Crypto companies’ repeated failures to secure regulatory approvals in the US have led to a “universal belief” in the industry that the country’s financial watchdogs are unwilling to allow crypto to flourish, the Intelligencer reported.
According to the report, U.S. financial regulators are making it “impracticable or impossible” for crypto-related companies to operate in the country through a set of policies and rules that are both “written and unwritten.”
Kristin Smith, CEO of the Blockchain Association, told the newspaper:
“It feels coordinated. It feels like a bomb attack.”
The government has repeatedly denied being against crypto, but the actions of regulators in recent months – especially those of the Office of the Comptroller of the Currency (OCC) – towards crypto-related companies paint a different picture.
Protego
The OCC recently rejected Protego Trust’s application, despite the company receiving conditional approval in 2021. The company wanted to offer crypto custody services to institutional clients and had no plans to go into business with retail investors.
According to the report, Protego was “reverse engineered” to ensure it appealed to D.C. decision makers and would have a smooth regulatory approval process. The company raised $80 million and quickly received conditional approval, giving it a $2 billion valuation.
However, the OCC rejected Protego’s application for a national trust charter on an unspecified “technical” ground after it met requirements for full approval in February, a person familiar with the matter told the newspaper.
Protego founder Greg Gilman said:
“Ultimately, it feels like there was an unannounced and inexplicable policy change that derailed our efforts.”
Despite Protego being built to appeal to the regulatory landscape, its experience was similar to that of most crypto-related companies trying to gain approval in the country.
Operation Choke Point 2.0
The industry claims that regulators’ negative attitude toward crypto points to a resurgence of Operation Chokepoint, an Obama-era policy of stifling certain politically unfavorable industries such as gambling, tobacco, and porn.
Under the policy, prudential financial regulators made a concerted effort to close these sectors’ access to banking services based on reputational risks that were often arbitrarily defined. The practice continued until Congress stepped in and created a rule to ensure that this did not happen.
However, the Biden administration abolished the rule after taking office. This has raised concerns that regulators are once again trying to “debank” unfavorable industries, with crypto being the latest target.
Some members of Congress recently wrote to prudential regulators highlighting these concerns and urging them to release all communications with crypto companies to investigate whether the unfair practice occurs again.
Meanwhile, Congress recently held hearings where industry experts and participants testified about the myriad hurdles and frustrations with the regulatory process. However, lawmakers have not yet taken any action.
This sentiment is also shared by observers in political and legal circles, according to the Intelligencer report.
A former regulatory official told the newspaper on condition of anonymity that:
“It’s different from the original Choke Point in that they’re pretty open about it – nobody’s guessing their opinion. Another difference is that it is actually broader in scope.”