Coinbase’s chief legal officer, Paul Grewal, recently made public letters from the Federal Deposit Insurance Corporation (FDIC) to banks in 2022, advising them to halt or avoid engaging in crypto-related activities. These letters, known as “pause letters,” reiterated the FDIC’s recommendation to suspend or refrain from offering crypto services.
The FDIC expressed concerns about the lack of clarity on regulatory requirements for crypto-related activities in the letters dated back to March 11, 2022. One excerpt highlighted the FDIC’s uncertainty about the regulatory filings necessary for banks to participate in such activities. The documents contained redacted sections, possibly to protect proprietary information about the services or products discussed, and emphasized the need for additional information on banks’ crypto offerings to ensure safe and sound operations.
The letters also raised questions about the legal analysis conducted by banks regarding the permissibility of crypto-related activities under Part 362 of the FDIC Rules and Regulations, which govern insured state banks. This indicated that some state-chartered banks were exploring offering crypto services in 2022.
The release of these documents followed Coinbase’s Freedom of Information Act (FOIA) request seeking clarity on an alleged 15% deposit cap imposed on crypto-friendly banks. Grewal suggested that these letters were evidence of “Operation Chokepoint 2.0,” an alleged effort by the Biden administration to suppress the crypto industry. He criticized the FDIC for redacting significant information and only releasing a fraction of the relevant documents, calling for the incoming US administration to reverse what he considered politically motivated regulatory decisions.
Industry experts, including Caitlin Long, CEO of Custodia Bank, raised concerns about the involvement of the Federal Reserve, which was copied on many of the letters sent to banks. Long characterized the pause letters as indefinite directives meant to discourage lawful crypto activities, rather than temporary pauses.
The nearly three-year span of the pause letters suggests a coordinated effort among regulators to restrict banks’ involvement in cryptocurrency-related activities. Critics argue that such measures hinder the industry’s ability to innovate and grow within the US financial system. The industry awaits further developments and potential regulatory changes under the new administration.