Banks limit deals with crypto firms amid rising regulation

• As per an S&P report, banks have started limiting their interactions with crypto firms. 
• However, firms like Coinbase will continue operations as normal.

Banks in the traditional finance sector are exercising caution before interacting with companies operating in the crypto space, thanks to the current sentiments of banking regulators. Recent statements from these regulators have pointed towards a not-so-friendly stance towards crypto firms. 

S&P report reveals regulators’ stance on crypto

According to a 14 February report by Standard & Poor Market Intelligence, banking regulators were viewing digital assets as a threat to the safety of not only the banking industry but also the broader traditional finance sector. While formal rules are yet to be issued by U.S. agencies, industry experts informed S&P Global Market Intelligence that regulators have made their stance clear. 

According to James Stevens, co-leader of the Financial Services Industry Group at Troutman Pepper, federal banking regulators have little faith in a scenario where banks will engage with crypto firms in a safe manner.  

The fallout from the string of bankruptcies and collapses in the crypto industry last year is to blame for the increased regulatory security and crackdown by regulators. This has reportedly led to agencies teaming up and working together to ramp up efforts related to regulation and enforcement. 

On 10 February, Christopher Waller, the Governor of the Federal Reserve, delivered a warning to banks looking to engage with crypto firms during his speech at the Global Interdependence Center Conference. He warned:

“A bank engaging with crypto customers would have to be very clear about the customers’ business models, risk-management systems and corporate governance structures to ensure that the bank is not left holding the bag if there is a crypto meltdown.”

Report provides timeline on policy statement

The report provided a timeline of the guidance issued by regulators for banks that deal with crypto assets. The timeline started with the Office of the Comptroller of the Currency’s letter issued in 2021, which required national banks and savings institutions to disclose their intent to engage in certain crypto activities and obtain an NOC for the same. 

The latest guidance statement came last month when the Federal Reserve Board issued a statement which informed insured and uninsured banks that they would be subject to the same limitations on crypto asset related activities. 

Despite the scrutiny from banking regulators, on 15 February, American crypto exchange Coinbase announced that it would continue working with banking giants like JP Morgan Chase and Signature Bank.

Coinbase said it would continue to work with JPMorgan Chase despite regulators' restrictions on banks working with cryptocurrency firms. Other depository institutions that Coinbase deposits customer funds include Signature Bank, Cross River Bank, Silvergate Bank, and Pathward.

— Wu Blockchain (@WuBlockchain) February 15, 2023