As of January 3rd, a U.S. bank regulator has issued a directive to banks to temporarily halt their involvement in the cryptocurrency sector in 2022 and 2023. However, the regulator did not mandate banks to cease providing banking services to cryptocurrency companies, despite claims from the industry about widespread “debanking.” This information comes from documents that were made public on Friday.
Following a lawsuit filed by History Associates Incorporated, a research firm hired by leading cryptocurrency exchange Coinbase (COIN.O), a judge ordered the Federal Deposit Insurance Corporation (FDIC) to release versions of the supervisory “pause letters” sent to undisclosed banks. The FDIC initially released these letters in December but had to reissue them with more refined redactions. The latest batch of 25 letters includes two additional letters not included in the original submission.
This legal battle is part of Coinbase’s efforts to shed light on what it claims is a deliberate attempt by U.S. banking regulators to restrict cryptocurrency companies’ access to traditional financial services.
Paul Grewel, Chief Legal Officer at Coinbase, emphasized in a recent post on X Friday that the less redacted letters reveal a coordinated effort to impede various cryptocurrency activities. He has called for a more in-depth investigation by Congress into these practices.
To counter these allegations, the FDIC also published an internal memo outlining how supervisors should evaluate requests from banks seeking to engage directly in cryptocurrency transactions versus offering banking services to cryptocurrency firms.
These documents offer a rare glimpse into the confidential bank supervisory process. They indicate that while FDIC examiners have shown caution towards the cryptocurrency sector due to its history of scams, bankruptcies, and volatility, they have not mandated a complete severance of ties with the industry.
The release of these documents comes just weeks before the incoming administration of President-elect Donald Trump is expected to unveil a comprehensive cryptocurrency policy overhaul. Trump is anticipated to issue an executive order instructing bank regulators to adopt a more lenient approach towards the sector, possibly as early as his inauguration on January 20th.
Several of the FDIC letters instruct banks to temporarily pause their involvement in cryptocurrency initiatives or refrain from expanding their services to cryptocurrency clients. In some cases, banks are required to provide detailed responses before proceeding with any cryptocurrency ventures.
The internal memo differentiates between direct involvement in cryptocurrency activities, such as holding cryptocurrency assets, and offering traditional banking services to cryptocurrency clients, such as lending and deposit accounts. The former category necessitates closer scrutiny, according to the memo.
This memo aligns with statements made by FDIC Chairman Martin Gruenberg in December, where he clarified that the agency does not cut off cryptocurrency firms from accessing bank accounts. However, direct engagement in cryptocurrency activities by banks is under heightened supervisory scrutiny.
The memo highlights the potential risks associated with cryptocurrency-related activities, including safety, consumer protection, and financial stability concerns, which are still evolving.
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