Canadian crypto companies struggling to access banking services from the Big Five

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Many Canadian cryptocurrency companies are facing challenges in obtaining basic banking services from the country’s largest financial institutions, which still view the industry as too risky.

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Spoke to over a dozen companies in the crypto sector, from crypto exchanges to crypto miners and digital asset custodians, and nearly all said they struggle to open bank accounts and secure credit cards or lines of credit from the Big Five banks. Is kept.

Some crypto executives were reluctant to speak openly and on record about their issues receiving banking services from Bank of Montreal, Royal Bank of Canada, Canadian Imperial Bank of Commerce, Bank of Nova Scotia and Toronto-Dominion Bank because they felt That this would jeopardize their chances of developing relationships with banks.


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But almost all of them were fed up and frustrated by the hurdles faced in dealing with the big banks, which they say have not kept up with the pace of innovation in the industry and do not have clear and consistent policies regarding it. To do business with crypto companies.

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“Being a legitimate business, regulated by Fintrack, and going through the process of being formally regulated by securities regulators as a crypto trading platform is extremely disappointing, and still not able to establish a credit history in Canada because We can’t get a credit card,” said Justin Hertzman, chief executive and co-founder of Toronto-based crypto exchange, CoinSmart. (Fintrack is the acronym for Canadian Financial Transactions and Reports Analysis Center.)

Mr Hartzman said CoinSmart was not able to open a bank account with a Big Five bank and currently does business with a smaller financial institution. “We are committed to working with large banks on a solution that best suits their risk profile,” he added.

The Canadian crypto industry has experienced explosive growth over the past two years, as digital currencies have gained mainstream acceptance among retail investors, creating a number of new digital asset-focused funds and crypto trading platforms. For example, Canada-based bitcoin mining companies such as Hut8 Mining Corp and Bitfarms Inc. have reported record revenue in recent quarters, reflecting the rapid pace at which investors and institutions have embraced the world of digital assets.

The size and scope of the industry has prompted regulators to establish clear rules for crypto companies. For example, as of June 2020, all companies dealing in virtual currency transactions were obliged to comply with FINTRAC’s “Know-Your-Customer” rules and to register their business with the regulator. In late March this year, the Canadian Securities Administrators, a group representing securities regulators in all provinces and territories, warned crypto trading platforms that they would have to begin the process of getting regulated by early summer. To date, only three companies – Wealthsimple Inc., Netcoins Inc., and Coinberry Ltd. – Fully regulated as a crypto trading platform.

Netcoins co-founder and president Michelle Demeter said that although it has been difficult for her company to get services from large Canadian banks, she expects this to change given the company’s regulatory status. “One of the main benefits of being regulated by the Ontario Securities Commission is that we are hoping it will open the door to more banking,” he said.

According to Coinberry CEO Andrei Poliakov, his company’s status as one of three regulated crypto trading platforms had prompted some opening of doors on Bay Street. “When we first started, no one understood this space. I can’t blame financial institutions for not doing business with a particular risk profile in the past, but I think that needs to change,” They said.

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But an executive at a Toronto-based crypto exchange said that banks’ approach to crypto companies hasn’t changed much over the past four years, even with the cryptocurrency becoming more mainstream among retail investors and securities executives. Developing a clear framework on how to regulate. . The source has not been identified as he is not authorized to speak to the media.

The executive said that his company had successfully become a client of a small financial institution a year ago after being denied services from the Big Five banks, but it was recently discovered that that institution is also slowly moving away from the service of crypto companies. It’s on

Some banks explicitly state that they will not deal with crypto companies in any capacity. In an e-mailed statement, CIBC spokesperson Neema Ranawana said the bank “does not provide basic banking services” to companies in the sector. Canada’s sixth-largest bank, the National Bank of Canada, said it also does not provide credit cards, bank accounts or lines of credit to companies that “specialize in the issuance, trading or distribution of cryptocurrencies.”

Others seem to be vague in their stance on banking crypto companies. RBC said it evaluates potential customers on a “case-by-case basis” to ensure compliance with the bank’s internal risk standards. TD told The Granthshala that cryptocurrency is something that the bank is “continuing to watch closely”. Scotiabank declined a request for comment and BMO did not respond to a request for comment.

Matthew McGuire, co-founder of Toronto-based anti-money-laundering consulting firm The AML Shop, believes that many mainstream banks are reluctant to engage with crypto companies because they do enough to justify the risk factor. are not.

“The amount of monitoring you would have to do on transactions with OSFI expecting banks to be prudent about money service businesses is simply not worth it, unless the bank receives a substantial fee in return,” he said. is,” he said. (OSFI stands for the Office of the Superintendent of Financial Institutions, the country’s banking regulator.)

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To complicate matters, there is no clear framework from OSFI on how banks should deal with crypto companies, although the agency is currently asking various financial institutions to develop a “risk-sensitive” approach to crypto assets. Consulting.

But all the crypto companies The Granthshala has said have failed to tie up with a major financial institution. Ether Capital Corp., a Toronto-based crypto company that provides exposure to Ethereum in the public market by investing in digital assets, is one of the Big Five banks that it has not identified. CEO Brian Mosoff said it helped that his company had board members with a long history of involvement in traditional finance. Mon Safe, founder and CEO of Purpose Investments Inc. and a household name on Bay Street, co-founded Ether Capital and is a co-chief investment officer.

“Banks may be overestimating the risks of doing business with crypto companies right now, but once they become more involved in digital assets themselves, I think you will see them open up,” Mr. Mossoff said.

3iQ Corp. Chief Financial Officer of John Loeprich, the first company to receive regulatory approval to list a crypto fund (The Bitcoin Fund) on a major exchange, said that while 3iQ has corporate bank accounts with one of the larger Canadian banks, the company had a hard time opening them back in 2018. “There is certainly a more thorough onboarding process by banks for financial firms dealing with crypto products,” he said.

“But I have to give my current bank kudos for being with us. Companies dealing with digital assets are put through a high level of due diligence by banks – you really have to fight for companies from other industries,” he said.

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