Wall Street Refuses to Bank Crypto Businesses, and Here’s Why
Originally published on: CoinSpeaker
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March 05, 2019
What is actually happening is that JP Morgan still refuses to bank cryptocurrency businesses. The Wall Street giant even shut down the account of Kraken – one of the world’s largest and most-secure cryptocurrency exchanges.
Paypal locked up all the money I had for 6 months, almost lost my business/apartment. BofA killed @Krakenfx‘s payroll account on 30 days notice. Chase killed it on 5 days notice, by mail, which arrived after the account was closed. Found out when employee checks bounced.
— Jesse Powell (@jespow) January 9, 2019
And while top-tier banks are getting more crypto-curious every day, JPMorgan rolled out a prototype digital coin last month. Not just that. They went so far that they called other cryptocurrencies (especially XRP) “a scam”.
Robby Houben, a lawyer and professor at the University of Antwerp who co-authored a paper for the European Parliament on financial crime involving cryptocurrencies said:
“No bank is willing to help them out. I have met some really stand-up people in crypto that don’t deserve such a bad reputation and want the sector to be regulated, yet for every one of those, there are plenty of others trying to scam the public, launder money or evade taxes.”
Despite Bitcoin coming a long way since its Silk Road days, a one-size-fits-all ban is being implemented by big banks to keep out crypto-companies.
Sam Bankman-Fried, Chief Executive Officer of Alameda Research, a digital-assets trading firm in California said:
“The standard answer of `just go to your local Chase branch’ doesn’t work in crypto. It’s not illegal for big banks to bank the crypto industry, but it’s a massive compliance headache that they don’t want to put the resources in to solve.”
Digital currencies have attracted outlaws since the first one, bitcoin, appeared a decade ago because they obscure the identities of parties in a transaction and operate outside the regulated financial system. From Silk Road, the online drug bazaar shut down by the FBI in 2013, to Russian intelligence officers indicted for hacking offenses related to the 2016 U.S. presidential campaign, crypto has been associated with illicit activities.
New Rules and Tougher Standards for Cryptocurrenices
Though legitimate uses have mushroomed in recent years, it’s simpler for banks to maintain a blanket prohibition, said Jerry Brito, executive director of the crypto advocacy group Coin Center in Washington.
Across the world, regulators have been imposing new rules on crypto businesses, subjecting them to tougher standards for derivatives tied to virtual currencies, introducing new licensing requirements or just reminding firms that their newfangled products must comply with securities and banking law. Those warnings are loudest about the need for banks to meet existing rules to fight money-laundering—a compliance task that already costs financial firms some $25 billion a year, according to one estimate.
Anti-money laundering rules typically require banks to know the identity and aims of their clients and often be able to trace the source of their customers’ cash. Building a compliance and monitoring system is expensive and some banks conclude the costs just aren’t worth it.