By Slava Solodkiy, Managing Partner at Life.SREDA VC
At the end of 2017 and beginning of 2018 Bitcoin investors were claiming Australia’s banks are freezing their accounts and transfers to cryptocurrency exchanges, with a viral tweet slamming the big four and an exchange platform putting a restriction on Australian deposits. One cryptocurrency trader called out National Australia Bank, ANZ, the Commonwealth Bank of Australia and Westpac Banking Corporation. After hundreds of shares and responses to the social media posts calling the banks’ alleged behaviour “disgusting” and “appalling” with some threatening to move their accounts, some users said their activities with the cryptocurrency had still been described as a “security risk” by their financial institutions. Banks were remaining tight-lipped on whether bitcoin activity was causing specific accounts to be closed or frozen, though its understood none had company-wide policies banning cryptocurrency investment activity. Other user shared letters with Fairfax Media from 10 different banks informing her they were closing her accounts, with one saying she had received fraudulent funds, though none specifically referenced cryptocurrencies. She said banks were not the “be all and end all of accepting payments” for Bitcoin and there were other avenues to transfer funds. An ANZ spokeswoman said it “does not prohibit customers buying digital currencies”. A NAB spokeswoman said it was important to note the currencies are currently unregulated.
On 4th of January The Royal Bank of Scotland has informed Gibraltar International Bank that it will no longer process its transactions if they are connected with cryptocurrency firms, only a few days after Gibraltar began offering regulatory licenses to blockchain firms. GIB doesn’t handle cryptocurrency itself, but it has been accepting blockchain firms as clients since October 2017. RBS chairman Sir Howard Davies said to Bloomberg TV that Bitcoin seems to him to be a “frothy investment bubble”. He has warned American exchanges not to trade using Bitcoin, and said that central banks are “very anxious” about the subject, but don’t want to be too overt in their criticism for fear of being branded Luddites. He advised the Bank of England, the US Federal Reserve, the Securities and Exchange Commission, and the European Central Bank to come together to warn people not to invest. Derek Sene, COO of Gibraltar International Bank, said that the bank will now look to establish a link with a different UK bank, adding that such strategic decisions are standard practice.
UK blockchain firms have been searching for more welcoming climes for while now because British banks are refusing to open accounts for their businesses. Iqbal Gandham, head of eToro UK, said: “The moment you mention crypto to a bank, it’s like you are a drug dealer.” The FCA has expressed worry about this collective cold shoulder: “We are concerned that denying certain customers bank accounts on a wholesale basis causes significant barriers to entry and could lead to poor competition in certain markets.” However, as there is no cryptocurrency regulation in the UK, it has been left to the banks themselves to decide if they want to take the risk.
As Brexit approaches, Gibraltar will surely be receiving a much heavier influx of British blockchain businesses. Apart from Gibraltar, Poland and Bulgaria are two destinations popular with such companies.
In April 2017, Tether’s primary banks in Taiwan were being blocked by U.S. correspondent banks, including Wells Fargo. In January 2018 Tether announced: «Since that announcement, we have been diligently working on other payment avenues and channels, including third party payment processors and banking relationships in countries with friendlier correspondent banking connections.» «We have been busy establishing a global network of money-transfer channels designed to be resilient against further aggressive action from correspondent banks. We have also opened an escrow-based relationship with a U.S.-based institution to service qualified corporate customers.» «Large customers are still able to move money into and out of Tether. Depending on the jurisdiction, smaller retail-type customers will continue to encounter difficulties in moving funds using traditional payment rails.» «Euro payments should become less problematic, as transactions may be routed through a UK-based (and FCA-regulated) payment processor with whom we are working. While our banking challenges are troublesome and distracting, tens of millions of dollars are able to flow in and out of Tether daily using the channels we have established. Although not available to all users, these flows have been sufficient to bring markets supporting Tether-based trading pairs back into alignment with markets supporting USD-based trading pairs.»
U.S. Treasury Secretary Steven Mnuchin said on 12th of January that the Financial Stability Oversight Council, a government body that assesses financial system risks, has formed a working group focused on cryptocurrencies. “We are very focused on cryptocurrencies,” Mnuchin explained, pointing to discussions with other regulators within the U.S. government and later stating: “We want to make sure that bad people cannot use these currencies to do bad things.” Mnuchin added that the issue was one that the U.S. government would engage with the G-20 international group as well. “I want to make sure that consumers who are trading this understand the risks because I am concerned that consumers could get hurt.”
NYC-based Metropolitan Bank Holding Corp, which is used by cryptocurrency companies and investment firms for wire transfers and deposits, has ceased all cryptocurrency-related international wires effective immediately, Fortune has learned on 14th of January. A Metropolitan customer confirmed to Fortune that his investment firm was notified on 11th of January that the bank was “ceasing all international crypto-related wire transfers to and from” it effective immediately. The reason for the shutdown, according to the customer, was because the bank could not verify the compliance of international wire transfers for cryptocurrency accounts. The move is alleged to be a response to an incident of international fraud associated with one of the bank’s clients. A Metropolitan Bank representative said in a statement to Fortune that it “does not accept cryptocurrency-related wire transfers from non-U.S. entities.” Additionally, the bank sent a reminder to customers of its policy in response to “certain cryptocurrency-related wire transfers from non-U.S. entities that were sent to the Bank in error.” Fortune reviewed a customer’s documentation of wires from a non-U.S.-based entity to its U.S.-based cryptocurrency-only fund that includes the word “Crypto” in the bank account’s name. The customer added that he had previously worked with the bank on numerous occasions to ensure the international wires went through. Digital currency wallet Coinbase is among the companies that use Metropolitan for wire transfers, deposits, and its Shift bitcoin debit card. It’s worth noting the bank’s cryptocurrency customers may have alternative banks that cater to their needs, such as Silvergate Bank or Cross River Bank. In other words, a bank diversification strategy is usually employed to reduce risk in this type of scenario.
Starting January 23, Stripe is winding down support for Bitcoin payments. Over the next three months the company will work with affected Stripe users to ensure a smooth transition before they stop processing Bitcoin transactions on April 23, 2018.”At Stripe, we’ve long been excited about the possibilities of cryptocurrencies and the experimentation and innovation that’s come with them. In 2014, we became the first major payments company to support Bitcoin payments. Our hope was that Bitcoin could become a universal, decentralized substrate for online transactions and help our customers enable buyers in places that had less credit card penetration or use cases where credit card fees were prohibitive.” But “Bitcoin becoming less useful for payments, however. Transaction confirmation times have risen substantially; this, in turn, has led to an increase in the failure rate of transactions denominated in fiat currencies. (By the time the transaction is confirmed, fluctuations in Bitcoin price mean that it’s for the “wrong” amount.) Furthermore, fees have risen a great deal. For a regular Bitcoin transaction, a fee of tens of U.S. dollars is common, making Bitcoin transactions about as expensive as bank wires.” “Empirically, there are fewer and fewer use cases for which accepting or paying with Bitcoin makes sense.” “Despite this, we remain very optimistic about cryptocurrencies overall.”
Read Part I here: No one is waiting for you. The Bubble generation isn’t accepted by traditional banks (even by neobanks). Almost all major banks refuse to accept money after the conversion of the cryptocurrency. Various banks around the world are not too happy about people buying bitcoin. We have seen multiple banks close customer accounts because of this activity.
On 14th of December South Korea banned its traditional banks from dealing in virtual currencies. The hyper-wired country has emerged as a hotbed for crypto-currency trading, accounting for some 20 per cent of global bitcoin transactions – about 10 times its share of the world economy. About one million South Koreans are estimated to own bitcoins. South Korean government also will ban minors and foreigners from trading in virtual currency or creating bank accounts for them in the country.
Banks have “little or no appetite” to get involved with bitcoin and cryptocurrencies due to fears of a bubble and illicit activity associated with it, the chief executive of Credit Suisse said. The chief financial officer of ING also weighed in on cryptocurrency worries, saying that, although digital assets are an effective means of exchange, the bank was not advising clients to in invest in them. TD Bank is actually trying to block bitcoin purchases as well, although the company is mainly performing routine checks by the looks of things. The PNC bank recently threatened one of their customers for purchasing bitcoin. The bank wanted to shut down the customer’s account. Barclays closed down student’s account after his dealings in bitcoin. British banks are shunning companies that handle cryptocurrencies, forcing many to open accounts in Gibraltar, Poland and Bulgaria. Anson Zeall, the head of Singapore’s Cryptocurrency and Blockchain Industry Association, or Access, said his organization had heard from 10 companies which had encountered problems with their banking relationships in Singapore. Chia Hock Lai, president of the Singapore Fintech Association, said some of his organization’s members also experienced account closures.
A half a year ago, Visa announced it would suspend all crypto debit cards outside of the European Economic Area. It now turns out Mastercard will be doing the exact same thing. Josh Brown, the chief executive officer of Ritholtz Wealth Management, bought some crypto. Still, Brown, who helps manage half a billion dollars, isn’t really a convert quite yet.
Let’s call things by their own names – traditional banks hate the crypto. But this hatred is stemming from the lack of understanding, fear of uncertainty and laziness rather than anger. Why does bank compliance is not willing to understand your issues? First, they already have a large and understandable business (with which they are familiar), and they are not interested in a new and small (albeit fast-growing) business because its profitability is still small, the risk of losing the current big business is big, and there are many issues they will have to deal with. Second, imagine a specialist in compliance. He/she is 40/50 years old, not highly paid, without any career perspectives. Their mindset is built on the past (instead of the future) and their decisions are conditioned “how to avoid something bad to happen” (instead of “how to help something good to grow easier and more convenient”). They see a lot of transactions daily and finally they see some odd transaction after the conversion of the crypto, and… they block it. Why? Not because they are bad people. Simply because they don’t know anything about blockchain, cryptocurrencies and ICO – and in their world “everything that is odd is forbidden”. They could even address the matter and the client, but it would take too much time and no one would give them a premium for this. But if they make a mistake, they will be fired. Therefore, they send a page or two of dreary questions, and then simply block the account.
Life.SREDA is currently looking to buy a US bank, which they will turn around into first crypto-friendly fintech bank that will cater the ICO backed startups. They will be as open as possible with the regulator from beginning to facilitate the understanding of the industry and creation of relevant rules.