Crypto businesses are seeking access to the US Federal Reserve’s (FED) payments systems that legacy finance institutions use to move money around swiftly. However, in a bid to protect their privileged position in the US financial system, banks are protesting against providing crypto companies with such access.
Some of the major crypto firms that aim to gain a foothold in these payment systems include digital asset-focused bank Avanti Bank and crypto exchange Kraken, as reported by The Wall Street Journal.
The companies say that gaining direct access to the systems would provide them with faster and cheaper ways to process orders from their customers.
Currently, such firms are required to partner with traditional banks which maintain accounts with the FED, and which claim that their crypto-oriented competitors benefit from relatively light regulations, as well as lack the necessary internal mechanisms to prevent money laundering and other illegal activities. Banks also argue that crypto businesses are not insured with the Federal Deposit Insurance Corp. which makes using their services riskier to US customers.
Caitlin Long, CEO and Founder of Avanti, has confirmed that her business recently filed an application to become a Federal Reserve member bank, potentially paving the way for Avanti’s direct access to the payments systems.
Avanti has “formally submitted to what it had already informally accepted–namely, the very same regulatory capital, compliance and supervisory examination standards that apply to traditional banks,” she said, before taking a swing at what she described as an application of double standards by legacy banks.
Long added that: “Ironically, the bank industry’s lobbyists keep saying crypto needs to be subject to higher standards than traditional banks. But their own banks are now getting into crypto too, and so it’s really funny to watch the bank lobbyists tie themselves in knots.”
Meanwhile, traditional banks are intensifying their lobbying efforts to prevent crypto-focused competitors from entering the system, as indicated by the latest developments.
“The questions of whether and how novel charters may have direct access to Reserve Bank accounts and services are ultimately fundamental questions of US payments systems policy,” said an open letter to the FED filed last month by the Bank Policy Institute, which represents the interests of major banks, and the Independent Community Bankers of America.
“It is reasonable to expect that such applicants will pose heightened risks regarding matters of anti-money-laundering, cybersecurity and consumer protection, as well as safety and soundness,” according to the letter.