Easing Regulations Boost Bank-Crypto Interactions

Relaxed regulatory oversight has energised bank engagement with cryptocurrency. Coinbase’s Brian Foster reports increased demand from banks, brokers, and fintechs for crypto services. Recent regulatory shifts now allow banks to explore crypto offerings without prior approval, igniting further interest from various bank sectors. Companies like SoFi and Green Dot are also re-entering or expanding their crypto initiatives amidst this evolving landscape.

In a shift that’s stirring the waters between traditional banking and the cryptosphere, relaxed regulatory oversight is paving the way for banks to engage more freely with cryptocurrency. Brian Foster, who leads wholesale operations at Coinbase, recently noted that demand from banks, brokers, and fintech companies has sparked significant activity, especially after federal banking regulators revised their previously stringent guidelines under the Biden administration.

Foster mentioned in a recent interview with Banking Dive that nearly all major US banks have started initiatives to embrace cryptocurrency. His team is working tirelessly, managing a flood of Requests for Proposals (RFPs) from banks eager to explore crypto solutions. He highlighted that this is not just a fleeting trend; it’s a decisive move as institutions pivot to meet growing consumer interest.

Since the beginning of this year, there has been a marked change in the stance of federal bank regulators. The Office of the Comptroller of the Currency, Federal Reserve, and the Federal Deposit Insurance Corporation have all rolled back previous requirements. Until January, banks had to gain prior approvals before venturing into cryptocurrency, but now they will be assessed under the regular supervisory framework, allowing more freedom.

According to Foster, the shift doesn’t stem from any new intention from banks to venture into crypto—interest has always existed—but rather from a heightened demand as the cryptocurrency market expands and the regulatory atmosphere grows more favourable. As this landscape shifts, risk committees within banks are feeling more at ease with diving into crypto offerings.

Brad Rustin, from law firm Nelson Mullins in South Carolina, echoed this sentiment. He emphasised that many banks are keenly conversing about crypto now, spurred on by regulatory changes initiated during the Trump administration. The banks interested in crypto mostly fall into two camps: those who are knowledgeable about fintech and crypto assets, and larger institutions with extensive securities custodial experience.

Rustin explained that for large banks, the concept of custodial services for digital assets mirrors their traditional offerings for stocks or bonds, with adjustments needed only in the control and maintenance processes. His firm has previously represented various banks attempting to secure regulatory approval for crypto exploration, with one notable exception: Vast Bank, which became one of the first U.S. banks offering crypto services but later exited due to regulatory hurdles.

On another front, SoFi Technologies’ CEO Anthony Noto commented on this evolving regulatory environment, as the company gears up to return to the crypto space within the next six months—after having left it in 2023 to meet bank charter requirements. Noto expressed his intention for SoFi to enhance their crypto offerings, integrating blockchain capabilities across all their financial products.

Meanwhile, digital bank Green Dot announced a partnership with Crypto.com, which aims to provide banking services to the platform’s U.S. customers via their embedded finance system, known as Arc. They’re also set to introduce an interest-bearing savings account, giving customers a way to earn interest before investing in digital assets.

Yet, Green Dot’s senior VP of embedded finance, Renata Caine, pointed out that their launch timing with Crypto.com was purely coincidental with the recent regulatory changes. Caine mentioned that they have been in discussions about such partnerships for a long time, emphasising their commitment to maintaining open communication with regulators. She reiterated the importance of this partnership as it bridges traditional cash services and digital assets, underscoring their adherence to compliance and regulatory standards.