesperson for FV Bank, a U.S. fintech bank in Puerto Rico, said it has seen an increase in inquiries from potential customers in recent weeks, even though it is not serviced by the Federal Deposit Insurance Corp. The bank does not lend and therefore is not subject to the same type of risks as traditional banks that operate on a fractional reserve system, a spokesperson said. In Liechtenstein, a spokesperson for Bank Frick said it had also seen a “significant increase in account opening inquiries”, with the bulk of inquiries coming from businesses in Europe, Singapore and Australia.

However, the bank is not solely focused on crypto and has a broadly diversified business model, the spokesperson said.

Arab Bank, based in Switzerland, told Reuters in March that it had seen an increase in the number of American companies, mainly crypto funds or those involved in crypto venture capital, seeking to open accounts, but that the bank was unlikely to take them all.

While ZA Bank in Hong Kong, a digital bank, said it received around four times as many requests from crypto companies seeking accounts after the collapse of Silicon Valley Bank, although it said it did not would only accept authorized companies to trade virtual assets.

Nikki Johnstone, a partner at law firm Allen and Overy in London, said the “concentration risk” that comes from an increasing number of clients seeking business from small businesses is the “biggest challenge” to have reduces crypto-banking options.

“It places a greater degree of expectation on this business to apply the right level of risk management and oversight,” she said.

Cryptocurrency businesses need access to banks to hold customer dollar deposits and for day-to-day trading activities.

“Of course, the currency of crypto is ‘we’re going to replace the banks,’ but first of all, we’re not there yet, and I don’t think we’ll ever be there,” said Paolo Ardoino, chief technology officer. of Tether, the largest stablecoin by market cap, whose reserves have already come under scrutiny from investors.

‘HIGH LEVEL’

Several major banks told Reuters they are currently turning down most potential crypto-related clients, while others said they only work with top-tier firms — policies that most say , are unchanged from their historical positions.

JPMorgan Chase is not onboarding any client that is primarily a crypto business anywhere in the world, a source familiar with the matter says, except for a few select companies including Coinbase, which revealed it deposits client funds at the bank.

The person said this policy has long been their position.

A source close to Bank of New York Mellon said that while the bank reviews any crypto firm looking to become a client, it is “very, very rigid” in its vetting process and has only taken clients on a case-by-case basis. Circle, the primary issuer of USD Coin, keeps some of its reserves with BNY Mellon.

An ING spokesperson said the bank “does not actively target or focus on crypto businesses,” so its exposure is “very limited.”

Allen and Overy’s attorney, Johnstone, said banks are often cautious due to the heightened risk of money laundering in the crypto industry and the lack of robust crypto regulation.

Certainly, some of the biggest cryptocurrency companies have ongoing relationships with US banks. Circle, the main issuer of USD Coin, keeps some of its reserves with Customers Bank, and Gemini says it keeps its stablecoin’s reserves with State Street Bank and Goldman Sachs. Coinbase revealed that it deposits customer funds at Cross River Bank in addition to JPMorgan Chase.

But for smaller crypto startups, securing a banking partner might be more difficult, said Ricardo Mico, US CEO of Banxa, a crypto payment and compliance infrastructure provider.

“There is certainly a concern about the lack of available banking partners in the market right now, especially for smaller, less proven businesses,” he said.

(Reporting by Elizabeth Howcroft in London and Hannah Lang in Washington; additional reporting by Mehnaz Yasmin and Georgina Lee; Editing by Elisa Martinuzzi and Sharon Singleton)

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