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- 1 Due to tightening regulations on digital assets, companies are searching for banking partners.
- 2 The recent collapse of crypto-friendly banks last month has prompted an advanced search for collaboration partners.
Crypto companies started their search for partners as the three specific virtual currency-friendly partners collapsed last month. Silvergate Capital Corp., Signature Bank, and Silver Valley Bank’s fall is a massive setback for digital asset firms. They fully support blockchain technology. Given the rise and fall in the digital assets regulations, the search for partners increased.
The firms are looking for more and more banks in the U.S. and outside to collaborate. The companies are discovering many challenges, as they cannot fulfill all the banking needs required.
Crypto Firms Alert In U.S.
The fall of primary banks supporting virtual currency makes an impact on crypto firms in the U.S. Despite regulation, they are finding ways to enhance their business. As per reports published on May 4th in The Wall Street Journal, digital assets firms are working with intermediaries. They store the client’s cash in their accounts or work with the banking partners to arrange accounts in the name of their clients.
The intermediaries also help their clients to arrange accounts in various banks in case one fails and if any regulator notices the uneven practice. Some banks are avoiding deals with virtual currency exchanges.
The main reason cited is new virtual currency rules. They tend to hold or decline virtual currency firms stating their insufficiency to handle needed requirements.
Strict Rules With Crypto
The regulators have warned banks of the liquidity risks that come with digital asset-related deposits. It leads to quick outflow when the consumer wants to redeem it in cash.
Markus Foster, head of crypto policy at Codec, said that many digital asset and Web3 firms are saying they cannot open business accounts with banks. He added the issue has become noticeably adverse. The digital asset firms in Europe, Singapore, and Australia are making inquiries in overseas banks for collaboration.
The spokesperson of FV bank, a U.S. licensed fintech-focused bank in Puerto Rico, and Bank Frick in Liechtenstein, said that inquiries related to account opening are incredibly increasing. Both the banks are not digital asset focused and have different business models; still, they are receiving queries.
Arab Bank based in Switzerland also said they had seen growth in virtual currency ventures and firms interested in opening accounts, but they cannot harbor all of them.
Banks Avoid Opening Crypto Accounts
Nikki Johnstone, a partner at Allen and Overy Law Firm in London, said that the biggest reason for the reduction in virtual currency banking options is the concentration risks that come due to the growing number of clients searching for business from the smaller firms. It allows increased expectations from the firms to apply risk management and monitoring.
Hence, it is clear that most banks are keeping digital asset-related firms away while others are just allowing the top-tier firms. J.P Morgan is not taking any client related to the crypto business from anywhere in the world with few exceptions like Coinbase declared depositing customer funds at the bank.
Similarly, the Bank of New York Mellon has a rigid outlook for virtual asset firms. Circle, the principal issuer of USD Coin, admitted to depositing its reserves with the bank. Thus, it can be said that there is a lack of banking partners in the market.
Andrew is a blockchain developer who developed his interest in cryptocurrencies while pursuing his post-graduation major in blockchain development. He is a keen observer of details and shares his passion for writing, along with coding. His backend knowledge about blockchain helps him give a unique perspective to his writing skills, and a reliable craft at explaining the concepts such as blockchain programming, languages and token minting. He also frequently shares technical details and performance indicators of ICOs and IDOs.
