Banks and bitcoin: from hate to love, is there only one step?

"The interconnection between traditional banking and the nascent world of digital assets has only grown in the last year"

Banks have not been supporters of bitcoin since its inception. What's more, at the beginning, they expressed a clear rejection, affirming that it lacked intrinsic value, that it was a fraud or, at best, casoyes, a bubble.  

Over time, this rejection faded and some banks, first in the United States and later in Europe, timidly began to collaborate with intermediaries or “crypto” exchanges —the so-called exchanges— and offer crypto assets and linked products.  

The “crypto winter” and the Terra Luna or FTX scandals, among others, meant that banks, always averse to any reputational risk, slowed down their entry into this world. Despite this, the interconnection between traditional banking and the nascent world of digital assets has only grown in the last year.  

Today, we continue to find certain banks that are against cryptocurrencies and that, arguing the protection of their clients, have restricted and even prohibited activities related to them. For example, Lloyds does not allow its clients to buy "crypto" with a credit card (it does with a debit card) and warns that transfers of funds to a "crypto" site will be at the client's own risk.  

But, saving these casos, more and more banks are not contrary, and even friendly, with cryptocurrencies. Those that are simply neutral allow their clients to make transfers or use their instruments, such as credit cards, to buy or sell in the exchanges without blocking them. 

Going a step further, within the cryptocurrency-friendly banks, we find those that offer them directly or through alliances with exchanges.  

To cite examples of banks that offer crypto assets, we have the casos of Revolut or BBVA. Revolut, which was born in the United States in 2020 and which in Europe has a banking license (in Lithuania) and a recent branch in Spain, gives its customers access to the purchase of "cryptos" from its own app. Among the Spanish banks, we cannot fail to mention BBVA which, from Switzerland, has launched the "crypto" buying and selling service. 

More and more banks are opting for forge alliances with exchanges. In fact, most of the Spanish banks that are preparing to launch crypto assets have opted for these alliances with exchanges.  

However, it is not an easy task for banks to choose a exchange with which to collaborate, since this type of intermediary was born when there was a lack of any type of regulation and many of them are established in countries that are lax in fiscal policies and the prevention of money laundering. Thus, some of the largest and most global companies face investigations by different supervisory bodies, which causes fears due to reputational risk. Other smaller, local providers may not have the scale that a large bank requires.  

Thus we arrive at the present moment, in which, finally, MICA approved, the European regulation of cryptoactive markets, and the Travel Rules, the modification of the fund transfer regulation to include crypto assets. These two regulations provide legal certainty to operations with them and define, for the first time, a regime for the authorization and supervision of exchanges and from other crypto asset providers.  

Will banks take the step towards love with this regulation?  

The MiCA regulation requires that exchanges have an effective decision-making headquarters in the EU and that at least one of their administrators is resident in the EU, in order to provide their services in the European market  

Undoubtedly, these indications are helpful for banks to choose a provider, but it is also true that the prudential requirements of the regulation for these providers, being a great step forward, are not equivalent to those of banks and for this reason, some consider them insufficient.  

To eliminate the uncertainty and reputational risk derived from carrying out the activity through alliances with third parties, the option would be for banks to acquire these providers, but these purchases are not easy due to the prudential requirements of the Basel Committee on crypto assets, which would penalize any banking business that interposed its own account in the sale of these assets. So, at least for a while, This trend of collaboration between banks and “crypto” actors will be consolidated, which, although it is not love, is a marriage of convenience.  

Gloria Hernandez Aler

Partner of finReg360. Academic Advisor of Fide.

Article originally published in the Blog Fide in the withfideinitial

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