The repeated failures of crypto firms to secure regulatory approvals in the U.S. have led to a “universal conviction” among the industry that the country’s financial watchdogs are unwilling to let crypto flourish, the Intelligencer reported.
According to the report, U.S. financial regulators are making it “unfeasible or impossible” for crypto-related companies to operate in the country via a range of policies and rules that are both “written and unwritten.”
Blockchain Association CEO Kristin Smith told the newspaper:
“It feels coordinated. It feels like a carpet-bombing.”
The government has repeatedly denied being against crypto, but regulators’ actions in recent months — especially those of the Office of the Comptroller of the Currency (OCC) — toward crypto-related companies’ applications paint a different picture.
The OCC recently rejected the application of Protego Trust despite giving the company conditional approval in 2021. The company wanted to offer crypto custody services to institutional clients and did not intend to engage with retail investors.
According to the report, Protego was “reverse-engineered” to ensure it appealed to decision-makers in D.C. and would have a smooth regulatory approval process. The company raised $80 million and quickly secured conditional approval helping it gain a valuation of $2 billion.
However, the OCC rejected Protego’s application for a national trust charter on a previously unmentioned “technicality” after it completed requirements for full approval in February, a person familiar with the matter told the newspaper.
Protego founder Greg Gilman said:
“In the end, it feels like there was an unannounced and unexplained policy change that derailed our efforts.”
Despite Protego being built to appeal to the regulatory landscape, its experience was similar to most crypto-related companies trying to secure approval in the country.
Operation Chokepoint 2.0
The industry claims that regulators’ negative attitude toward crypto points to a resurgence of Operation Chokepoint, which was an Obama-era policy to stifle certain politically unfavored industries like gambling, tobacco, and porn.
Under the policy, prudential financial regulators made a concerted effort to cut off these industries’ access to banking services on the basis of reputational risk that was often defined arbitrarily. The practice continued until Congress stepped in and created a rule to ensure it did not happen.
However, the Biden administration abolished the rule after taking office. This has led to concerns that regulators are once again trying to “de-bank” unfavored industries — crypto being the latest target.
Some Congress members recently sent prudential regulators a letter that highlighted these concerns and instructed them to release all communication with crypto companies to probe whether the unfair practice is occurring once again.
Meanwhile, Congress recently held hearings where industry experts and participants testified about the myriad hurdles and frustrations with the regulatory process. However, lawmakers have yet to take any action on the matter.
This sentiment is also echoed by observers in political and law circles, according to the Intelligencer report.
A former regulatory official told the newspaper under the condition of anonymity that :
“It’s different from the original Choke Point, in that they are being pretty public about it — nobody’s guessing their views. Another difference is that it’s actually broader in scope.”