Debanking Crypto Firms: A Necessary Defence Against Financial Crime?

The relationship between cryptocurrency businesses and traditional banking institutions has become increasingly strained. Across major financial centres, banks are taking a cautious approach to offering services to crypto firms, driven by heightened concerns about financial crime risks, regulatory uncertainty, and reputational exposure.

Debanking refers to the practice whereby financial institutions withdraw or deny banking services to businesses or individuals deemed to present elevated risk. In the case of cryptocurrency firms, this often means losing access to essential services such as accounts, payment processing, and liquidity management due to concerns around compliance, financial crime, and reputational exposure.

This article explores why banks are right to be cautious and why automatic access to banking services for crypto firms cannot be presumed, especially given the industry's well-documented association with money laundering, fraud, and other financial crimes.

The Context of Debanking: Risk, Regulation & Reputation

Banks operate under stringent anti-money laundering (AML) and counter-terrorist financing (CTF) obligations. Cryptocurrencies, while increasingly adopted in legitimate transactions, continue to be exploited for illicit activities such as ransomware, sanctions evasion, and fraud, as confirmed by Europol's Internet Organised Crime Threat Assessment 2024. In such an environment, financial institutions have a duty to scrutinise potential clients carefully.

Professor Hilary Allen of American University, an expert in financial regulation, notes:

Crypto assets introduce an additional layer of opacity into the financial system. When that opacity combines with weak compliance controls, it amplifies systemic risk.

Regulatory uncertainty exacerbates this cautious approach. Although organisations such as the Financial Action Task Force (FATF) and national regulators like the UK's Financial Conduct Authority (FCA) are developing clearer frameworks, the pace of regulatory alignment has lagged behind crypto's rapid innovation. Without definitive guidance, banks face potential exposure to penalties and reputational harm if their crypto clients later fall foul of the law.

Recent regulatory actions reinforce these concerns. In June 2023, the US Securities and Exchange Commission (SEC) filed lawsuits against Binance and Coinbase, citing violations of securities laws and failures in internal controls. Similarly, the UK's FCA has issued multiple warnings about unregistered cryptoasset firms marketing to British consumers without proper oversight.

Reputation is a critical asset in banking. Associations with scandals such as the collapse of FTX or ongoing regulatory investigations into Binance have heightened perceptions that the crypto sector is volatile and poorly governed. David Lewis, former Executive Secretary of the FATF, has emphasised:

A cautious approach to crypto is not anti-innovation; it is pro-integrity. Trust is the foundation of finance.

For banks, preserving the trust of customers, shareholders, and regulators must take precedence over servicing emerging industries that have yet to establish consistent standards of accountability and transparency.

Access to Banking Services: A Matter of Risk, Not Entitlement

The notion that crypto firms 'deserve' access to banking services misinterprets the nature of financial services. Banking relationships are fundamentally risk-based. Businesses must demonstrate that they meet regulatory requirements, manage risks effectively, and operate transparently. Crypto firms, by virtue of the unique risks they present, must be prepared to meet enhanced standards.

Dr. Marcus Pleyer, former President of the FATF, stated:

Crypto firms cannot expect the benefits of traditional financial services without embracing the corresponding responsibilities of transparency and compliance.

While some crypto businesses have made commendable efforts to build robust compliance programmes, others have not. Many firms continue to struggle with implementing basic requirements such as know-your-customer (KYC) procedures and adherence to the FATF's Travel Rule. In 2024, the Financial Crimes Enforcement Network (FinCEN) in the US fined Larry Dean Harmon (founder of crypto mixers Helix & Coin Ninja) USD 60 million for KYC and AML failures, underlining the sector's continuing compliance shortcomings.

Thus, while debanking may be seen as an obstacle to innovation, it is fundamentally a rational response to systemic risks that, if unchecked, could undermine financial stability and consumer protection. Lessons from previous financial crises show that innovation without sufficient governance leads to systemic vulnerabilities. The same principle applies to crypto.

It is within this context that Keith Grose, UK CEO of Coinbase, expressed frustration, arguing that “debanking is stifling innovation and making the UK a harder place to build the future of finance. Crypto companies deserve access to basic banking services, not endless roadblocks.” While this perspective highlights the operational challenges faced by legitimate crypto businesses, it does not fully acknowledge the substantial risks banks must manage.

Whilst it is true that excessive caution can have a chilling effect on innovation, particularly in emerging financial sectors, banks must balance this against their duty to safeguard the financial system. Innovation without robust compliance frameworks risks recreating the conditions that led to previous financial crises. As such, prudent risk management should be seen not as an enemy of innovation, but as a necessary foundation for sustainable growth in the crypto sector.

Consequences for the Crypto Sector

Debanking has tangible operational impacts on crypto firms. Limited access to traditional banking services affects liquidity management, slows transaction processing, and can erode customer confidence. Moreover, the industry risks driving legitimate activity into unregulated or offshore financial systems, exacerbating the very risks banks seek to mitigate.

Nevertheless, the onus remains firmly on the crypto sector to address these issues. Institutions such as Sygnum and SEBA Bank in Switzerland show that responsible banking relationships are possible when firms adopt comprehensive compliance frameworks and operate transparently. These examples should serve as a model for the wider industry.

As Caroline Malcolm, Global Head of Public Policy at Chainalysis, points out:

Crypto businesses that build strong compliance frameworks are not only future-proofing themselves against regulatory action but also fostering the trust necessary for mainstream financial integration.

Final Thoughts

The decision to debank crypto firms is neither irrational nor hostile; it reflects a prudent, risk-based approach to a sector that remains unsettled and fraught with compliance challenges. Assertions that crypto companies should expect access to banking overlook the responsibilities banks carry towards regulators, customers, and the wider economy.

Rather than focusing on perceived injustices, the crypto industry must prioritise developing rigorous compliance standards, promoting transparency, and demonstrating a genuine commitment to financial crime prevention. Only by doing so can it build the trust required to participate fully and safely in the global financial system.

As regulatory frameworks mature and crypto firms demonstrate stronger compliance practices, the barriers to accessing banking services should progressively lower. A future in which crypto businesses are integrated seamlessly into the regulated financial system will depend not on demands for access, but on building trust through transparency, resilience, and regulatory cooperation.