Banks versus Bitcoin: How Chase’s Crypto Prohibition Endangers Customers

In September 2023, Chase’s announcement to ban crypto transactions made international headlines. The move took me back to the years when I first started working in the cryptocurrency industry at Luno in 2016. Back then, cryptocurrency had not gained mainstream institutional adoption and most financial centres, except New York, did not have a licensing regime for cryptocurrencies or crypto service providers like exchanges which made banks risk-averse. If they have no regulatory framework and no way to monitor risk for an asset class, it just doesn’t sit on their books.?

The lack of trust and consequently banking support for cryptocurrency companies was actually the primary driver for starting Merkle Science as blockchain analytics is an essential operational pillar to give the transparency required by banks and regulators to onboard and monitor cryptocurrency company activities.

Market Reaction to the Chase Reversal on Crypto?

?Fast forward and it now seems that Chase’s move is somewhat draconian and in sharp contrast to the progressive, risk-based compliance approach that banks across the world are taking towards cryptocurrencies.?

Surprisingly, Chase was trying to position itself as a crypto-friendly institution. The bank had previously filed a trademark for its own crypto wallet , among other measures that signaled it saw digital currency as a promising business pillar. Why, then, did Chase take such an abrupt U-turn on crypto acceptance that sparked market analysts and industry participants to speculate on the underlying rationale?

In an article for The Fintech Times, titled Another Crypto Offering Bites the Dust: Industry Response to Chase UK Crypto Ban , I was quoted by journalist Francis Bignelll for my own insights into the matter. I acknowledged that Chase was correct in wanting to minimize crypto-related scams which are growing at an alarming rate, a problem we are passionately trying to solve as well

However, Chase was incorrect in its assumptions of customer demand; customers who used Chase services for cryptocurrency transactions would simply do so at another local bank where it is not prohibited in tu. From this vantage, Chase’s ostensible rationale did not compute; that there would not be fewer residents in the UK victimized by such crime. There would simply be less liability or exposure for Chase. This may unintentionally also force customers who want to transact in crypto to move to banks that may be less compliant or to trading venues where their funds might be less secure.?

The Chase Crypto Prohibition Impact on Customers

To examine why Chase’s move is draconian, it is best to look at the specifics of the prohibition. In the email sent to customers, Chase advised it would ban crypto-related transactions done in one of two ways:

1. Debit cards
2. Outgoing bank transfers

This policy would go into effect beginning Monday, October 16, giving Chase customers less than three weeks to make alternative arrangements, such as opening an account with a crypto-friendly bank.?

This deadline - or some would say, ultimatum - is blatantly anti-consumer and anti-innovation. Those may sound like fighting words until you look at the scenario these Chase customers must face. Chase customers who were using their debit cards or making bank transfers for cryptocurrency purchases were likely doing so for income generation. They may have been buying these digital assets for speculation, trading them, or even staking or lending them. With Chase’s decision, the rug has been pulled out from under their feet, and they are left scrambling to find other channels from which to make their regular crypto purchases or investments.

The challenge of finding suitable alternatives is compounded by the fact that opening a bank account already takes considerable time because of mandated know-your-customer (KYC) compliance. Opening an account with a crypto-friendly bank may be even tougher, given that there are already scant options in the UK. All combined, Chase customers are stuck in a precarious dilemma: They must now scramble to open such an account, lest they lose the ability to earn a portion of their income.

Chase's stringent prohibition suggests the potential for even stricter actions, underscoring the need for public demand for more balanced crypto regulations. Such actions may include the disturbing trend of “de-banking,” an arguably euphemistic term for what is much more sinister: Banks close a person’s bank accounts , effectively cutting them off from the financial channels on which they depend. Given Chase’s position, it would not be hard to imagine a future where the financial institution “de-banks” customers it suspects of still having some financial ties to digital assets.?

Chase Could Have Taken a Risk-Based Compliance Approach

Today, banks have access to advanced tools for detecting illicit crypto activity such as blockchain forensics, transaction monitoring, and market surveillance that can be implemented to support a risk-based model for policy-setting and controls. Regulators and banks also use Merkle Science’s KYBB solutions where they can do due diligence on crypto entities leveraging a combination of on-chain and off-chain parameters.

Swift, black-or-white actions like prohibition and de-banking ultimately hurt not only the impacted customers but the wider industry. Coming from as respected a financial institution as Chase, these actions suggest that cryptocurrency is so risky that the only reasonable course of action is holding it at arm’s length. This undermines the progress that cryptocurrency has made not only through the tireless efforts of enterprises and regulators but also through the broader security community.

If you want to talk about risk-based crypto compliance for your bank, fintech, or financial services business, then you know where to find me here on LinkedIn.? Just don’t be the next Chase.