Bank Account Opening for the Crypto Industry

The popularity of cryptocurrencies has increased over the past decade, with Bitcoin being the most known crypto asset. As more people invest in digital assets, the need for traditional banking services in the crypto industry has grown. 

However, crypto businesses face many challenges when trying to open bank accounts. Banks are often hesitant to provide services to crypto businesses due to regulatory concerns and the perceived risks associated with cryptocurrencies. In this post, we will consider some of the challenges crypto investors face concerning opening a bank account and how to go about it.

Why is it Difficult for Crypto Businesses to Open Bank Accounts?

This question always rises up. There are several reasons why it may be difficult for crypto businesses to open bank accounts, below, they are discussed: 

Regulatory Challenges

Regulatory challenges are one of the main reasons why banks are hesitant to serve crypto businesses. Financial regulators all over the world have not yet created a comprehensive regulatory framework for cryptocurrencies. As a result, this makes it challenging for banks to ensure compliance with anti-money laundering (AML) and know-your-customer (KYC) regulations. Banks are also concerned about the lack of transparency in the crypto industry.

Additionally, financial institutions are wary of the high volatility associated with cryptocurrencies, which can pose a risk to their financial stability.

Money Laundering and Terrorist Financing Risks

Banks are obligated to prevent money laundering and terrorist financing activities. However, the anonymous nature of cryptocurrencies makes it difficult to trace transactions and identify the parties involved. Banks fear that serving crypto businesses may put them at risk of breaching AML and KYC regulations.

Bank Reputation Risk

If there is one thing that financial institutions don’t play down on, it is their reputation. Banks are often wary of associating with businesses that are known for often involving in money laundering, fraud, or other illegal activities. Unfortunately, the cryptocurrency industry has had its fair share of negative publicity due to such activities, leading to widespread skepticism and reluctance to work with crypto businesses.

Lack of Understanding 

Banks that are not familiar with the cryptocurrency industry may also have difficulty working with crypto businesses. Cryptocurrencies operate on decentralized networks, and the technology can be complex and difficult to understand for those who are not familiar with it. This can make it difficult for banks to assess the risks involved and determine whether a business is legitimate or not. Banks may be reluctant to work with crypto businesses due to a lack of knowledge and understanding of the industry. 

The High-Risk Nature of the Industry 

People who own gaming companies also face this challenge more often. Read our article on Bank Account Opening for the Gaming Industry. Due to the high-risk nature of the cryptocurrency industry, many banks view crypto businesses as a high-risk industry. This perception can make it difficult for crypto businesses to access traditional banking services such as loans, credit lines, and other financial services. Moreover, the high-risk nature of the cryptocurrency industry can be especially challenging for start-ups.

Tips for Creating a Cryptocurrency Business Bank Account

Opening a bank account for your cryptocurrency company can be a daunting task. With regulatory hurdles and compliance requirements, it's important to take the necessary steps to ensure your application is accepted. Here are the tips:

1. Employ a Corporate Service Provider 

The most effective tip in creating a bank account for your crypto company is employing the services of a corporate service provider. A corporate service provider like FirmEU can provide you with professional guidance and support throughout the entire process of opening a bank account for your crypto company. They have the expertise and experience to help you navigate complex regulatory procedures, ensuring that you meet all the necessary requirements to successfully open a bank account. Moreover, a corporate service provider has good relationships with banks. So, they can stand as a guarantor for you.

2. Choose the Right Type of Bank

After employing a Corporate service provider, the next is to choose the best bank to work with. Not all banks are willing to work with cryptocurrency companies, so it's important to choose a bank that is crypto-friendly. Look for banks that have experience working with crypto companies and have a good understanding of the industry. This is because as stated before, opening an account for a crypto company can be considered "high-risk banking". So, you need a bank that offers such services. FirmEU has a list of high-risk banks near you that is suitable for your goal.

3. Provide Comprehensive Documentation

Banks require comprehensive documentation when opening an account for a crypto company. This includes proof of identity for all directors and shareholders, proof of address, and evidence of the company's source of funds. It's essential to provide all this necessary documentation to avoid delays or rejections.

4. Be Transparent

When applying for a bank account, it's important to be transparent or open about your business activities. Provide as much information as possible about your company, including its business model, how it handles customer funds, compliance procedures, and how it manages its risks. This will help build trust with the bank and increase your chances of being approved.

5. Have a Strong KYC/AML Program

Banks require that crypto companies have a robust Know-Your-Customer (KYC) and Anti-Money Laundering (AML) program in place. This includes implementing appropriate procedures to verify the identity of customers, monitor transactions for suspicious activity, and report any suspicious activity to the relevant authorities.

6. Build a Good Relationship with Your Bank

Even after opening your account, Banks also close it. Building a good relationship with your bank can go a long way in ensuring that your account remains open. By this we mean; keep the bank informed of any changes in your business activities and maintain open lines of communication. If this seems difficult for you, then your CSP can handle it for you.

7. Be Patient

Lastly, that can be suspicious if you seem under pressure or in a hurry. Opening a bank account for a cryptocurrency company can be a time-consuming process as a lot of verifications have to be done. Be patient and be prepared to provide additional information or documentation if requested by the bank.

Alternative Banking Solutions for the Crypto Industry

Alternative banking solutions have emerged in response to the growing demand for banking services in the crypto industry. These solutions are designed to cater to the needs of crypto businesses and individuals who need help accessing traditional banking services. In this context, let's explore some of the popular alternative banking solutions and their benefits and drawbacks.

Crypto-Friendly Banks

Crypto-friendly banks are traditional banks that offer services to crypto businesses and individuals. These banks have a good understanding of the crypto industry and are willing to work with customers who deal in cryptocurrencies. Some of the popular crypto-friendly banks include Silvergate Bank, Metropolitan Commercial Bank, and Signature Bank.

Benefits:

• Easy access to banking services for crypto businesses and individuals
• Increased legitimacy of the crypto industry
• Enhanced security and protection of funds

Drawbacks:

• Limited availability of crypto-friendly banks
• Higher fees and charges compared to traditional banks
• Stringent compliance requirements and due diligence procedures

Payment processors

Payment processors are third-party companies that enable businesses to accept payments in cryptocurrencies. These processors convert the crypto payments into fiat currency and deposit them into the merchant's bank account. Some popular payment processors include BitPay, CoinPayments, and Coinbase Commerce.

Benefits:

• Easy integration with e-commerce platforms and websites
• Low transaction fees compared to traditional payment processors
• Instant settlement of payments

Drawbacks:

• The volatility of crypto prices can affect the value of payments received
• Limited availability of cryptocurrencies supported
• Security concerns related to storing crypto in online wallets

Fintech Companies

Fintech companies are startups that leverage technology to provide banking and financial services. These companies offer various services, including crypto wallets, payment processing, and lending. Some popular fintech companies in the crypto industry include Square, Robinhood, and Revolut.

Benefits:

• Innovative services and products tailored to the needs of the crypto industry
• Lesser costs and fees than traditional banks
• Convenient and user-friendly platforms

Drawbacks:

• Limited regulatory oversight compared to traditional banks
• Higher risks associated with startups and emerging technologies
• Limited availability of services in some regions

Conclusion

opening a bank account for a crypto company can be a daunting task. However, by employing the services of a corporate service provider, choosing a bank that specializes in cryptocurrencies, having a strong business plan, providing comprehensive documentation, being transparent and compliant, and having a robust KYC/AML program, the process can be made more manageable. 

Moreover, alternative banking solutions can provide valuable services to the crypto industry. However, it is crucial to conduct due diligence and carefully assess the risks associated with these solutions before using them. This is why you shouldn’t do this on your own. Hire a corporate service provider today. Crypto businesses and individuals must choose reputable and reliable service providers to ensure the safety and security of their funds.

For more information on this subject, contact:

Email: info@firmeu.com

Call: +31 (0)6 82918628

Or visit our Contact us page.