Banking Regulator Recommends Suspension of Cryptocurrency-Linked Operations Among Financial Institutions

In a significant move, Coinbase, the largest U.S.-based cryptocurrency exchange, has filed a lawsuit against the Securities and Exchange Commission (SEC) and the Federal Deposit Insurance Corporation (FDIC), accusing them of attempting to "disconnect" the crypto industry from banking services.

The lawsuit, filed in June, comes amidst concerns over the debanking of crypto firms. Rep. Josh Gottheimer has expressed his concern, stating that law-abiding American businesses should not face government-imposed barriers to financial services.

The controversy stems from suspension letters disclosed as part of the case. One such letter, dated March 2022, states that the FDIC strongly recommends suspending all activities related to crypto assets due to a lack of determined regulatory requirements.

Between March 2022 and May 2023, the FDIC issued similar letters and requested documents from banks related to crypto activities. These requests included cost-benefit analyses, marketing materials, and risk disclosures.

The FDIC's actions have been compared to a 2013 U.S. Department of Justice initiative, Operation Choke Point, which aimed at limiting banking services for certain industries. The term "Operation Choke Point 2.0" has been used to describe the current actions against the crypto industry.

Coinbase, in its lawsuit, claims that these regulatory actions violate the Freedom of Information Act (FOIA), which grants public access to official documents. The company plans to pursue access to fully unredacted versions of the letters from the FDIC, asserting that the disclosed documents have been heavily edited and are difficult to interpret.

A company representative from Coinbase commented that the unredacted parts of the letters reveal the extent of the issue. Coinbase Chief Legal Officer Paul Grewal described the initiative as Operation Choke Point 2.0, not a conspiracy theory.

In March, the Crypto Innovation Council, venture firm Paradigm, the U.S. Chamber of Commerce, and several other organizations supported Coinbase's demand for the SEC to establish clear rules for digital assets.

The Federal Deposit Insurance Corporation (FDIC) has advised banks to temporarily halt operations involving crypto assets. The FDIC has not yet issued a public statement regarding the lawsuit.

As the case unfolds, the future of the cryptocurrency industry's relationship with traditional banking services remains uncertain.

Banking Regulator Recommends Suspension of Cryptocurrency-Linked Operations Among Financial Institutions