The Federal Deposit Insurance Corp. suspended or blocked cryptocurrency banking activities at a large number of U.S. banks in 2022, according to communications records unearthed by a research firm hired by Coinbase (COIN).
History Associates Inc., a research firm hired by Coinbase, took the Federal Deposit Insurance Corporation (FDIC) and the Securities and Exchange Commission (Securities and Exchange Commission) to court in June this year, and ultimately obtained access to certain internal communications from the FDIC. The heavily redacted documents, released on Friday, reveal that banking regulators are imposing tough restrictions on lenders that offer or are considering offering products and services in the digital asset space.
"We kindly request that you suspend all crypto-asset-related activities," the regulator wrote in one of 23 letters shared by crypto exchanges. "The FDIC will notify all FDIC-regulated banks when it determines its regulatory expectations for engaging in crypto-asset-related activities in the future."
The industry has long complained that it is in the grip of a banking crisis, with companies and cryptocurrency leaders locked out of U.S. banking services. Paul Grewal, chief legal officer of Coinbase, believes the letters are conclusive evidence that cryptocurrency companies are systematically isolated from banking operations by regulators.
Grewal said in an interview with CoinDesk: "These letters show that this is not a conspiracy theory at all, this is not just speculation, and it is not the whims of a paranoid man. There was a coordinated plan on the part of the FDIC, and they executed it with no reluctance to deny banking services to a legitimate American industry. This should alarm everyone."
While much of the FDIC letter has been blacked out due to confidentiality requirements and does not identify specific institutions, the letters, which date through 2022, make it clear that the various cryptocurrency activities bankers submitted to the FDIC for approval will not proceed until the banks can answer questions about how they will meet compliance requirements. In some cases, activity was halted before it even began, while in other cases the agency appeared to warn banks against further expansion or asked banks to cease a business until the agency could complete its review of the company's requests.
A typical example is: "We expect you to satisfactorily address these and any subsequent issues [prior to implementation] to ensure the bank operates in a safe and sound manner."
Some of the confidential letters included dozens of very complex and demanding questions for the bank. But many of the documents also indicate that the agency is not yet sure what regulatory filings it needs to make before giving the green light to cryptocurrency businesses.
While the three major U.S. banking regulators - which also include the Federal Reserve and the Office of the Comptroller of the Currency - have issued some broad cautionary guidance on cryptocurrencies, the agencies have yet to develop a formal set of regulatory rules.
A spokesman for the Federal Deposit Insurance Corporation (FDIC) declined to comment on the letter released Friday.
Grewal said the next step in federal court will be to require redactions from the letters to be cleared and disclosure of the agencies, the services they sought to provide and all the questions they were asked. He said that would reveal the "why" behind the FDIC's stance: "Even though federal courts have repeatedly ordered the FDIC to provide this information, they've continued to delay, and we think it's time for them to step back."
The debanking movement is known within the industry as Operation Chokepoint 2.0, following previous attempts by the government to divest controversial but legal businesses from banking operations. The topic came up again in Congress this week during a House Financial Services Committee hearing, where cryptocurrency business leaders testified that their companies have been cut off from financial services.
Anchorage Digital, a bank federally chartered by the OCC in the United States, said: "We have also been decertified from financial services. This is especially surprising because we are a national bank ourselves."