Crypto-asset service providers (CASP) have long faced difficulties due to banks’ reluctance to allow them to open bank accounts, and they struggle to access banking services.
Across Europe, banks are closing the bank accounts of businesses operating in this sector—often without cause or with only very vague justifications—or are refusing to open accounts for them altogether. CASPs have long demonstrated a commitment to complying with all legal requirements applicable to them, particularly regarding obligations under the AML Directive (Anti-Money Laundering Directive). However, it remains a huge problem for CASPs to find a bank that would allow them to fully utilize their services and convert between cryptocurrencies and fiat currencies (Crypto On-Ramps and Off-Ramps).
The question remains: to what extent will the new legal framework of the Markets in Crypto-Assets Regulation (MiCA) influence the resolution of this issue within the European Union? Will banks be more willing to provide their services to CASPs once MiCA takes effect? Will other payment service providers be able to provide these services to CASPs?
The arrival of the MiCA regulatory framework will certainly lead to a significant reduction in the number of CASPs, as not all entities currently operating in the market will be able to meet the conditions imposed on them by MiCA. At the same time, however, entities that successfully obtain a license to provide crypto-asset services will enjoy a more credible standing in the eyes of both investors and traditional financial institutions—particularly banks and credit institutions—which may consequently be more open to cooperation. In general, therefore, banks could be more open to cooperation following such a “cleanup” of the sector of entities providing crypto-asset services, and this could lead to a convergence of the banking and crypto sectors.
Reasons why banks are restricting the provision of their services to CASPs
It is clear that banks have so far viewed CASPs very negatively and skeptically. According to the AML Directive, financial institutions, including banks and CASPs, must have policies, procedures, and control mechanisms in place to manage risks associated with money laundering and terrorist financing. In applying these rules, banks terminate or completely refuse to establish business relationships with customers or groups of customers they consider risky in this regard, including CASPs.
Although decisions not to establish or to terminate a business relationship or not to execute a transaction may, under certain conditions, be in accordance with Article 14(4) of the AML Directive, reducing risk by denying access to services to entire categories of clients without properly considering the risk profiles of individual clients may be unjustified and indicative of ineffective management of money laundering and terrorist financing risks. This method of ineffective risk management is called “de-risking.”
Providing access to at least basic financial products and services is a necessary prerequisite for participation in modern economic and business life, and unjustified risk mitigation can lead to the financial exclusion of legitimate customers. It can also affect competition and financial stability.
Compliance with AML Rules and Supervision by the NBS
The AML Directive provides a framework for monitoring and assessing financial institutions’ approaches to money laundering and terrorist financing risks, including de-risking practices. If it is found that a bank is acting unreasonably or inadequately in its risk assessment, the supervisory authority may require the bank to take corrective measures, impose sanctions, or take other regulatory actions to ensure compliance with the law and protect the integrity of the financial system. Pursuant to Article 48 of the AML Directive, Member States are required to ensure that competent supervisory authorities have appropriate tools at their disposal to verify whether financial institutions and other obligated entities comply with the requirements of this Directive. Pursuant to Act No. 297/2008 Coll. on the Prevention of Money Laundering and the Prevention of Terrorist Financing, the NBS has, among other things, the authority to conduct inspections, request information and documents necessary to verify compliance with legal regulations, and to impose sanctions for violations of these regulations. Thus, financial institutions that engage in de-risking and unjustifiably deny access to their services to certain groups of financial market entities may be directly sanctioned by the NBS for such practices.
Potential violations of competition rules and oversight by competition authorities
The European Banking Authority (EBA) has addressed concerns regarding de-risking and its impact on the European Union’s financial system, emphasizing that unjustified de-risking can lead to financial exclusion, affect competition, and destabilize the financial market.
The competition law applicable within the European Union (in particular Articles 101 and 102 of the Treaty on the Functioning of the European Union) aims primarily to prevent practices that distort competition and the single market. Banks that unreasonably refuse to provide their services to CASP could, under certain circumstances, be engaging in exclusionary practices by effectively preventing CASP from competing in the financial services market. The European Commission and competition authorities will have to assess in each individual case whether the banks’ measures are justified or whether they constitute an unnecessary barrier to competition.
Concerns regarding AML/CFT can, in fact, also be used as a pretext to reduce competition in the market. This applies all the more to CASPs in a situation where, following the entry into force of MiCA, credit institutions themselves may be in the position of a CASP, and may begin providing crypto-asset services directly without the need to obtain a special license,2 thereby becoming direct competitors to entities currently denied access to banking services.
Compliance with the new MiCA regulations
At the same time, MiCA directly prohibits market manipulation, which is defined, among other things, as “securing a dominant position over the supply of or demand for a crypto-asset, which has or is likely to have the effect of directly or indirectly fixing purchase or sale prices, or creates or is likely to create other unfair trading conditions.”
Under certain circumstances, particularly if a credit institution were to provide crypto-asset services itself—which it may begin to offer in a simplified manner without the need to obtain a specific license—while simultaneously engaging in de-risking practices against a CASP, this could also constitute market manipulation in violation of the MiCA Regulation.
Furthermore, it is important to note the obligation of CASPs under MiCA to comply with measures ensuring the segregation of funds. CASPs are required to take all necessary steps to ensure that client funds other than electronic money tokens held at a credit institution or central bank are held in an account that is identifiable separately from all accounts used to hold funds belonging to CASPs. Therefore, if CASPs continue to face difficulties accessing banking services and opening bank accounts, it would be challenging for them to comply with this obligation and, consequently, to meet the conditions for obtaining a license to provide crypto-asset services. Under certain circumstances and with the right setup, an alternative solution could be to utilize the services of payment institutions.
Even the new MiCA rules may not guarantee that banks will change their current practices and become more willing to provide services to CASPs. At the same time, even before obtaining a license to provide crypto-asset services, a CASP applying for a license must demonstrate to the supervisory authority a procedure for separating crypto-assets from client funds.
If you have encountered de-risking in your crypto-asset business activities, please do not hesitate to contact us.
