Crypto Industry Faces Persistent Debanking Challenges Despite Legislative Efforts
2min read The crypto industry continues to face significant challenges in accessing banking services, despite recent legislative efforts aimed at removing barriers. Financial institutions have historically been reluctant to serve crypto firms due to concerns about fiduciary risk, reporting liabilities, and reputational damage, a practice known as "debanking."
In the United States, legislative actions have been taken to address these issues. Guidelines that made it difficult for banks to custody crypto assets and those that labeled crypto as a "reputational risk" have been repealed. Additionally, the appointment of a new head of the Office of the Comptroller of the Currency (OCC) has signaled a shift in how banks engage with crypto, allowing them to offer services like custody, stablecoin reserves, and blockchain participation. However, industry observers like Caitlin Long, founder and CEO of Custodia Bank, remain skeptical, predicting that debanking will persist until at least 2026 due to the influence of the Federal Reserve's non-partisan board of governors, which is still controlled by Democrats.
In Australia, the Labor Party has introduced a bill to create a legal framework for crypto, aiming to provide clarity for banks and encourage interaction with the crypto industry. Edward Carroll, head of global markets and corporate finance at MHC Digital Group, an Australian crypto platform, noted that debanking decisions in Australia are not driven by regulatory directives but by a general sense of risk aversion due to the lack of a clear regulatory framework. The proposed laws seek to address this issue by establishing formal crypto regulation, which could give banks the confidence to reengage with compliant crypto businesses.
In Canada, the situation is less optimistic. Morva Rohani, executive director of the Canadian Web3 Council, stated that debanking remains a serious challenge for the Canadian crypto industry. Financial institutions' interpretation of Anti-Money Laundering and Know Your Customer regulations creates a risk-averse environment, leading to account closures or denials for crypto firms. With the Liberal Party, led by crypto-skeptic Prime Minister Mark Carney, surging in the polls, comprehensive legislative solutions to address debanking are unlikely in the near future.
Critics argue that the crypto industry's claims of debanking are exaggerated or used as a means to deflect regulatory inquiries. Molly White, author of "Web3 Is Going Just Great," suggests that the crypto industry has "hijacked" the debanking discussion to avoid scrutiny of their compliance efforts. She points out that crypto firms have praised efforts to dismantle regulatory bodies like the Consumer Financial Protection Bureau (CFPB), which investigates claims of debanking.
In response to these challenges, crypto firms are developing interim solutions. Many have turned to stablecoins for financial management and have established relationships with smaller regional banks or specialized trust companies open to digital assets. However, these workarounds are not sustainable long-term solutions and can increase operational costs and risks. Dennis Porter, CEO of the Bitcoin-focused policy organization Satoshi Action, believes that these workarounds could evolve into fully integrated relationships with traditional financial institutions, further cementing crypto's place in mainstream finance.
