Documents show that US regulators have been cautious about cryptocurrencies, but have not asked banks to throttle the sector

Written by Pete Schroeder and Douglas Jellison

WASHINGTON (Reuters) – A major U.S. bank regulator has asked several lenders to temporarily stop working directly in cryptocurrencies in 2022 and 2023, but has not directed them to stop providing banking services to cryptocurrency companies, according to documents released on Friday.

A judge has ordered the Federal Deposit Insurance Corporation to provide copies of 25 supervisory “stop letters” it sent to unidentified banks after History Associates Incorporated, a research firm hired by cryptocurrency exchange Coinbase, sued the agency to release them.

The FDIC first released the letters in December, but a judge ordered them to be resubmitted with more “careful redactions.”

The lawsuit is part of a campaign by Coinbase to expose what it and other cryptocurrency companies say is a concerted effort by U.S. bank supervisors to strangle cryptocurrency companies from the traditional financial system.

In an effort to combat these claims, the FDIC also on Friday published a 2022 internal memo detailing how supervisors should evaluate inquiries from lenders looking to deal directly in cryptocurrency assets, versus providing banking services to cryptocurrency companies.

Together, the documents provide a rare glimpse into the secretive banking supervision process. They point out that although FDIC examiners have been cautious toward the cryptocurrency sector, which is plagued by fraud, bankruptcies, and volatility, they have not ordered banks to cut off the cryptocurrency sector entirely.

The documents are being released weeks before President-elect Donald Trump’s new administration is expected to outline a wide-ranging cryptocurrency policy overhaul. Trump is expected to issue an executive order directing bank regulators to make it easier to do business with the sector, perhaps as early as his inauguration on January 20.

Several FDIC letters show that staff directed banks to either temporarily stop engaging in cryptocurrency initiatives or refrain from expanding crypto services to customers. In other cases, the FDIC has required banks to answer detailed questions before moving forward with cryptocurrency projects.

Meanwhile, the internal memo distinguishes between a bank that is directly involved in cryptocurrency activities, such as holding cryptocurrency assets, and providing traditional banking services to cryptocurrency clients, such as lending and providing deposit accounts. The first category requires more stringent scrutiny, she says.

The memo echoes comments made by FDIC Chairman Martin Gruenberg in December, who told reporters that the agency was not “cannibalizing” cryptocurrency companies in terms of access to bank accounts, but direct involvement in cryptocurrencies by banks. It is a “subject of supervisory interest.”

“Cryptocurrency-related activities may pose significant security, safety and consumer protection risks, as well as financial stability concerns,” the memo notes, adding that these risks are still “evolving.”

(Reporting by Pete Schroeder and Douglas Jellison; Editing by Michelle Price and Chizuo Nomiyama)