Cryptocurrencies play in the realm of banks, much to the regret of regulators

In early September, the digital currency exchange platform Coinbase disclosed its exchanges with the US gendarme of the markets, the SEC, that threatens to bring her to justice if she does not give up on launching her paid account offering.

"Crypto is a new parallel banking system," Senator Elizabeth Warren told The New York Times. "It offers many similar services, but without the consumer protection or financial stability that sustains the traditional system." (Photo: iStock)

Paid accounts or credits, there are more and more young companies in the universe of cryptocurrencies that offer services similar to those of traditional banks, an evolution that does not please regulators, who want to control this little regulated sector.

In early September, the digital currency exchange platform Coinbase disclosed its exchanges with the US gendarme of the markets, the SEC, that threatens to bring her to justice if she does not give up on launching her paid account offering.

Coinbase Lend seeks that users make currencies available against interest, a service that other "crypto" players have already proposed for years.

In July, prosecutors in several states of the country already asked the BlockFi platform to give up its own remunerated account, which announces interest rates of up to 8% a year, when most traditional banks offer 0.01%.

"Crypto is a new parallel banking system," Senator Elizabeth Warren told The New York Times. "It offers many similar services, but without the consumer protection or financial stability that sustains the traditional system."

"They offer banking products, but US banking law does not apply to Coinbase," explains Dan Awrey, professor of financial law and regulation at Cornell University.

In fact, these platforms do not have the status of a bank or credit establishment and are not linked to the American Central Bank (Fed) or under the supervision of the OCC (Office of the Comptroller of the Currency), the main banking regulator.

However, according to him, the SEC rules apply to cryptocurrency platforms, something also alleged by the chairman of the regulatory authority, Gary Gensler.

While congressmen are just drafting bills to control the sector, Gensler, a former Goldman Sachs banker, said at a Senate Banking Commission hearing on Tuesday that he was interested "particularly in borrowing" from cryptocurrencies.

"Frankly, for me, this is more like the Wild West than anything else," he said.

"Badly defined law"

"It is only a matter of time before the SEC questionnaires reach all the firms" that operate in cryptocurrencies, acknowledges Antoni Trenchev, co-founder of the Nexo platform, despite the fact that his company is based in the United Kingdom.

Nexo proposes rates of up to 12% for your digital deposits, and also credits with the guarantee of your cryptocurrency portfolio.

"I don't see it as an attempt to control our industry," he says of warnings from regulators and judicial authorities. "It is simply a way to protect consumers, which is their reason for being."

For Trenchev, this "shows that our industry is reaching the general public", and if it were "more regulated, it could grow even more."

However, many regret that the SEC is confining itself to rejecting the arrival of some products for the time being.

"In an ideal world, the SEC would make specific recommendations" about the financial services offered by crypto platforms, says Hailey Lennon, an attorney at the Anderson Kill cabinet and former Coinbase regulatory affairs officer. But he considers that "the rules are already clear."

Although the SEC is the competent authority, the measures it can impose are limited, according to Dan Awrey, and only primarily concern transparency, particularly risks.

For Hailey Lennon, cryptocurrency players should highlight the risks that users take.

The regulation is not adapted for savers who want to use these platforms to have a savings account, deposits that in the traditional banking system are subject to protection, which is not the case on these platforms, he says.

"There is a poorly defined law that certainly applies to Coinbase" and other cryptocurrency operators that "would be fully adapted (to banking regulations) but not applicable," says Dan Awery.

Many platforms like Nexo are not based in the United States and the same decentralized cryptocurrency model would therefore need global regulation.

In spite of everything, "the regulator to be followed at this time is the SEC," underlines Antoni Trenchev. "And if the United States adopted legislation on cryptocurrencies, many others will follow."