The cryptocurrency industry has taken the world in storms as a lot of companies all over the world are already adopting the technology in its operations to expedite international processes and widen their global reach.
However, the industry is still facing a massive problem from traditional banking institutions. Crypto companies around the world are having trouble in opening bank accounts for their operations.
The report followed the complaint filed by Sam Bankman-Fried, Chief Executive Officer of the quantitative crypto company, Alameda Research that “the standard answer of ‘just go to your local Chase branch’ doesn’t work in crypto.” Bankman-Fried also added that it is not illegal for banks to serve crypto businesses, but “it’s a massive compliance headache that they don’t want to put the resources in to solve.’’
The report pointed out that while larger banks avoid getting into a transaction with crypto and blockchain corporations, smaller banks are getting hold of the unserved market.
Silver Bank in San Diego said in its November 2018 filing for an initial offering that cryptocurrencies companies have a total of $40 billion to deposit and larger banks are letting go of it.
Another crypto company, BritPay, a crypto processor, through it’s Chief Commercial Officer Sonny Singh said that many crypto processors and other crypto-related businesses are turned away by many banks around the world. The company experienced the same thing even if they are represented by a former United States Security and Exchange Commissioner.
Blockchain investment, trading, and advisory firm NKB group have also struggled with establishing banking relationships with a lot of major banks. According to NKB Group’s head of Brokerage Ben Sebley, “denying basic banking is madness, impedes sector growth and forces companies to get creative to solve the problem […] The banks are being overly prudent.”
This problem is apparently affecting crypto companies globally including those that have base offices in crypto-friendly countries.
Malta has been widely considered a blockchain and digital currency friendly country. Its acceptance and promotion of the technology as an alternative economic tool earned it its title “Blockchain Island.”
In Malta, l
Parliamentary Secretary for Financial Services Silvio Schembri said that some banks were willing to open accounts for blockchain companies, but not for cryptocurrency-related ones. Schembri said that “one should make a clear distinction between blockchain operators and crypto operators.”
Schembri is reportedly conducting awareness campaigns with financial institutions “to have a better understanding of the industry.” Schembri said:
“The general understanding is that when it comes to crypto operators, banks are waiting for operators to obtain an MFSA [Malta Financial Services Authority] license before opening their doors – which is understandable.”
Recently, MFSA issued a consultation on cybersecurity and reiterated that crypto companies and blockchain providers should comply with international standards including those set by European Banking Authority (EVA). The discussion targeted professional funds that invest in virtual currencies, issuers, agents, and service providers for Virtual Financial Assets Act (VFAA).
In December 2018, Malta along with six other member countries of the European Union had released a declaration calling for help in promoting the use of Distributed Ledger Technology (DLT) in the European sphere. Specifically, the document cites “education, transport, mobility, shipping, land registry, customs, company registry, and healthcare” as services which can be “transformed” by DLT. The document also cites blockchain tech’s use for protecting citizens’ privacy and making bureaucratic procedures more efficient.
The facilitation of cryptocurrency in banking has been an ongoing debate after major banking giants like JPM, and other American banks have banned the purchase of cryptocurrency using their debit and credit cards. However, supporters have argued that this ban is a step back for the banking industry.
“If they are policing digital currency transactions by de-risking the activity on the basis of protecting customers from market changes, they are going to be on the hook for market changes where their financial products are used where they did not intervene and de-risk to protect consumers,” said attorney Christine Duhaime, founder of the Digital Finance Institute. /apr