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Banks Moving Away From Crypto As Binance Prepares To Get Smacked

Financial institutions are slowly moving away from crypocurrency companies and regulators have begun providing more oversight following in the wake of the FTX scandal that has rocked the world of digital currency. The moves threaten to sever digital money from the financial system of the real world. 

The Wall Street Journal reports, “Banking regulators are raising concerns about banks’ involvement with crypto clients following last year’s blowup of Sam Bankman-Fried’s FTX. The Securities and Exchange Commission is aggressively pursuing the industry’s bigger players in a crackdown that threatens to narrow their reach. That move has alarmed bankers who don’t want to do business with customers in the SEC’s crosshairs, people familiar with the matter said. 

Now bankers are re-evaluating any exposure to the crypto sector, no matter how small, according to people familiar with their thinking. The few smaller banks that got deep into crypto are reducing their exposure to the market or cutting ties altogether. Banks that kept their distance from crypto are trying even harder to stay away, closing accounts and shunning customers with potential connections to the industry.

New York’s Metropolitan Commercial Bank recently announced that it was closing its crypto business, citing material changes in the regulatory environment. Signature Bank cut ties with the international business of Binance, the biggest crypto exchange. The lender, one of crypto’s leading banks, started paring back its relationships with crypto depositors late last year.

The crackdown is squeezing crypto businesses. While the industry often pitched itself as an alternative to banks, these firms still rely heavily on banks to link up with a financial system that runs on hard currencies such as dollars and euros. Without banks, crypto companies struggle to pay their employees and enable customers to move money in and out of digital currencies.” 

The newspaper also recently noted that “Binance, the world’s largest cryptocurrency exchange, expects to pay monetary penalties to settle existing U.S. regulatory and law-enforcement investigations of its business, the firm’s chief strategy officer said in an interview.

Binance grew quickly and began as a business powered by software engineers unfamiliar with laws and rules written to address the risk of bribery and corruption, money laundering, and economic sanctions, Patrick Hillmann said. The company has been working to fill gaps in its early compliance efforts, he said, but still expects regulators will impose fines for past conduct.

The company is “working with regulators to figure out what are the remediations we have to go through now to make amends for that,” Mr. Hillmann said Wednesday. The outcome will be “likely a fine, could be more.…We just don’t know. That is for regulators to decide.”

Binance has run into regulatory problems in the United States before. Decrypt noted, “The exchange has never registered itself in the country, which first led to the New York Attorney General’s office referring the firm to the New York State Department of Financial Services for potential violation of New York’s virtual currency regulations in 2018. In March 2021, the Commodity Futures Trading Commission (CFTC) opened a probe, looking into whether the exchange illegally allowed U.S. residents to use the service.

The CFTC reportedly launched a separate probe into Binance over claims of insider trading in September 2021, predated by another investigation by the Department of Justice (DOJ) and the Internal Revenue Service.”

The owners of cryptocurrency welcome new regulations. “Bitcoin touched an eight-month high on Thursday as investors jumped back into risky digital assets, despite renewed vows from regulators and lawmakers to rein in the cryptocurrency sector,” according to The New York Times.

“Bitcoin traded near $25,000, a 10 percent gain from the day before, even as the stock market wobbled. Wall Street investors appear increasingly convinced that more interest rate increases will be needed to rein in inflation, which has stoked volatility in markets over the past week.

But crypto investors seem to be operating in a different reality, the DealBook newsletter reports, and their optimism comes as signs of a regulatory crackdown grow in the aftermath of the collapse of the crypto exchange FTX in November.

On Wednesday, the Securities and Exchange Commission proposed a new ‘custody’ rule that would, among other things, limit asset managers’ ability to put customer money into crypto assets. The proposal follows a series of recent moves by regulators to give investors added protections in a market notorious for wild price swings.”

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