Lobbying Group Hunts For Proof That Feds Are Targeting Crypto

Speculation that the U.S. government has launched a coordinated attempt to “un-bank” crypto companies is running rampant following last month’s flurry of regulatory missives and lawsuits.

According to one industry lobbying group, it’s just that — speculation. But a little sunshine might help to prove that.

The Blockchain Association has sent open records requests to the Federal Reserve, the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency, in an attempt to determine whether regulators have instructed banks to close crypto companies’ accounts or otherwise create an environment that is hostile to the industry.

“There are troubling reports of crypto companies having their bank accounts closed, often with no notice and no explanation. They’ve struggled to open new accounts too,” Jake Chervinsky, the association’s head of policy, wrote on Twitter. “Yet, we still don’t know for sure that regulators are forcing banks to close crypto companies’ accounts. If they are, it’s happening covertly behind the scenes.”

‘Chokepoint 2.0’

In a widely-read essay last month, crypto influencer and investor Nic Carter called the alleged scheme “Operation Chokepoint 2.0.”

It was a reference to the original Operation Chokepoint, an Obama-era program in which the Justice Department and banking regulators discouraged banks from servicing certain “high-risk” industries, such as payday lenders and gun vendors. The program ended under the Trump administration.

Crypto-friendly lawmakers have adopted the term. In a letter to the Fed, FDIC and OCC last week, four Republican senators referenced the original Operation Chokepoint and demanded the regulators justify “the heightened scrutiny over crypto-related firms.”

Since Jan. 1, the Securities and Exchange Commission, the New York Department of Financial Services, and the aforementioned trio of federal bank regulators have aggressively ramped up scrutiny of the crypto space.

It Isn't Just the SEC — Feds' Dragnet Targets Crypto Banking, Too

Spate of Enforcement Actions Poised to Reshape Industry

The Defiant

Unregistered Securities

The SEC has proclaimed several tokens and Kraken’s staking-as-a-service product to be unregistered securities — a designation the industry has long fought, given the steep cost of complying with securities registration and regulation.

The NYDFS called Ether an unregistered security. And the banking regulators have issued joint statements on the risks that crypto assets pose to “safe and sound” banking practices, all while insisting their statements are not meant to discourage banks from servicing crypto clients.

Fears were rekindled early this week when the NYDFS seized crypto-friendly Signature Bank amid a run on its deposits.

Former Democratic Congressman and Signature Bank board member Barney Frank thinks it’s a conspiracy.

NYDFS said it closed the bank due to a “crisis of confidence in the bank’s leadership,” a crisis prompted by the bank’s failure to provide “reliable and consistent data.”

Frank doesn’t buy the explanation.

“Now, the question is, why did they react so harshly to what they said was our inability to give them the sufficient data? I believe it was probably to send the message that even though we were doing crypto stuff responsibly, they don’t want banks doing crypto,” he told New York Magazine in an interview published Wednesday.

The FDIC plans to sell Signature. Unnamed sources told Reuters that potential buyers must “give up all the crypto businesses at the bank,” though the claim has been disputed by an FDIC spokesperson.

“This disturbing trend suggests that regulators are trying to cut crypto entirely out of the banking system,” Chervinsky wrote on Twitter.

In addition to its open record requests, the Blockchain Association is soliciting “evidence of de-banking” from crypto companies that have had their bank accounts closed, or applications for new bank accounts denied.