Regulatory crackdown drives crypto firms overseas, igniting policy clash

House Republicans have intensified scrutiny of federal regulators, accusing the Biden administration of orchestrating a systemic campaign to restrict access to traditional banking services for cryptocurrency firms and individuals through what they term "Operation Choke Point 2.0" according to a Republican report. The allegations, detailed in a Republican-led report from the House Financial Services Committee and Oversight Subcommittee, highlight efforts by agencies like the Federal Deposit Insurance Corporation (FDIC), Federal Reserve, Office of the Comptroller of the Currency (OCC), and Securities and Exchange Commission (SEC) to impose vague rules and burdens. These measures, critics argue, have stifled innovation in the digital asset sector.

The report claims at least 30 crypto entities and individuals faced abrupt account closures or "pause letters" from banks, effectively cutting off their financial lifelines according to the report. The FDIC's directive to financial institutions to reassess relationships with crypto clients, coupled with the SEC's enforcement-heavy approach, created a "chilling effect" on the industry according to the report. For instance, JPMorgan's recent decision to close accounts of Strike CEO Jack Mallers has reignited fears of anti-competitive practices, with Senator Cynthia Lummis condemning the move as a continuation of "Operation Choke Point 2.0".

Legislative responses are gaining momentum. The CLARITY Act, passed by the House in July 2024, aims to establish clear regulatory frameworks for crypto, reversing the SEC's enforcement-first strategy and enabling banks to engage with digital assets without fear of regulatory retaliation. Senate Banking Committee Chair Tim Scott has signaled support for advancing the bill by early 2026, though negotiations remain complex due to competing versions from the Agriculture Committee and concerns over conflicts of interest, including those tied to President Trump's crypto ventures according to reports.

Federal Reserve and FDIC officials are reviewing prior guidance, signaling a potential shift toward integrating digital assets into the traditional financial system according to the report. However, challenges persist: a whistleblower has accused the FDIC of destroying records related to Operation Choke Point 2.0, raising questions about transparency.

Global implications are also emerging. European and Asian exchanges have cited U.S. regulatory uncertainty as a barrier to expansion according to reports, while companies like Ripple are seeking growth opportunities in markets with clearer frameworks, such as Singapore. The debate underscores a broader tension between regulatory oversight and innovation, with lawmakers and industry leaders advocating for balanced policies to prevent stifling economic growth.