Coinbase pushes US regulators to let banks offer crypto services once and for all

Coinbase is demanding US regulators finally let banks jump into the crypto industry. The company sent letters to top financial agencies today—the Office of the Comptroller of the Currency (OCC), the Federal Reserve, and the Federal Deposit Insurance Corp. (FDIC)—insisting they clear the path for banks to offer services like crypto custody and trading execution.

Coinbase wants regulators to let banks partner with crypto companies like Coinbase itself, without the red tape. In its letter, the exchange reportedly called out a 2020 OCC guideline that it claims has created a sneaky, unofficial process that banks must follow to engage in anything crypto-related.

Coinbase says this rule effectively blocks banks from offering crypto services altogether. The letter also urged the Fed and FDIC to officially confirm that state-chartered banks are allowed to provide and outsource custody and execution services for crypto.

Trump’s crypto-friendliness accelerates Coinbase’s push

Coinbase Chief Policy Officer Faryar Shirzad said, “It’s important for regulators to make clear that banks can work with third-party providers in providing trading and exchange services to their customers.”

Coinbase currently handles custody for most US spot Bitcoin and Ether exchange-traded funds (ETFs), launched last year, but tighter banking restrictions have kept other institutions on ice.

Between March 2022 and May 2023, the FDIC reportedly sent letters to banks, urging them to either halt or not expand crypto-related projects and provide detailed explanations about any activities. However, these barriers have started crumbling under the new Trump administration.

The president has appointed crypto-supportive heads to federal agencies and even repealed a major SEC rule known as SAB 121. That rule required banks to record all crypto assets held in custody as liabilities on their balance sheets, making custody services a financial nightmare.

Coinbase’s letter to regulators comes ahead of a Senate Banking Committee hearing on Wednesday that will focus on the issue of “debanking.” This refers to financial institutions cutting off access to services for crypto companies and even politically conservative clients, often with little to no warning.

Shirzad shared that: “At Coinbase, we are very much of the view that we need a comprehensive ecosystem to support the crypto economy. That’s why we’ve been so active on bank issues, even though they involved regulatory fixes that helped the banks. In our view, it’s beneficial to have broad participation in the crypto economy.”

The law firms supporting Coinbase’s push include Arnold & Porter Kaye Scholer LLP, Cleary Gottlieb Steen & Hamilton LLP, and Wilmer Cutler Pickering Hale and Dorr LLP.

Congress gets into ‘debanking’ scandal with new hearing

The House Committee on Financial Services Republicans are preparing for the hearing this, which is titled Operation Chokepoint 2.0: The Biden Administration’s Efforts to Put Crypto in the Crosshairs. Coinbase Chief Legal Officer Paul Grewal is among the key witnesses, alongside WSPN Payment CEO Campbell J Austin and MARA Holdings CEO Fred Thiel.

Leading the charge is House Oversight Committee Chairman James Comer, R-Ky., who claims banks have been systematically shutting down accounts belonging to conservatives and crypto businesses, allegedly under pressure from the Biden administration.

Speaking on Sunday Morning Futures, Comer said, “We’ve heard numerous instances of conservatives being debanked, and what we want to know is, is this a process of the bank’s ESG policy, or is this our government stepping in like what we found with Twitter and Facebook?”

He compared the situation to when federal agencies allegedly influenced social media platforms to censor conservative content. When asked by host Maria Bartiromo if he had proof of this so-called “debanking,” Comer said, “Yes, especially people that were involved in different energy-type businesses as well as very outspoken conservative activists. So there are numerous instances, enough to open an investigation.”

“Are these bank examiners with a wink and a nod saying, ‘Don’t let this person bank at your bank’?” Comer asked rhetorically. He promised that his committee would grill banks for answers. But Comer also acknowledged that banks cooperated with the ongoing Biden influence-peddling probe.

He expects similar cooperation this time around. “At the very least, we want to change this,” Comer said. He clarified that the issue isn’t about denied loans, which happen daily in banking. “This is just opening up savings accounts and checking accounts. I mean, this is unheard of to do this, and it’s against the law.”

Federal laws on anti-money laundering and illicit finance require banks to monitor accounts and sometimes cut ties with clients considered high-risk. However, critics argue that these rules have been weaponized to discriminate against politically disfavored groups.

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