In 2022, the Federal Deposit Insurance Corp. (FDIC) took a significant step to restrict the involvement of major U.S. banks in the crypto industry. Newly released internal communications from the FDIC reveal that the regulator had asked banks to pause all crypto-related activities and halt any further expansion until regulatory compliance demands were met.
Background
The controversy began when Coinbase, Inc. (COIN) hired a research firm called History Associates Inc. to gain access to internal communications between the FDIC and other regulatory bodies. The research firm took the FDIC and Securities and Exchange Commission to court in June and eventually secured access to the desired information.
FDIC’s Request for Pause
The heavily redacted documents, released on Friday, contain 23 letters from the FDIC to various banks. One of the most striking communications reads:
"We respectfully ask that you pause all crypto asset-related activity… The FDIC will notify all FDIC-supervised banks at a later date when a determination has been made on the supervisory expectations for engaging in crypto asset-related activity."
Crypto Industry Complaints
The crypto industry has long complained about being under a "banking crisis," where companies and prominent figures are blocked from U.S. bank services. Coinbase’s Chief Legal Officer, Paul Grewal, emphasizes that these letters represent concrete evidence of the regulator’s actions.
"The letters show that this was no conspiracy theory at all… There was a concerted plan on the part of the FDIC to deny banking services to a legal American industry."
Compliance Demands and Regulatory Uncertainty
The communications from the FDIC reveal that many banks had submitted plans for crypto activities, but their progress was stalled due to compliance concerns. The regulator posed numerous complex questions, including:
- How will you ensure customer protection in crypto transactions?
- What measures will you take to prevent money laundering and other illicit activities?
- Can you provide detailed information on your risk management policies?
Lack of Clear Regulatory Guidance
The FDIC’s approach has left many in the industry questioning the agency’s stance on crypto. While the primary banking regulators have issued cautionary guidance, there is no clear set of rules governing the sector.
"The agencies haven’t instituted a formal set of rules regulating the sector," notes an industry observer.
Next Steps
Coinbase plans to request that the court remove the redactions from the documents, revealing the institutions involved and the services they sought to offer. This will provide insight into the "why" behind the FDIC’s stance on crypto.
"It’s time for them [FDIC] to stop dragging their feet," Grewal said.
Industry Response
The release of these documents has sparked a renewed debate in Congress about the regulatory approach to crypto. During a hearing, industry leaders testified that their companies had been cut off from financial services, despite being federally chartered banks themselves.
"It’s particularly surprising because we ourselves are a national bank," said Nathan McCauley, CEO of Anchorage Digital.
Update
The FDIC has responded to the release of these documents, but declined to comment further on the matter.
