Singapore cryptocurrency firms are facing bank account closures, according to a news report by Bloomberg. By design, digital currency provides greater anonymity than traditional non-cash payment methods, which makes them attractive to money launderers and terrorists. In addition, digital currency is accessible via the internet – enabling cross-border fund transfers easily. As a result, companies dealing in digital currencies are most likely deemed as a higher risk customer.
A local cryptocurrency company, CoinHako, said in a blog post that its DBS corporate bank account had been shut down. No reason was provided for the account closure.
CoinHako’s co-founder, Yusho Liu, said in the same report that “the closure of [their] bank account might be due to matters pertaining to anti-money laundering rules and know-your-customer requirements.” Liu went on, “that is why we go the extra mile to meet compliance standards set by the Monetary Authority of Singapore (MAS).”
In a email response to Bloomberg, DBS declined to comment on CoinHako’s account closure and maintained that the decision could be due to multiple factors such as, “failure to maintain the account in good standing, failure to provide timely and accurate information, unexplained inconsistencies in account behaviour or unacceptable risk of criminal or terrorist behaviour.”
A check on CoinHako’s website assures customers that business is as usual, even though direct SGD transfers are not available at the moment due to the bank account closure.
Not the first time
The head of Singapore’s Cryptocurrency and Blockchain Industry Association (Access), Anson Zeall, said in an email statement to Bloomberg that cryptocurrency firms have faced similar problems with their respective banks in other countries and has called for Singapore to take a leadership role in regulating cryptocurrency companies. More than 10 cryptocurrencies firms have faced bank account closures, said Zeall.
President of Singapore Fintech Association, Chia Hock Lai, also said that a number of his 185 members had faced bank account closures.
MAS said in a statement that it does not interfere with commercial decision taken by financial institutions, including onboarding and terminating customer relationships.
Past events, such as HSBC’s US$1.9 billion fine in a money-laundering case, have resulted in a number of financial institutions slapped with heavy fines for lapses in their anti-money laundering / countering the financing of terrorism (AML/CFT) framework. To avoid regulatory fines, some financial institutions have resorted denying banking services to a certain segment of clients that they deemed to be at higher risk.
The Financial Action Task Force (FATF), a global organisation for AML/CFT, warned against financial institutions restricting higher risk customers access to banking services. Such a move is counter-productive towards the spirit of having an AML/CFT regime as these segments would then turn to unregulated or underground alternatives which would reduce overall transparency – making it harder to monitor illicit money flows.
FATF strongly discourages de-risking and adds that financial institutions should apply adequate risk management measures via a risk-based approach on clients deemed as a heightened risk so that funds are contained within a regulated and monitored space.
In reality, de-risking higher risk customer segments continue to remain the most effective solution to mitigate regulatory risk. With rising compliance costs affecting profit margins, it is obvious why financial institutions have lower risk appetite.
Current regulatory landscape
As this point in time, there is little to none AML/CFT regulations, specifically on cryptocurrency, around the world. It is worthy to note that existing AML/CFT measures are not applicable to new technologies, such as cryptocurrency firms. Naturally, a new methodology has to be researched and implemented – and regulators have to act fast or risk missing out on having a comprehensive oversight framework should digital currency gain mass adoption.
On August 1, MAS clarified their position on initial coin offerings (ICOs):
ICOs are vulnerable to money laundering and terrorist financing (ML/TF) risks due to the anonymous nature of the transactions, and the ease with which large sums of monies may be raised in a short period of time. MAS’ media release of 13 March 2014 had communicated that while virtual currencies per se were not regulated, intermediaries in virtual currencies would be regulated for ML/TF risks. MAS is currently assessing how to regulate ML/TF risks associated with activities involving digital tokens that do not function solely as virtual currencies.
While FATF has recommended looking at points of contact where the conversion of digital and fiat currency happens, such cases will only work if fiat money continues to be the dominant choice of currency used by people. If and when the mass adoption of cryptocurrency happens, regulators around the world may find that digital currency would have then circumvented current regulatory requirements in place.
There is no doubt that the global AML/CFT regime has a lot to catch up. Nevertheless, there is more work yet to be done at the current AML/CFT regime, such as eliminating anonymous companies and identifying ultimate beneficial owners of shell companies.