Boston-based crypto-focused financial services firm Circle plans to seek a federal banking license to diversify the services it offers to its users. According to a Bloomberg report yesterday, the firm also plans to pursue licensing as a brokerage and trading venue to facilitate the sale and purchase of digital assets which may be categorized as securities. If successful, Circle would become the first crypto-focused firm to obtain such licensing and could provide a much-needed bridge between the largely unregulated world of cryptos and the strictly regulated banking system.
Is It About Time?
The crypto industry has grown by leaps and bounds over the past three years and has attracted a lot of attention. However, the traditional banking system has remained apprehensive, with many crypto startups and exchanges having to turn to smaller banks for financial services. Bitfinex is one of the more prominent crypto exchanges which has had to seek the services of a Puerto Rican bank after Wells Fargo cut it off last year.
Circle aims to bypass these financial institutions and offer banking services to its users. According to its CEO and co-founder, Jeremy Allaire, this could greatly improve its efficiency and lower its costs. As a licensed banking institution, Circle would be able to hold customers’ assets, both in digital currency and fiat form.
TO HOLD RESERVES WITH THE FEDERAL RESERVE, TO NATIVELY ACCESS THE CENTRAL BANKING SYSTEM WITHOUT INTERMEDIARIES, TO DIRECTLY SETTLE WITH OTHER BANKS IN OTHER MARKETS AROUND THE WORLD THROUGH THOSE NETWORKS – THAT CAN IMPROVE THE EFFICIENCY OF WHAT WE DELIVER, [AND]IT CAN REDUCE THE COSTS.
Top Circle officials have met with the Office of the Comptroller of the Currency (OCC) to discuss the possibility of obtaining a banking license. The OCC is an independent arm of the US Department of the Treasury that regulates and supervises national banks. The firm has also met with officials at the Securities and Exchange Commission to discuss the possibility of obtaining a brokerage and trading license. While the banking license remains the priority, the firm could pursue the brokerage license first, as the process may be easier and faster. It has also held discussions with the Financial Industry Regulatory Authority (FINRA) regarding the brokerage license. FINRA is a private self-regulatory body that handles the regulation and enforcement for the New York Stock Exchange.
While the move has many perks and could position Circle as the all-in-one market leader, the exchange would consequently be subjected to rigorous scrutiny by regulators. However, as a pioneer, Circle would be instrumental in shaping the regulation process for crypto firms moving forward, an issue which has caused a lot of friction in the industry.
THE REGULATORS NEED TO FIGURE THIS OUT BECAUSE EVENTUALLY OTHER BANKS THAT THEY REGULATE ARE GOING TO WANT TO HOLD CRYPTO. THEY’RE GOING TO NEED TO HAVE RULES FOR THIS. WE CAN BE A GREAT GUINEA PIG.
Circle is not the first crypto-focused firm to have expressed interest in obtaining a banking license, however. San Francisco-based Coinbase has also held discussions with regulators to explore the possibility of becoming a chartered bank. The exchange, which is the most popular in the US, seeks to bypass all its banking partners and instead offer its customers banking services directly. With the move, Coinbase also hopes to attract institutional investors who have shied away from the crypto industry because of its vague regulatory framework. Having launched products that specifically target institutional investors, acquiring a banking license would be a step in the right direction for the exchange, which recently rebranded its GDAX platform to Coinbase Pro to offer its users a better experience.