A lawsuit involving Wells Fargo and Hong Kong-based bitcoin exchange Bitfinex shows that banks remain hesitant when it comes to taking part in the world of cryptocurrency, according to a report from the American Banker.
Earlier this month, Bitfinex and Tether, another Hong Kong-based company, that permits customers to make purchases with a digital currency token known as a tether, filed a lawsuit alleging that the international and financial services company was preventing U.S. customers from selling their digital currency holdings.
According to the lawsuit, the decision by Wells meant that it had ‘substantially interfered with plaintiffs’ ability to operate their businesses.’
In the lawsuit, Bitfinex and Tether provided a comprehensive overview of the anti-money laundering (AML) practices, including that of risk assessment, filing of suspicious activity reports and transactions monitoring.
While it’s not clear as to why the American bank took this measure, concerns circulating money laundering could have played a role. Many other traditional banking services also remain doubtful, which can be seen by the fact that several traditional banks are ceasing correspondent banking relationships. A 2015 report from the World Bank, indicated that 75 percent of large international banks reported a decline in correspondent banking relationships from 2012 to 2015.
Even though digital currencies such as bitcoin continue to gain in popularity, banks have yet to jump on board.
However, despite this, many banks are turning their attention to the blockchain, even if blockchain integration and collaboration is reported to remain banks’ biggest hurdles.
Several countries, though, are undertaking tests with the blockchain to determine how it can be used within the finance sector. The Japanese Bankers Association (JBA) is to do tests for money transfers and trade financing while a report from Accenture Consulting in January found that the blockchain could save banks billions of dollars.
Unfortunately, with the loss of around $450 million in bitcoin from Mt. Gox in 2014 and $70 million from Bitfinex after it became the target of a hack in 2015, the image of bitcoin has been tainted. So much so, that many banks have become weary of them and are less likely to have a corresponding banking relationship with digital currency exchanges who need a bank for their services.
It remains to be seen what impact the Wells Fargo lawsuit will have on the digital currency space, but for now it appears as though banks won’t be welcoming them with open arms for the time being.
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Last modified: May 21, 2020 9:56 AM UTC