Week In Crypto: Binance Banking Partner Restricts Withdrawals, Coinbase Hit By Dutch Fine

January 27, 2023
A US-based bank will no longer process small-ticket USD withdrawals for Binance users, Coinbase is hit by another fine and New York regulators call time on commingling of funds at crypto firms.

A US-based bank will no longer process small-ticket USD withdrawals for Binance users, Coinbase is hit by another fine and New York regulators call time on commingling of funds at crypto firms.

Binance has confirmed that one of its banking partners that processes USD deposits and withdrawals using SWIFT will stop handling transactions of less than $100,000 on February 1.

Signature Bank, a New York-based commercial bank, has made the decision as part of a strategic pivot away from the high-risk crypto sector.

News of the decision began to emerge after Binance emailed users whose withdrawals had previously been handled by Signature Bank to inform them of the upcoming changes.

“The banking partner that services your account has advised that they are no longer able to process SWIFT fiat (USD) transactions for individuals of less than $100,000,” the email states.

“Please be advised that until we are able to find an alternative solution, you may not be able to use your bank account to buy or sell crypto with USD via SWIFT. Our team is actively seeking a new SWIFT (USD) partner to avoid any interruption of service.”

Elsewhere in the email, Binance mentioned that Signature Bank will impose the same restrictions on all of its crypto exchange partners — a list that includes major players such as Bitstamp, CEX, Huobi, OKCoin, Nexo, Genesis, Galaxy Digital and previously FTX.

Copies of the email, which had been shared online, were confirmed to be genuine when Binance issued its own statement for an article published by Bloomberg.

The move brings further scrutiny to both Signature Bank and Binance, each of which has been in the spotlight in recent weeks.

Last week, as covered by VIXIO, Binance was named by the US Department of Justice (DOJ) as one of the largest counterparties of Bitzlato, a now-banned exchange that allegedly acted as a money laundering vehicle for an illegal Russian darknet market. However, no wrongdoing was alleged against Binance specifically.

As for Signature Bank, this week the Wall Street Journal (WSJ) reported that, during Q4 last year, the bank borrowed more than $10bn from a federal home loans agency to backstop its liquidity.

In a statement, Signature Bank responded by saying that, as of year-end 2022, its advances from the Federal Home Loan Bank of New York are equivalent to about 10 percent of Signature’s total assets.

According to Signature, this level of federal home loan advances are within the “normal range” and “in line with peers”.

However, in Q4 last year, Signature’s total deposits declined for the first time in the bank’s 20-year history, from $106bn to $88.5bn.

“The decline was primarily driven by our planned reduction in digital asset banking deposits,” Signature said in its earnings report, describing the crypto markets at present as a “challenging environment”.

New York regulator demands separation of funds

Elsewhere in New York, the state’s Department of Financial Services (DFS) has published new guidance for crypto firms designed to protect customers in the event of insolvency.

As of this week, “virtual currency entities” that act as “custodians” have been asked to take possession of customers’ assets only for the “limited purpose” of safekeeping and not to establish a debtor-creditor relationship.

Moreover, crypto firms must separately account for and segregate customers’ virtual currency from corporate assets, both on-chain and internally.

The DFS has also asked that these processes are clearly described in crypto firms’ terms of service.

As reported by VIXIO, the DFS is moving, albeit belatedly, to try and prevent repeats of the Celsius bankruptcy, whereby customers whose deposits are still trapped on the platform are now deemed unsecured creditors of Celsius.

Coinbase penalised in Europe

Over in Europe, Coinbase has been hit with a penalty fine in the Netherlands for failing to register its activities with the central bank.

According to De Nederlandsche Bank (DNB), the €3.3m ($3.6m) fine was imposed for Coinbase’s failure to comply with the registration provisions of the Anti-Money Laundering and Anti-Terrorist Financing Act.

The period of non-compliance began in November 2020 and lasted until August 2022, after which Coinbase obtained registration one month later.

The DNB said it considers the non-compliance to be “very severe” due to its duration, the fact that Coinbase paid no fees to the DNB during the relevant period and because Coinbase has a “significant” number of customers in the Netherlands.

However, the DNB did reduce the fine by 5 percent, on the grounds that Coinbase had “always intended” to register as required.

More job cuts at crypto conglomerate

Finally, this week Digital Currency Group (DCG) announced another round of job cuts, this time at Luno, a UK-based crypto exchange and subsidiary.

This year, Luno will reduce its overall staff by 35 percent to “navigate” the crypto winter. Based on its employee count on LinkedIn, this will mean that about 330 of Luno’s 959 staff will be laid off.

“As you will be aware, over the past few months a number of unforeseen and very extreme events have impacted our industry,” Luno wrote to its employees.

“While we anticipated a downturn and proactively planned ahead with a business and funding model that can be resilient to some of these factors, the sheer scale and speed of all of this happening, and all at the same time, has put significant strain on our original plan.”

DCG, owner of crypto news site CoinDesk, announced similar job cuts and shutdowns towards the end of 2022.

As summarised in an update from CEO Barry Silbert, last year DCG shuttered its wealth management arm, HQ, which had operated since 2020.

This month, Genesis Capital, an institutional crypto lending firm owned by DCG, filed for bankruptcy after suspending withdrawals from the platform last November.

Meanwhile, US-based crypto exchange Gemini, which used Genesis Capital as the lending partner for its Gemini Earn product, has accused Silbert and DCG of effectively closing their doors on $900m worth of crypto-assets that were deposited in Gemini Earn by more than 340,000 users.

Separately, the US Securities and Exchange (SEC) has sued both Gemini and Genesis Capital for unregistered securities violations due to their alleged roles in the offer and sale of Gemini Earn.

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