Banks too scared to work with Bitcoin businesses

What was an incident now appears to be a trend. Banks are refusing to work with Bitcoin businesses…It would seem out of fear.  In the latest example TransferWise, a business that offers low fee international money transfers, has announced that they will no longer be processing transfers to Bitcoin exchanges as their banking providers are “not comfortable with Bitcoin”.

In a statement from the TransferWise website…

As you may have noticed, we stopped processing transfers to Bitcoin exchanges this week. We’re very sorry.

In many respects it breaks our heart to have taken this step (we’re a firm that champions financial innovation after all), but our banking providers are not comfortable with Bitcoin and want us to restrict payments to these firms. This is happening everywhere – notably Bitfloor and Bitcoin-24 shut themselves down recently.

The banks – just like everyone else in the sector – are nervous because they don’t know what to think of Bitcoin. The regulators and politicians’ silence on the topic leaves us all in the dark.

Financial firms make choices on the basis of clear rules. Without them, things like Bitcoin fall into the hands of those who use it for illegal activities. This leaves businesses like ours that meet their obligation to anti-money laundering and “Know Your Customer” procedures unable to deal with it.

It’s a shame because Bitcoin offers solutions to some of the absurdities of the traditional banking system.”

Bitfloor, a Bitcoin exchange, ceased trading last week after CapitalOne informed the exchange that they would be closing their bank account. The problem may be the difference between a Money Services Businesses and a Money Transmitter. Bitfloor was registered as a MSB (Money Services Businesses) with FinCEN, however FinCEN’s guidance on virtual currencies may imply that Bitcoin businesses are Money Transmitters. Being a MTB (Money Transmitter Business) requires separate licensing in 48 states, a very expensive and difficult process.

After an interview with bitfloor founder Roman Shtylman PaymentSource reported that “One source from Capital One informed Shtylman the bank viewed the exchange as a money transmitting business.”

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