There are reports that some cryptocurrency firms in the U.S. are mulling the possibility of obtaining banking licenses in the country. While crypto regulations remain an ongoing process, such a move would signal a new paradigm for these firms and the market as a whole. A banking license would afford cryptocurrency firms the opportunity to broaden the scope of their service delivery. It would also help to further legitimize the digital currency market in the country and improve the pedigree of these startups.
Coinbase and ivyKoin Consider Federal Banking Licenses
Coinbase, the largest cryptocurrency exchange in the U.S. is one of the crypto firms that is reportedly making preliminary inquiries for obtaining a bank license. According to reports, officials of the crypto exchange platform had a meeting with the U.S. Office of the Comptroller of the Currency (OCC) earlier in 2018. Coinbase already services millions of customers through bank-enabled payment systems under the supervision of a dozen regulations.
Commenting on the story, a company spokeswoman declined to confirm or deny the reports, saying:
“Coinbase is committed to working closely with state and federal regulators to ensure we are properly licensed for the products and services we offer.”
ivyKoin, a crypto payments startup, recently met with officials of the Federal Deposit Insurance Corp (FDIC). Gary Fan, the president of ivyKoin, confirmed the meeting was explicitly geared towards exploring the possibility of obtaining a banking charter. According to Fan, the company might nor pursue obtaining a banking license, but it was necessary to understand how the process worked in case it was decided to apply for one in the near future.
Fan also said that the meeting was a success as his firm was able to have a positive discussion with the FDIC officials.
Potential Benefits of a Banking License for Crypto Firms
Regulatory clarity is a significant problem in the crypto industry as most firms must operate under difficult statutory conditions. A federal banking license constitutes a more straightforward regulatory mandate that supersedes many of the laws that crypto firms have to work under in the U.S. If Coinbase, for instance, obtains a federal banking charter, it can swap many of the state laws that it has to follow with one single federal provision.
Apart from streamlining and simplifying the regulatory environment, a banking license will enable firms like Coinbase to attract more institutional investors. The crypto exchange platform recently unveiled four new products, one of which is a cryptocurrency custodial service in partnership with an SEC-regulated brokerage firm. If Coinbase does get a banking license, it can expand its crypto custodial service via an OCC limited-purpose charter.
Not as Straightforward as it Seems
Banking licenses might provide regulatory clarity, but the process involved in obtaining them isn’t straightforward. Commenting on the process, Joseph Otting, the head of the OCC said in Apri 2018:
“Most fintechs come to us because they have heard of this thing called a national banking charter that gives them pre-emption across state lines. When they come and they speak to us, and they understand what it really takes to be a bank, they kind of glaze over and often leave skid marks leaving the building.”