Addressing criticism that the government is ostracizing the crypto industry, U.S. Federal Deposit Insurance Corporation (FDIC) Deputy Chairman Travis Hill has called for a more transparent and open approach to crypto regulation.
In a speech released today, Hill said clearer guidelines are needed for how banks can work with digital assets. “The agency needs to take a more open-minded approach to technology,” said Hill, who is expected to become acting FDIC chair. Hill, who is running as the Republican candidate in 2022, currently serves as the agency’s number two.
Hill’s comments come amid concerns that the FDIC is discouraging financial institutions from engaging in crypto-related activities. Coinbase filed a lawsuit against the FDIC in June, alleging that the agency issued “pause letters” instructing banks to halt crypto activities. The lawsuit also sought disclosure of those letters, which the FDIC’s Office of Inspector General confirmed were sent between March 2022 and May 2023.
While the FDIC has maintained that it has not banned banks from working with crypto, Hill criticized the agency’s case-by-case approach to digital asset engagement. “This approach has stifled innovation and contributed to the perception that the FDIC is closed to work when it comes to blockchain and distributed ledger technology,” he said.
Hill also referenced “Operation Choke Point,” an initiative launched by the Justice Department in 2013 that aimed to restrict banking services to sectors deemed high-risk for fraud, such as payday lenders and firearms dealers. The crypto industry has coined the term “Operation Choke Point 2.0” to describe perceived efforts to cut off digital asset companies’ access to banking services.
Hill called for an end to such tactics, saying: “While adopting a new approach to digital assets and ending all tactics like Choke Point are important first steps, regulators also need to re-evaluate our approach to enforcing the Bank Secrecy Act (BSA).” He argued that the current BSA framework encourages banks to close accounts rather than risk hefty fines for non-compliance, potentially stifling legitimate businesses.
Hill also criticized the U.S. Securities and Exchange Commission’s (SEC) controversial crypto accounting guidance known as Staff Accounting Bulletin 121 (SAB 121). The 2022 rule requires crypto custodians to record client assets as liabilities on their balance sheets. Hill noted that this practice differs from how custodians typically handle other assets that are recorded off-balance sheet as client property.
Despite the criticism, the FDIC's 2024 Risk Review stated that banking institutions are “neither prohibited nor prevented” from providing services to crypto-related businesses.
*This is not investment advice.
