Banks do not need to provide an explanation to shut down accounts owned
by clients deemed "too risky," according to former CFTC commissioner
Brian Quintenz.
On Sunday, Hayden Adams, CEO and founder of the popular decentralized exchange, or DEX, Uniswap (UNI),
claimed that his JP Morgan Chase bank accounts were shut down with no
explanation. In addition, Adams stated that the incident was personal in
nature as he knew "many individuals and companies who have been
similarly targeted simply for working in the crypto industry."
Former Commodity Futures Trading Commissioner Brian Quintenz responded with a comment
suggesting that the move was likely an instance of "shadow de-banking
of crypto by the Federal Reserves and Office of the Comptroller of the
Currency bank examiners."
Quintenz explained that banks are
contractually prevented from telling customers the reason for ending the
business relationship if they deem them too risky. Although most users
commiserated with Adams on the alleged debanking, others maintained that
there is no universal right to a bank account and, therefore, banks
have the discretion to act as they deem fit.
Quintenz did not offer any further information to support his claim
but provided a link to Wyoming Senator Cynthia Lummis' opinion piece published
in the Wall Street Journal in November. In the article, Lummis
criticizes the Fed for its failure to register several Wyoming-based,
crypto-related special purpose depository institutions (SPDIs) as banks,
thus preventing them from getting access to the federal payment system.
In another response to Adams' post, Kraken CEO Jesse Powell cited
his own tweet from 2018 where he described how JP Morgan Chase had
closed the crypto exchange's payroll account on a five-day notice sent
by mail.
Customers' risk levels to a bank are typically assessed
based on regulatory compliance. Although the motives for the debanking
are unclear, the Securities and Exchange Commission initiated a probe last September into the DEX's developers regarding the marketing and investor services they provide.
Under
U.S. financial regulation, broker-dealers are required to register with
the Financial Industry Regulatory Authority (FINRA) before they can
facilitate clients' trades. However, because funds are stored in
consumers' wallets instead of the Uniswap DEX and cryptocurrencies are
not classified as securities, Uniswap, like other DEXs and decentralized
finance protocols, does not need to register with relevant regulatory
bodies. According to CoinGecko, Uniswap is currently the largest DEX globally, with a 24-hour trade volume of $2.74 billion.
