Crypto - Fiat Financial Regulation
Traditional financial institutions (e.g. banks) have been reluctant to work with cryptocurrencies and crypto businesses. Many banks treat crypto exchange businesses as high risk clients. In the end of last year, the Taiwanese Financial Supervisory Commission issued a public statement stated that banks and financial institutions shall not accept and exchange bitcoin, nor provide bitcoin service via ATM machines.
Anti-money laundering and fraud are the key factors to explain the banks’ conservative attitude towards crypto related businesses. However, being able to keep an account with a bank and use services provided by a bank is crucial for the continuation of an crypto business, particularly an exchange business. Here are 3 nations that take initiative to support crypto businesses when it comes to dealing with the banks.
Once known for its active and vibrant crypto industry, notably a “Crypto Valley” that supports over 200 crypto business entities, Switzerland is losing crypto businesses to offshore rivals due to hostile local banking relationships. Zuercher Kantonalbank (ZKB), the 4th largest Swiss bank, has closed the accounts of more than 20 crypto businesses. With more ICOs being issued in the nation, Swiss banks are worried that some ICOs would violate AML policies and put the banks at risk at the same time.
In order to restore the faith of a vibrant crypto industry and reassure the safety of local banks, Swiss Finance Minister Ueli Maurer step in and called for a meeting with the central bank and the bankers association to work on compiling a set a checks and conditions that all banks could follow when opening an account for crypto businesses.
Being the 6h smallest country in the world does not stop Liechtenstein from creating a welcoming environment for crypto businesses and fintech startups, in which the number of registered businesses are greater than its citizens.
Liechtenstein embraced more crypto businesses around the same time the Swiss started losing them. The reason why so many crypto businesses turned to Liechtenstein is the welcoming banking environment. Funds from ICOS are usually raised in crypto, such as bitcoin and ether, without exchanging them into fiat money the funds have very limited use in the broader economy. Nowadays, Bank Frick in Liechtenstein has become a popular choice for Swiss crypto businesses who struggled to secure a local account.
Some of the benefits that Liechtenstein offers include exemption from EU regulations while still trading across Europe due to financial passporting rules, low tax rate, and a friendly Blockchain Law ready to come into effect soon.
Bits of Gold, a local crypto exchange in Israel was denied banking service from Bank Leumi, one of the biggest banks in the country which the crypto exchange had held a account since 2014. In 2015, Bank Leumi decided to close its account despite the exchange’s lawful conduct. Since then, the exchange has been working with an injunction that allowed it to act until the final verdict. Recently, the Israeli Supreme Court passed a temporary order prohibiting Bank Leumi from blocking activities in Bits of Gold’s account.
“The Bank’s decision is based on the assumption that the Company’s activity does indeed entail risks that arise in violation of the provisions of the law, and therefore the Bank is liable to pay a price for the materialization of those risks. For over five years in which the account has been operating, these concerns have not materialized. as the District Court has determined, the company acted transparently and did not violate any provision of law.”