After a hard-fought legal battle spanning three years, California-based cryptocurrency startup Figure has backed away from its attempt to become the United States’ first cryptocurrency-focused bank with federal banking charters. In a lengthy statement released on Monday, the payments startup, co-founded by PayPal co-founder and early Tesla investor, Peter Thiel, and former JPMorgan Chase executive, Mike Cagney, discussed its decision to abandon the quest to obtain a federal banking charter for its so-called “neobank.”
1. Figure Inc. Abandons Quest for U.S. Bank Charter
Figure Inc. has discontinued its efforts to receive a bank charter in the United States. Until early 2020, the California-based financial technology firm was in negotiations with the US Office of the Comptroller of the Currency (OCC) over a special-purpose national bank charter for its Industrial Loan Company (ILC) subsidiary.
The decision to abandon the application, which was filed in November 2017, signals that the digital finance firm’s ambitions for its ILC had come to a standstill. Figure had hoped the charter would provide a legal foundation for its payment and lending business. Figure was one of five companies applying for the same special type of national bank charter, and the move means the remaining companies, which include SoFi and Varo Money, could face more hurdles in winning the charter.
- Faster Processing: Without the charter, Figure would have to partner with traditional banks to process payments, meaning funds could take one to two days to be transferred.
- Costly Regulation: Getting the charter would have potentially saved the tech firm thousands of dollars in regulation fees as it would not have to be licensed on a state-by-state basis.
Figure has not released any specific information for the reasons why they have decided to withdraw the application. Reports have indicated a disagreement between the company and the US regulator could have been behind the decision.
2. Three-Year Battle to Obtain Crypto Bank Status Comes to End
A long and difficult battle in the crypto world has come to an end, with a major financial institution recently obtaining crypto bank status after three years of trying.
The Associated Crypto Bank’s legal team worked assiduously to prove that it had met all the necessary qualifications to become a legally recognized cryptocurrency bank. Among other criteria, it had to demonstrate that it was a compliant entity regarding the applicable laws and regulations.
- The bank created a comprehensive compliance framework, including the constant monitoring of transactions.
- The bank also created a financial compliance officer to supervise compliance measures.
- It had to take other steps to avoid possible risks and conflicts of interest.
The bank eventually received approval after three years of hard work. However, a difficult road lies ahead for the bank, as it must now keep a close eye on its operations and adhere to all legal regulations in the crypto world.
3. How Figure’s Setback Affects Crypto Banking Regulation
Crypto banking regulations are intricately woven with Figure’s recent setback. As a result, the regulations have been undergoing monumental changes.
On the Regulatory Front
- Financial services regulators around the world have taken to reassessing how they should regulate the crypto-asset sector.
- In Europe, a new crypto assets regime, commonly known as the “5AMLD”, is set to come into effect in 2020.
- In the US, the SEC recently clarified its enforcement philosophy on cryptoassets, amending its framework to include how to handle investments in digital assets.
Enforcement and Compliance
- The recent setback has resulted in two distinct changes to crypto banking regulations. The first is in terms of enforcement priorities; the second is in terms of compliance requirements.
- In enforcement, countries are likely to improve the monitoring and criminal prosecutions of companies involved in crypto-related financial activities.
- In terms of compliance, countries are likely to implement measures to ensure that businesses are more transparent in their interactions with authorities and customers.
Industry Impact
- The changes to the crypto banking regulations have resulted in increased scrutiny for crypto-related firms.
- In many cases, this has prompted businesses to become more prudent in their approach to conducting transactions in the crypto-asset sector.
- Furthermore, attention has increased around the security of customer data, with many countries now requiring additional regulatory compliance measures.
After three long years, Figure has finally closed the door on its quest to become a U.S. chartered crypto bank. The news is sure to come with a tinge of sadness for those wishing for more crypto and fintech innovation in the U.S., yet it is yet another reminder that paths to truly innovative finance are often strenuous and hard-won.
