Q&A with Joe Ciccolo from BitAML: What Should I Do If My Crypto Company Is Debanked – Part 1

May 9, 2023
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In early April, BitAML founder Joe Ciccolo was interviewed about the shifting banking situations as it pertains to cryptocurrency companies who find themselves debanked or trying to establish a new banking partner. 

This interview has been edited and condensed.

Interviewer: Thanks for meeting with me, Joe. We’re discussing the changing landscape of banks post SVB failure and signature, along with a few others. There’s been a shakeup in the industry and it has implications for the future of crypto innovators. Joe, thanks for joining me today.

Joe Ciccolo: My pleasure. Thank you.

Interviewer: We’re hearing a lot about crypto banks or crypto friendly banks closing down in a short period of time. Can you provide some background on what led to this, like with Silvergate Bank, Silicon Valley Bank, and Signature?

Joe Ciccolo: These three key banks are involved in the crypto space. They’re registered and regulated deposit institutions that are crypto friendly. It wasn’t crypto products and services that brought these banks down, but other forces in the marketplace. They bank a lot of crypto companies because their portfolios of depositors include many VCs and startup companies. However, this doesn’t take away from the pain caused by the crypto companies that have lost their bank accounts. They are left scrambling to pay ordinary business expenses and find a new bank account, which is very difficult in the crypto space.

Interviewer: It might seem like crypto companies didn’t cause the collapse of these banks, but a lot of crypto friendly banks were affected. What were the aligning factors for those banks and why did they fail?

Joe Ciccolo: There are very few banks that bank crypto, so when three are involved in the same conversation, it skews the conversation. Other industries were impacted as well. It’s important to understand that when a crypto company loses a bank account, it’s a very big deal. It’s difficult for those companies to begin again with a new banking relationship due to the high bar set by these banks and the elongated onboarding process involving compliance and regulatory questions.

Interviewer: For crypto companies who have lost their bank accounts or need to find a new banking partner, what would you advise?

Joe Ciccolo: It’s important to step back and reflect on your compliance infrastructure, and policies and procedures. Do a self-assessment, meet with your team, and be prepared to repackage and start from scratch with a new banking relationship. Make sure to update any necessary aspects of your compliance strategy before applying for a new account.

Related: Signature Bank’s crypto clients forced to close their accounts

Interviewer: What other options are there for crypto companies in terms of finding crypto friendly banks?

Joe Ciccolo: There are a small number of crypto friendly banks out there. It’s important to find out if the bank is crypto friendly and then understand their risk profile and tolerance. Each bank’s onboarding process and risk assessment will vary.

Interviewer: Can you elaborate on the time and effort involved in the process of obtaining a bank account for crypto companies?

Joe Ciccolo: The process can be measured from weeks to months because there’s a lot of back and forth. You’re providing a lot of information about your compliance protocols, risk assessment, and other elements crucial to the underwriting process. It’s essential to put your best compliance foot forward and present a strong value proposition to the bank.

Interviewer: So, it’s important to have all your ducks in a row the first time as best as possible?

Joe Ciccolo: Yes, absolutely. It’s always best to come with your best foot forward and put yourself in a position where your application is prioritized, knowing that you are competing with other crypto companies in the marketplace for a bank account.

Interviewer: You mentioned the compliance expectations have ramped up for both banks and regulators. Can you fill us in on some of the details of the actual process and how it may differ now in terms of requirements and higher standards based on more stringent regulation?

Joe Ciccolo: The compliance expectations have increased for both banks and regulators. They’re feeling the pressure to ensure they follow best practices in compliance. This compels those in the crypto space to up their game and improve their compliance. Banks and regulators need to strike a balance between having high expectations and not making them too lofty. We expect the regulatory exam season to be even more stringent this year.

Interviewer: Beyond the basic KYC information and AML program expectations, what are some of the more nuanced and lesser-known prerequisites that banks might seek from crypto companies when opening an account?

Joe Ciccolo: Banks are reaching deeper into compliance aspects, such as consumer protection policies, handling consumer complaints, reputational score, cybersecurity policies, fee disclosures, and frontline warnings about potential scams. Blockchain analytics has also emerged as an essential expectation for banks. Some banks even mandate that crypto companies have an account with a blockchain forensics/analytics company before opening an account.

Interviewer: Once onboarded, what compliance expectations do banks have for crypto companies?

Joe Ciccolo: Maintaining a banking relationship requires constant back and forth between the crypto company and the bank. They will check in routinely, ask questions, spot-check transactions, and schedule recurring meetings with the BSA Compliance Officer or other executives. It’s important to understand how the bank will interact with you and be prepared for that.

Interviewer: So banks are more supportive than trying to shut down crypto companies, right?

Joe Ciccolo: Yes, [crypto-friendly] banks want crypto companies to succeed, and it’s mutually beneficial for both parties. Banks are subject to annual examinations by their regulators and must answer for the activity going through their institution. Having an interaction with crypto companies is critical for banks to fulfill their obligations, and it benefits the crypto companies by getting another perspective on compliance from AML professionals within the bank.

To be continued…

Click here for Part 2 of this in-depth interview with Joe Ciccolo. 

In the meantime, if you’re interested in learning more about how BitAML can help you navigate the changing compliance and regulatory standards banking partners are looking for, signup for a free consultation.

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