- The exchange was recently fined $30m by the SEC for operating an unregistered staking service.
- It is among the regulatory headwinds the sector is experiencing after the implosion of FTX.
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Kraken, the third-largest crypto exchange by daily trading volumes, has announced plans to launch a bank, defying the current regulatory pressure in crypto baking, especially in the US.
Replying to a tweet by one of his followers, Kraken’s Chief Legal Officer, Marco Santori, said Monday that: ‘‘Kraken Bank is not open yet but on its way! The offering will initially be available to existing Kraken clients in the USA with potential international expansion in the future.’’
The announcement follows heightened scrutiny by the regulators on the players in the crypto banking sector. Following last year’s implosion of FTX, regulatory agencies around the globe cracked down on banks linked to the troubled exchange, affecting their profitability.
One of those affected is Silvergate. The La Jolla-based bank, which reported a net loss of $1 billion in the fourth quarter, came under fire when it announced that it could not meet the March 16 deadline for submitting annual reports. Besides, the lender added that it could be less capitalized and may not stay afloat after selling additional debt securities. What followed was a rush by some of its major clients – including Coinbase, Galaxy Digital, Bitstamp, and Gemini – to sever ties with the bank.
Stringent regulations in the crypto staking sector
Industry pundits are also keen to see how Kraken would establish the banking service in the context of cryptocurrencies considering rivals forced to scale down similar services by the stringent laws. Signature, another bank big on digital assets, announced last month that it was ending USD transfers of amounts less than $100,000. As a result, Binance and the Dubai-based exchange Bybit were forced to end their USD transactions for their retail customers.
Notably, US regulators have warned banks against leaning much toward digital assets. The Federal Deposit Insurance Corporation recently noted that ‘‘Business models focused on crypto-related activities or exposed to the crypto asset market raise safety and soundness concerns.’’
Kraken is not new to regulatory headwinds. As recently as last month, the SEC forced the exchange to drop its staking- as-a-service program for its clients in the US and filed a lawsuit accusing the platform of not registering the program as a security. Kraken agreed to pay the agency a $30 million settlement and to end the program.
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