Why Are We Concerned?
On September 7, 2021, El Salvador, a relatively small country in Central America makes Bitcoin a legal tender. After a successful test in early 2021, Vast Bank N.A., a relatively small bank in Tulsa, Oklahoma, announced that its customers can now buy and sell specified crypto with their Vast checking accounts.
Vast is launching its new service in partnership with Coinbase, the largest US crypto exchange platform
Is this part of a trend? Cryptocurrency transactions are indeed gaining momentum. Capital invested per transaction by institutional investors has increased from about $5 million in 2015 to almost $20 million in 2020. Many global crypto exchanges have been established. Private vendors are increasingly accepting cryptos in payment for goods and services of all kinds.
Unlike Fiat, crypto is not issued by a central bank. Private companies create and issue them As such, they are not subject to the controls that facilitate the implementation of monetary policies (i.e. controlling money supply). El Salvadore makes an exception by requiring its Bitcoin legal tender to be regulated by its central bank.
What is Vast Bank Doing?
In a September 1, 2021 interview with Jason Brett, Vast’s CEO Brad Scrivner described their services as “When you ask about custody and exchange, you can buy, you can sell, and you can store those eight crypto currencies by opening a single bank account.” https://www.forbes.com/sites/jasonbrett/2021/09/01/with-coinbase-and-sap-vast-bank-offers-bitcoin-ethereum-cardano-and-litecoin/?sh=4051c8263899
Is Vast serving as a crypto broker, a crypto exchange, or both? A fundamental characteristic of a crypto exchange is that the trader owns the crypto traded. Vast offers “cold” storage (custodial) facilities suggesting that the Vast customer traders “own” the crypto traded. That makes Vast Bank an exchange.
Presumably, Vast is to be regulated like any other crypto exchange. This is true even though it has a relationship with Coinbase who has an established exchange operation.
How Are Crypto Exchanges Regulated?
In dealing with regulatory matters,Vast, as a new crypto exchange, will have the advantage of its partnership with Coinbase a well-established exchange.
Early concerns about crypto were that it lends itself to money laundering and counterfeiting. Much of the current regulations are focused on those concerns.
They fall under the jurisdiction of the Bank Secrecy Act (BSA). As such, a crypto exchange must obtain the requisite license from the Financial Crimes Enforcement Network (FINCEN). They must employ certain sanctions and maintain requires records and submit reports. As a financial institution, Vast is already subject to FINCEN requirements.
Cryptos are considered securities subject to regulation by the US Securities and Exchange Commission (SEC). The Commodities Futures Trading Commission (CFTC) recognizes cryptos as commodities that, if traded on an exchange, are regulated or supervised by the CFTC.
United States regulation of crypto exchanges will continue to evolve in response to unfolding developments like Vast’s crypto trading platform. This is particularly true if Vast’s crypto trading successfully grows in popularity. Other banks, including the large ones, will certainly follow. With that growth, the problems associated with crypto will multiply.
Vast will have to watch developments and be prepared to make necessary adjustments to its crypto operations. Also, Vast’s checking account customers will be careful and hesitant about using Vast’s new crypto services.