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Crypto Lifeline: How Intermediaries Keep the Industry Banked Amid Bank Reluctance

As regulatory warnings and bank failures have led some banks to distance themselves from crypto clients, a handful of intermediary firms have stepped in to keep the young industry banked. These companies store cash on behalf of their clients in their own bank accounts or collaborate with banking partners to secure accounts in clients’ names. This practice, known as indirect banking, has gained prominence in the crypto world due to the limited number of banks willing to work with digital-asset firms.

Miles Paschini, CEO of FV Bank, a Puerto Rico-based bank with crypto clients, points out that many companies in the market lack banking options and are seeking solutions. Despite positioning itself as an alternative to the traditional financial system, the crypto industry heavily relies on access to dollars and other hard currencies to pay employees, handle expenses, and facilitate trading.

When Signature Bank collapsed in March, crypto exchange Binance.US temporarily used Nevada-based Prime Trust to store customers’ cash with its network of banking partners. Prime Trust, which started offering services to crypto companies in 2018, now serves a majority of such clients.

Although banks have grown cautious about taking on crypto clients due to concerns over safe and sound banking practices, some still feel comfortable working with intermediary companies. This is because the intermediaries provide an additional layer of document review to ensure proper due diligence.

Recent events, such as the collapse of the once-prominent crypto exchange FTX and rising interest rates from the Federal Reserve, have led to the failure of two crypto-friendly banks. Large Wall Street banks have historically been hesitant to work with crypto companies due to concerns over asset volatility and the businesses’ sustainability.

Intermediaries not only provide a safety net for banking access but also act as liaisons between their banking partners and clients, helping to find firms willing to hold client assets. Given the uncertainty and regulatory scrutiny in the banking landscape, many companies now seek multiple bank accounts to protect against potential failures or shifts in regulations.

BCB Group, a UK-based firm that helps crypto companies access bank accounts, is working to expand its bank partnerships in the US, building on its existing relationships in the UK, European Union, and Switzerland. Oliver von Landsberg-Sadie, the company’s CEO, believes that intermediaries are essential for spreading risk across various companies in the crypto space.

With three of the four largest-ever US bank failures occurring in the past two months, the role of intermediary firms has become even more crucial. As von Landsberg-Sadie puts it, “The timing is such a gift. We could not have asked for a more ready-served growth opportunity.”