- A new bill aims to stop crypto firms getting debanked.
- Crypto industry leaders have praised the move.
- Removing reputational risk clauses from banking regulations could have negative consequences.
The crypto industry is hopeful that a new bill will stop banks from refusing to serve companies that deal in digital assets.
The FIRM Act, introduced on Thursday by Republican Senator Tim Scott, who leads the Senate Banking Committee, will eliminate all references to reputational risk in regulatory supervision.
The bill’s sponsors, which include all 12 banking committee Republicans, say it will stop what they say is the political weaponisation of regulations and will ensure regulators focus on financial risks.
Brian Brooks, a former Comptroller of the Currency who holds board and advisory positions at multiple crypto firms, is among those praising the bill.
“Thank you Tim Scott for your leadership on fair access,” Brooks said on X. “Imagine if the electric company or the grocery store could ban customers based on reputational risk.”
“Great new bill introduced by Tim Scott ending reputational risk as part of the bank regulatory framework,” Nic Carter, a general partner at crypto investing firm Castle Island Ventures, said on X.
Crypto industry leaders have long accused the Biden administration of using regulations to deny crypto firms access to banking services, effectively forcing the industry offshore.
Experts have pushed back on claims the crypto industry is singled out, saying banks have a duty to make sure clients don’t pose risks to the bank’s solvency if they’re caught doing something illegal.
Indeed, the bill doesn’t just impact crypto firms. The cannabis, pornography, and firearms industries also claim banks refuse to do business with them.
Caitlin Long, founder and CEO of Custodia Bank, which offers crypto banking services, also said on X that she supported the bill.
Long claims Custodia Bank has been denied access to the Federal Reserve’s payment system due to the bank’s crypto dealings.
In January, President Donald Trump chastised Bank of America and JPMorgan Chase for what he claims were efforts to deny banking services to those with conservative beliefs.
The banks have denied making such decisions based on politics.
Those against the bill argue that it could force banks to take on more risk, and penalise those who don’t.
Bank regulators aim to protect not just consumers, but also to shield banks from potential harm to their reputations. Scandals can damage a brand enough to trigger a run on the bank.
Should a bank take on risker clients who cause its downfall, it’s taxpayers who will likely foot the bill.
Debanking investigations
Legislators have pursued multiple investigations into debanking in recent months.
In February, the House Oversight Committee sent a letter to the Federal Deposit Insurance Corporation, or FDIC, requesting access to previously redacted documents related to so-called pause letters, which allegedly pressured banks to halt crypto-related activities.
The same month, the Senate Banking Committee held a hearing into debanking as it relates to crypto-tied business and individuals.
Asked by Scott how widespread debanking in crypto really is, Nathan McCauley, CEO and co-founder of Anchorage Digital Bank, shared an anecdote.
“I was speaking at a meetup of about 100 crypto founders in San Francisco,” he said. “As a show of hands I asked, ‘Who here has had trouble getting an account or with debanking?’ All of the hands in the room went up.”
Federal Reserve Chair Jerome Powell said in a separate hearing that crypto companies’ claims were likely real, but denied the Fed participated in any efforts to cut crypto out of the banking system.
Tim Craig is DL News’ Edinburgh-based DeFi Correspondent. Reach out with tips at tim@dlnews.com.