SEC legal action against Binance and Coinbase is another signal for traditional financial institutions
Part I: A Bank's Secret Weapon
The U.S. Securities and Exchange Commission (SEC) charges against Binance and Coinbase highlights the regulatory scrutiny and legal challenges that cryptocurrency exchanges face.
Naturally, this news makes many traditional bank executives more cautious about offering cryptocurrency to customers and commercial banking services to such exchanges. Banks and credit unions in the U.S. are heavily regulated institutions, necessitating prioritization of compliance and risk management.
These attempts by the regulators to apply existing securities laws to cryptocurrency companies operating in a gray area paves the way for banks, who conversely, operate under a very well-defined regulatory and compliance framework, to offer cryptocurrency services directly to their customers.
The big picture is that these legal actions underscore the need for regulatory clarity amidst the growing mainstream acceptance and adoption of cryptocurrencies. Despite these challenges, cryptocurrencies have gained popularity and are increasingly seen as a legitimate asset class that is here to stay. The surge in demand for dependable and secure cryptocurrency services has revealed a notable market need: trustworthiness. What’s missing is the level of oversight, a standard by which traditional banks are in the best position to fulfill.
If you’re following so far, you’re not alone. The Federal Deposit Insurance Corporation (FDIC) reported that as of February 2023, 136 banks have indicated that they intend to participate in cryptocurrency activities1.
Some of these banks have already begun exploring cryptocurrency-related offerings. For example, in recent years, financial institutions like BNY Mellon2, have launched or plan to launch cryptocurrency custody services or facilitate cryptocurrency transactions for their clients. Additionally, many credit unions have partnered with New York Digital Investment Group (NYDIG) to offer Bitcoin to their customers. These initiatives, while well-intentioned, miss the mark in a variety of ways.
In parallel, early attempts by unregulated, non-bank entities (e.g. FTX, Celsius, Binance, and BlockFi) to provide cryptocurrency services accentuate the importance of consumer protection. Absent sufficient regulatory oversight, these unregulated, non-banks’ attempts to offer bank-like services ultimately resulted in public harm.
A recent Forbes article sheds light on the staggering divide between the haves and have-nots3.
The market desperately needs regulatory clarity. Banks and credit unions are the answer.
Will banks and credit unions take advantage of this unique opportunity to construct safe and sound approaches to crypto-related activities on its existing and robust regulatory foundation?
Watch your inbox for Part II of this article.