A clash may be coming between congressional Republicans and federal banking regulators over the treatment of cryptocurrency businesses.
On Tuesday (Aug. 17) Sen. Pat Toomey (R-Pa.), the top Republican on the Senate Banking Committee, wrote to the Federal Deposit Insurance Corp. (FDIC) demanding to know if the regulator was “improperly” leaning on banks to “deter them from doing business with lawful cryptocurrency-related companies” and to “deter banks from extending credit to crypto-related companies.”
Citing what he called “whistleblower” reports, Toomey said he had information that FDIC regional offices have sent “letters to multiple banks requesting that they refrain from expanding relationships with crypto-related companies, without providing any legal basis for sending such letters.”
That included, he said, one that “planned to give customers access to a crypto-related company’s trading platform via the bank’s mobile or internet banking app.” It planned “clear disclosures” that such investments would not be FDIC insured.
The warning sounds very similar to what several other banks have reportedly received. Most notably, from the Office of the Comptroller of the Currency warned banks in November not to engage with crypto assets without first getting its approval of plans to mitigate the “novel risks” they may bring. That guidance has been taken in the industry as coming with an unspoken “ … And don’t bother because you won’t get it.”
In January, it approved FinTech SoFi’s acquisition of an FDIC-insured bank on the condition that it would “not engage in any crypto-asset activities or services.”
As for the FDIC, its most recent engagement with crypto was a late July warning to banks to ensure crypto companies they are working with do not say or imply that consumers’ crypto investments are FDIC insured just because they are held at an FDIC bank.
Toomey’s letter came a day after the Federal Reserve made two big announcements on crypto. One was guidance asking supervised banks to notify the Fed before “engaging or seeking to engage in crypto-asset-related activities,” in order to get its preapproval that “such activity is legally permissible.”
It specifically cited cybersecurity risks, anti-money-laundering (AML) concerns, consumer protection and financial stability — notably if stablecoins are adopted on a large scale.
That said, the warning letter also came on a day in which the Fed unveiled a policy providing institutions with “novel charters” such as Wyoming-chartered crypto banks like Custodia and Kraken Bank a path to getting a Federal Reserve master account that would provide them with access to national and international payments systems.
Those “novel charter” institutions will receive a substantially greater level of pre-approval scrutiny, the Fed said.
But if Toomey’s letter is anything to go by, those policies will be coming under greater pushback from some quarters on Capitol Hill.