Regulatory clarity key for banks entering crypto, industry exec says

Banks are beginning to see the appeal of digital technology and assets, but they may not be aware of the level of commitment needed to succeed.

This is not an easy time to be in the crypto banking sector, Lead Bank co-founder and chief legal and risk officer Erica Khalili said during a panel discussion at Ripple Swell in Miami, Florida.

Banking in the crypto sector requires significant investment and the ability to maintain a particular relationship with regulators, Khalili said.

Banks need a strategy to meet regulations

The number of new banks entering the sector has made regulatory clarity and interagency collaboration among banking regulators paramount, Khalili said, adding:

“For a long time, there was an intent to live in the gray area, and that was fine, and it worked, and we were all kind of OK with it.”

Many banks strive to meet regulatory expectations from the outset, and that’s challenging.

Lead Bank has taken a three-pronged approach to managing regulatory relationships. The first component is education. People have negative perceptions of crypto that have to be assessed and countered with use cases.

Real-life use cases already show the influence of digital assets on capital markets, so banks can show the attainments of the technology, which is the second prong. One important ability digital technology provides both bankers and regulators is highly efficient monitoring. Khalili explained:

“Regulators get that direct oversight where we’re not looking to like spurn regulation, we’re embracing it.”

Finally, patience is no less important, Khalili said. “It’s incredibly frustrating, honestly, in my role, but the goalposts are going to move. That’s just the reality with this. And we have to keep pace and try to be that thought partner,” she explained.

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Banking with a purpose

Banks may want to give digital asset banking a try out of curiosity or adopt it for the sake of cost reduction, but the investment required to do so makes “dip their toe” in the sector impractical, Khalili said.

A depth of knowledge is needed to succeed in the sector, along with investment in products, technology and personnel.

Khalili and the three other co-founders acquired Lead Bank, headquartered in Kansas City, Missouri, in August 2022 to provide banking services to the crypto sector. 

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