Representatives from several bitcoin businesses told a panel of state banking regulators today that the current regulatory environment is making it difficult for them to build partnerships with banks.
During a roughly two-hour hearing, these bitcoin industry representatives suggested that without clearer and supportive regulatory standards, bitcoin companies will continue to be held back in the broader consumer marketplace.
Bryan Krohn, BitPay’s chief financial officer, told the panel that the current regulatory environment makes it difficult to do business with a bank in the first place, saying:
The panel members agreed that aligning regulations for bitcoin businesses with those applied to traditional money services businesses (MSBs) would help alleviate the situation.
Too risky for banks
Megan Burton, CEO of digital currency exchange CoinX, told the task force that regulatory uncertainty impairs communication between bitcoin businesses and banks.
She remarked that more clarity would improve the situation, saying:
Annemarie Tierney, general counsel and legal EVP for SecondMarket, told the panel that the high-risk profiling recently cost the company a long-time banking relationship.
Tierney added that the termination was "very, very discouraging" for the company.
Compliance holds banks back
The panel told the task force that, despite these challenges, banks have expressed interest in the technology underlying bitcoin. Still, issues with regulatory compliance make banks wary of the potential costs of investing in or integrating digital currency.
Karsten Behrend, chief compliance officer for Xapo, said the company has spoken with banks about the aspects of digital currency and how the technology could be leveraged for their clients. He remarked that doing so has helped Xapo educate potential banking partners on bitcoin.
Burton added that CoinX demoed her company’s exchange technology to two US-based banks in September 2013. However, the banks passed on any involvement with the technology because of the perceived high risk.
"Once we did a demo of the system, the platform and the exchange in particular. They were fascinated as to how we can extend this to our consumers.
Ultimately, they came up against a roadblock that, because of the risk profile, it would put additional scrutiny that they would not be able to handle within their organization."
Members of the task force, at the conclusion of the hearing, suggested that a national banking regulatory standard for digital currencies could be developed.
The group said that it would publish its findings later in the year as it moves toward potentially establishing new or modified guidelines for bitcoin businesses.
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.