A New Crypto Banking System Arises Under the Shadow of a Regulatory Crackdown

(Bloomberg) — Two months after the collapse of Silvergate Capital Corp. and Signature Bank, a new banking landscape for crypto companies is taking shape amid an expanding crackdown on the industry in the US.

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In the US, crypto firms are turning to a handful of smaller regional lenders to open bank accounts. Customers Bancorp Inc., a Pennsylvania lender, has become a popular destination. Swiss and Asian banks are also playing a bigger role, though they still remain selective about their crypto clients. In the UK, where access to banking has also worsened, companies are instead turning to payment-service providers to bridge the gap.

As a result, crypto’s new banking system is more fragmented, less US-centric and, at times, less advertised. Bloomberg News spoke to more than a dozen of industry participants, including banks, digital-asset exchanges, trading firms, startups and consultants to compile a list of banks globally that are receptive to clients in the sector.

The changes come as mainstream US banks became warier of processing wire transfers and holding deposits for the crypto industry, following last year’s turmoil and amid growing regulatory scrutiny. La Jolla, California-based Silvergate and New York-based Signature, two banks that supported the bulk of the industry’s money transactions, closed in March, setting off a scramble among crypto firms to find alternatives.

“Now it’s more of a handful of names, where you have to go and do your own due diligence because they are not as well-known, at least for the crypto community,” said Rich Rosenblum, president and co-founder of crypto trading firm GSR.

This week, the US Securities and Exchange Commission sued crypto exchanges Binance Holdings Ltd. and Coinbase Global Inc. for breaking its rules, delivering a one-two punch against the biggest players in the industry. Both firms denied the allegations and vowed to defend themselves in the court. Binance.US, which Binance claims is run as a separate entity, is set to lose its banking access later this month after the trading platform was cut off by its US payment and banking partners.

Read More: SEC’s Coinbase Lawsuit Heralds Deepening US Crypto Crackdown

“These high-profile lawsuits call attention to different issues that have been widely discussed and acknowledged among industry participants,” such as the legal status of certain tokens, said John Popeo, partner at Gallatin Group, which advises banks and other firms on regulatory issues. “It could create additional challenges for firms to find banking partners, as these partners will engage in due diligence and look at the additional issues related to the firms.”

Crypto exchanges have historically had difficulties finding banking partners to store deposits and facilitate money transfers for the buying and selling of digital assets. Losing banking access means crypto would be further isolated from the traditional finance industry.

Banking access for crypto firms in the US has become worse than in the pre-2018 era, when digital assets was still a nascent industry, said J. Austin Campbell, adjunct professor of Columbia Business School, who runs an independent consulting business for crypto firms. Banks want to open operational accounts for corporate use without touching users’ money, “but that’s not enough to run the business,” he said.

Still, the rebuilding and stitching together of a crypto-banking system is slowly happening. One upside is that the diversification of banking-service providers means the new system could be more resilient. While banking isn’t as seamless as it was a year ago, should one of the today’s banks stop supporting crypto, “you wouldn’t have this rejiggering of the system,” Rosenblum said.

Explainer: Why Crypto Still Needs Banks

Here are some of the banks crypto firms are turning to, broken down by region:

The US

Customers Bancorp

Some of the biggest crypto firms have leaned on Customers Bancorp, a West Reading, Pennsylvania-based lender led by founder and Chief Executive Officer Jay Sidhu.

The bank pushed into serving crypto clients in late 2021, launching a real-time payments platform, similar to Signature’s Signet, that caters to trading firms, exchanges and institutional investors, allowing them to settle US dollar transfers underlying crypto transactions seven days a week.

Circle Internet Financial Ltd., the issuer of the USD Coin stablecoin, now uses Customers’ CBIT payments network for real-time settlement of dollars. Crypto exchanges Coinbase and Bitstamp USA Inc., as well as trading firm GSR, have been Customers clients.

A Customers spokesperson declined to comment.

Cross River

Cross River Bank, a Fort Lee, New Jersey-based firm known for its ties to financial-technology firms, has provided banking services to some crypto firms, such as Coinbase and Circle. It also offers real-time money movement, with a limit of $1 million per transaction.

While Cross River has seen an increase in requests for partnerships and businesses looking for a bank to place their deposits, the firm is considering only companies with existing relationships and “blue-chip customers who are integral to the fintech ecosystem,” Josh Vlasto, a spokesperson for Cross River, said in an email.

Western Alliance

Western Alliance Bancorp, based in Phoenix, has a blockchain and digital-assets team that serves clients in the sector. It also offers real-time payments capability, powered by Tassat.

The bank takes a “very deliberate and measured approach to who we bank through the network,” a Western Alliance representative said in an email.

Axos Financial

Axos Financial Inc., based in Las Vegas, opens bank accounts for some crypto firms. It’s listed as one of the banks used by Binance.US, according to the SEC’s lawsuit against the exchange. The bank earlier had broader ambitions of pushing further into crypto, including supporting retail crypto trading and launching a stablecoin — plans now on hold.

“Given the change in the market that have occurred over the last year, Axos has no current plans to support retail crypto trading, provide clearing and transaction services, or launch a stablecoin,” Johnny Lai, senior vice president of corporate development and investor relations at Axos, said in an email. “We do not expect those plans to change in the immediate future.”

FV Bank

FV Bank International Inc., registered in the US territory of Puerto Rico, was the first bank of the commonwealth to roll out a digital-asset custody service. It allows clients to hold their Bitcoin and US dollars within the same bank account. It is launching the settlement of certain crypto tokens to US dollars, using third-party prime brokers for the exchange.

Asia

Standard Chartered

Standard Chartered Plc has made a major push into some emerging markets. It holds majority stakes in two UK subsidiaries, crypto-trading platform Zodia Markets and custodial unit Zodia Custody Ltd., the latter of which closed a $36 million funding round led by Japan’s SBI Holdings Inc. in April.

London-based Standard Chartered offers banking services to a “very select” group of digital-asset service providers and supports them in offering on- and off-ramping to users of their platforms, said Rene Michau, global head of digital assets.

“We see digital assets as an important part of the future of financial services,” Michau said in an emailed statement. The bank’s services to digital-assets firms include corporate accounts, client-money accounts and foreign exchange, predominantly located in Singapore, Hong Kong and the United Arab Emirates.

DBS

DBS Group Holdings Ltd. is Singapore’s biggest bank and the largest listed company in the city-state. It was founded in 1968, three years after Singapore was separated from Malaysia and became an independent country.

The bank offers deposit accounts to regulated digital-asset and blockchain firms. It also provides on- and off-ramping to the bank’s corporate, institutional and accredited clients through its own digital platform, DBS Digital Exchange, it said in a statement.

ZA Bank

ZA Bank Ltd., Hong Kong’s biggest virtual bank, plans to offer token-to-fiat currency conversions over licensed exchanges. It also plans to provide account services to the digital sector.

Founded by Chinese billionaire Ou Yaping and others, ZA Bank will act as a settlement bank for clients to allow withdrawals in Hong Kong, China and US currencies after they deposit crypto tokens with exchanges. Currently it offers on- and off-ramping to the two licensed exchanges in Hong Kong, OSL and HashKey.

Europe, the UK

BCB Group

London-based BCB Group offers customers access to its payment network for digital-asset outfits. Known as Blinc, the network operates like Silvergate’s now-defunct SEN for the European region, allowing members to pay each other instantly across multiple currencies.

The payment-services provider offers business accounts, over-the-counter crypto and currency trading, digital-asset custody and treasury services for clients including exchanges, market makers, lenders, funds, brokers and traders.

Bank Frick

Bank Frick & Co., based in Liechtenstein, offers banking services such as business accounts for both established firms and startups in the blockchain and cryptocurrency sectors. It also offers trading and custody of select tokens, including Bitcoin and Ether.

Binance Holdings, the world’s biggest crypto exchange, has been discussing a proposal to let some of its institutional clients keep their trading collateral at a bank, with Bank Frick mentioned as a potential intermediary for the service, Bloomberg News reported late last month. Bank Frick declined to comment.

Read More: Binance Explores Letting Some Traders Keep Collateral at a Bank

SEBA Bank

Swiss firm SEBA Bank AG offers individuals, companies and institutional clients access to trading, investment in structured products, custody and borrowing for digital and traditional assets.

Like a traditional bank, SEBA has fixed-term deposit accounts and payments services, but it also offers crypto-investment trackers and a credit card for spending crypto. The Zug-based bank saw increased website traffic globally, but more so in the US, after the collapse of Signature and Silvergate, the company said in March, adding that crypto firms were applying for its accounts.

Read More: Crypto Scours Globe for Banks to Replace Collapsed US Lenders

“We have experienced an uptake in inflows as a direct result of the current market landscape because we recognize that clients’ digital wealth should be managed in the same way as their traditional finances,” said Yves Longchamp, managing director at SEBA Bank.

Sygnum Bank

Spread across Switzerland and Singapore, Sygnum Bank AG specializes in digital assets for institutional and private qualified investors, corporate clients and financial institutions. It offers custody, brokerage, tokenization, asset-management, lending and business-banking services, facilitating deposits in Swiss francs, euros, Singaporean dollars and US dollars to buy, trade and hold cryptocurrencies.

“We continue to see a significant increase in onboarding inquiries from institutional investors, asset managers and blockchain projects looking to diversify their crypto investments with a trusted Swiss partner like Sygnum Bank,” said Mathias Imbach, the firm’s co-founder and group chief executive officer.

Clear Junction

Payment-services provider Clear Junction offers financial institutions including cryptocurrency companies access to UK accounts, virtual international bank account numbers, payment networks, currency exchange and electronic wallets. Companies can receive deposits for the purchase of digital tokens, enable payment acceptance using traditional bank transfers and hold funds under their own names using what’s known as a correspondent accounts.

–With assistance from Kiuyan Wong.

(Updates to reflect changes to Binance.US’s banking access in sixth paragraph.)