Customer cash has nowhere to store Binance's US subsidiary is looking for a bank to take over

Focus

• 1Since the collapse of two US regional banks, Signature Bank or Silvergate Capital, Binance US subsidiaries have lost banking partners and customers have nowhere to store their cash assets.
• 2 Binance US subsidiaries are currently using middlemen to help them deposit customer cash deposits, but this may slow down the sending and transfer of funds during transactions.
• 3Binance US subsidiaries are looking for banks willing to receive cash assets from their customers, looking to build more stable relationships and provide more services.

Tencent Technology News on April 9, according to people familiar with the matter, after the collapse of the US regional banks Signature Bank and Silvergate Capital, the US subsidiary of the global cryptocurrency exchange Binance lost important banking partners, so it is looking for banks willing to receive users' cash assets.

According to Binance, users' dollar deposits were previously held in Signature Bank or Silvergate Capital. Both banks are considered very friendly to cryptocurrency companies, and their collapse has left many crypto companies eager to find new banking partners.

As a stopgap measure, the Binance US subsidiary is using at least one middleman to store funds on its behalf. According to people familiar with the matter, this could slow down the process of sending and transferring funds due to the presence of middlemen in banks.

The key difficulty for Binance's US subsidiary was that it needed to find a bank willing to deposit its customers' deposits directly. On cryptocurrency exchanges, bank accounts used for user deposits and transactions are usually separated from accounts used for business operations.

In recent months, Binance's US subsidiary has tried unsuccessfully to establish direct business relationships with CrossRiver Bank in New Jersey and Customers Bancorp, a regional bank in Pennsylvania, people familiar with the matter said. Cross River is already serving several cryptocurrency and fintech companies.

A spokesperson for Binance's US subsidiary said: "We are working with a number of US banks and payment providers to upgrade our internal systems while continuing to look for new partners to create a more stable fiat currency platform and provide more services." ”

One of the reasons some banks are reluctant to do business with Binance's US subsidiaries is that they are concerned about regulatory risks, people familiar with the matter said.

Last month, the U.S. Commodity Futures Trading Commission (CFTC) sued Binance's larger global subsidiary, Binance Holdings, for allegedly evading U.S. regulations and violating provisions designed to prevent illegal financial activity. The company said the CFTC's decision to sue was disappointing and that it "disagrees with the description of many of the issues in the complaint."

Previously, media reported that since at least 2020, the US Securities and Exchange Commission (SEC) and the US Department of Justice have also been investigating the relationship between Binance and its subsidiary, which does not have a headquarters.

Currently, Binance's US subsidiary is storing customer cash through Prime Trust, a cryptocurrency services and financial technology company. A spokesman for the latter confirmed that any funds received from customers are deposited in the bank's partner network.

The crackdown on cryptocurrency banks is squeezing the digital asset business. Although the industry often advertises itself as an alternative to banks, these companies still rely heavily on banks and the financial system that operates on fiat currencies such as the dollar and the euro.

The lack of a directly established bank has caused a lot of confusion for the customers of Binance's US subsidiary. The company posted a status update on its website on Sunday, announcing that it would "transition to new banking and payment service providers in the coming weeks," adding that some U.S. dollar services will be temporarily unavailable, including wire transfers and withdrawals, as well as deposits through Apple Pay and Google Pay.

The company's website also showed that as of Friday, wire transfers had been restored, though Apple Pay and Google Pay deposits were "under maintenance" and debit card service was "partially disrupted."

Signature Bank is seen as the lender's go-to lender for New York's commercial real estate industry, but in recent years it has begun to make inroads into cryptocurrency. The bank has opened deposit accounts for cryptocurrency companies and built a payment network that is popular with them. One of the biggest customers is the Binance US subsidiary

Both Binance and its U.S. subsidiaries say they operate separately. But both companies' major shareholders are cryptocurrency tycoon Changpeng Zhao, and internal sources leaked earlier revealed that the relationship between the two companies is more complex than previously disclosed, with employees and finances intersecting with each other.

Following the collapse of cryptocurrency exchange FTX last November, U.S. banking regulators became increasingly suspicious of lenders serving digital currency companies, with some banks pulling out of the business amid regulatory scrutiny. Among them is Signature Bank, which cut ties with Binance's international operations.

While some banks gained more cryptocurrency corporate clients after the collapse of Signature Bank or Silvergate Capital, bankers say they have made careful choices about which clients they accept. (Golden Deer)