Banking Crisis in U.S. Likely to Push Crypto Firms Offshore
Switzerland, Lichtenstein and island jurisdictions are among the potential benefactors of the trend.
U.S. crypto firms are looking for bank accounts offshore following the collapse of three digital assets-friendly financial institutions last week.
Sygnum in Switzerland and Bank Frick in Lichtenstein told CoinDesk they have seen an increase in requests to open accounts in the past few days from various jurisdictions - including the U.S. Meanwhile, Swiss bank SEBA said it has already started onboarding crypto clients that have recently shown interest. On the retail side, Gibraltar's Xapo Bank has also seen increased demand for new accounts in the past few days and is adding GBP payment services with USDC options likely starting later this week.
Industry sources have also pointed to FV Bank in Puerto Rico, Jewel Bank in Bermuda, and Tether and FTX-tied Deltec in the Bahamas, as options for U.S. dollar-based banking. A list sent out to some companies in the Digital Currency Group umbrella (which includes CoinDesk) also identified EQIBank in Dominica. These banks didn’t respond to CoinDesk’s request for comment.
Last week, three of crypto’s preferred banks in the U.S. became effectively defunct. Silvergate Bank (SI) was liquidated, whereas Silicon Valley Bank (SVB) and Signature Bank (SBNY) were shut down by regulators.
While an interim solution for Silicon Valley Bank has been set up in the form of a bridge bank to allow customers to use their accounts, in the long-term companies will have to move their funds to other banks. The Federal Insurance Deposit Corporation (FDIC), which manages the process, typically organizes bridge banks for up to two years, said a spokesperson for the agency. That's plenty of time for firms to go through the onboarding process of most banks.
Read more: The Banking Crisis Is Not Crypto’s Fault
Europe and beyond
Europe’s relative regulatory clarity could prove an asset, particularly as the U.S. lacks a regulatory framework plus the trust of many crypto insiders in U.S. authorities has been shaken. Reported claims that the closure of Signature Bank was part of a larger campaign against the crypto industry have raised concerns among industry participants.
"There is a very real risk that more crypto companies will move offshore, particularly with regulatory frameworks being proposed in the U.K. and the [European Union]," said Dave Weisberger, CEO and co-founder of algorithmic trading platform CoinRoutes.
Crypto firms will likely look beyond Europe for their banking needs because more jurisdictions are increasingly friendly toward digital assets. "Global crypto companies will definitely be looking at banking options in Europe, Hong Kong and the Middle East," said Sanjay Raghavan, vice president of Web3 initiatives at real estate investment platform Roofstock onChain. He pointed to the United Arab Emirates, which is "embracing crypto innovation and has announced plans to launch an economic free zone dedicated to crypto and digital asset companies."
Some crypto firms were already looking to go overseas or offshore even before the closing of these three banks, said Josh Frank, co-founder and CEO of information platform The Tie. "Many crypto companies already had multiple on and off-shore banking partners," he said, noting that U.S. companies will likely prefer Caribbean and European banks first.
SEBA's Managing Director Yves Longchamp said that interest in the bank's services has increased in the past few weeks but especially the last few days, "across all segments in the space, from VCs [venture capital firms] to foundations to trading firms and treasuries."
However, in his view, "it’s no longer reliable" to rely on one banking provider in one jurisdiction anymore, "particularly when recent messaging from the regulating bodies has been less than encouraging."
The push for overseas banking is a "missed opportunity for the U.S. economy in my view, given it has the best chance of regulating the industry and helping it mature," said Xapo Bank's CEO Seamus Rocca.
Regardless of where U.S. crypto companies look for their banking partners, regulatory risk in their home jurisdiction will likely loom large.
The willingness of internationally established banks to do business with U.S. crypto entities at the moment also hangs on the question of what the U.S. regulators will let the companies do for their banking partnerships. "Many European and Asian banks also have some U.S. presence, which could presumably put them in sight of regulators if they are banking U.S. customers via offshore entities," Frank said.
Being approved by banks in European countries will likely take longer and be a heavier lift. Only crypto companies that are regulated and have proper compliance and governance will be able to access non-U.S. banks, said Henri Arslanian co-founder and managing partner of Dubai-based Nine Blocks Capital Management.
Longchamp said that "previously, the lack of a clear regulatory framework [for crypto firms] in the U.S. had been a large deterrent" to servicing clients. In the Asia-Pacific region for example, SEBA has always preferred not to "involve more U.S. aspects in a business unnecessarily."
The bank, which is licensed in both Switzerland and Abu Dhabi, takes measures like "segregated accounts and risk management" to provide its clients "full autonomy over their assets," Longchamp said.
Meanwhile, Bank Frick said that its reviewing every new onboarding case individually. "We apply and have always applied the same strict standards in the crypto area as in the classic banking business. If all necessary local [know your customer/anti-money laundering] standards are fulfilled, it is also possible to onboard jurisdictions outside Europe," Nicolas Marxer, Bank Frick’s head of blockchain banking, told CoinDesk.
Sygnum Bank, for its part, does not onboard U.S. clients, said Martin Burgherr, the bank's chief clients officer, so the applicants for new bank accounts are likely knocking on the wrong door.
UPDATE (March 14, 18:10 UTC): Adds comments from SEBA, Xapo Bank and FDIC.
The leader in news and information on cryptocurrency, digital assets and the future of money, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups. As part of their compensation, certain CoinDesk employees, including editorial employees, may receive exposure to DCG equity in the form of stock appreciation rights, which vest over a multi-year period. CoinDesk journalists are not allowed to purchase stock outright in DCG.
Learn more about Consensus 2024, CoinDesk’s longest-running and most influential event that brings together all sides of crypto, blockchain and Web3. Head to consensus.coindesk.com to register and buy your pass now.