The State of Relations Between the Banking and Financial Sector and the Digital Asset Industry

Since the creation of Bitcoin and the first entrepreneurial projects centered on blockchain technology in France, the “crypto” industry—and the broader blockchain technology sector—has faced significant challenges in building trusting relationships with the banking and financial sectors. However, this situation had been poorly documented. That is why ADAN sought to conduct a qualitative and quantitative assessment of the challenges faced by industry players by giving them a voice through a survey open to all between July and September 2020.

Today, the Adan is releasing a reportthat presents the findings of the survey. The report provides an overview of the current state of relations between banks, payment institutions, electronic money institutions, and crypto-blockchain entities.

This report is based on an analysis of the 28 non-anonymous responses to the questionnaire received during the two-month period (mid-July to mid-September) when the questionnaire was available online. Of the 28 companies, 26 (or 93%) own, buy, sell digital assets, or act as intermediaries in such transactions. For nearly 64% of them, these transactions account for at least half of their annual business volume.

Overview of the Relationship Between Financial Institutions and Crypto-Blockchain Players in France

When asked to assess the state of their relationship with their financial institution(s) today, responses are evenly split between “very complicated” (nearly 7.5%) and “complicated” (about 22%) on the one hand, and “good ” (about 22%) and “very good” (nearly 7.5%), with the remainder (about 41%) being neutral.

While this general observation may seem relatively unremarkable,82% of respondents (23) report that they have already been refused the opening of, or had one or more bank accounts closed, in France and elsewhere in Europe. No one is spared this criticism, as all French banking groups—both traditional banks and “neobanks”—are singled out by respondents. 

Summary of the survey results

Difficulties encountered in France when opening their current account	50%
Experience with refusals to open or close accounts	68%
Difficult or even impossible access to banking and payment services	45%
Difficult or even impossible access to credit or bank financing	50%
Impact on customers in their own banking relationships	57%
Impact on the executive in his or her own banking relationships	42%
Relocation of the business is being considered or is under serious consideration	64%
Relations with financial institutions are less difficult in other EU countries	85%

Establishing and maintaining relationships with financial institutions in France: an uphill battle

When it comes to activities directly related to digital assets, the majority of respondents have an account opened in France (72%). Of these, 18 (64%) have a bank account, and 2 (7%) have a payment account.

However, of these 18 respondents,half encountered difficulties when opening their bank accounts.

Difficulties encountered when opening an account

• It was necessary to apply to a large number of institutions (up to 11 rejections before finding a bank). 
• Excessively long delays between the application and the actual opening of the account or the refusal to open it (up to two years for some respondents).
• Negotiations with senior management are required just to open an account. 
• Clear instructions have been issued to bank advisors to block any attempt to open an account for activities related to digital assets.
• Additional documentation is required due to the nature of the business; the account opening process is on hold pending receipt of this documentation.
• The need to involve a lawyer specializing in the account-opening process in order to “reassure” the bank, with these costs being borne by the startup. 
• Intensive educational efforts to explain the business or debunk traditional misconceptions about digital assets. 
• Despite these efforts, the bank has shown a "principled" lack of interest.

However, simply opening an account does not mean that the challenges have disappeared, andcrypto players face other obstacles as their business relationship progresses.

Problems encountered after opening an account

• Quick account closure, for no specific reason.
• Unable to obtain a debit card or a checkbook.
• Unable to set up a SEPA direct debit.
• A bank will refuse to grant a loan if the borrower is not licensed by the AMF.
• Any financing or transaction involving digital assets that might require the compliance department’s involvement is prohibited (i.e., as long as the volume of business involving digital assets remains moderate), under penalty of account closure. 
• Processing of wire transfers takes a very long time and/or requires supporting documentation for each transaction 
• No access to online banking, which means, for example, having to visit a branch for every transfer.

Given these challenges,45% of respondents view access to the banking and payment services necessary for their business operations as complicated or even impossible. For 37% of respondents, such access is considered normal, and only 18.5% find it easy.

More peaceful relations in the other European Union member states

Half of the respondents have an account in another European Union member state, including: Germany, the United Kingdom, Sweden, Ireland, the Netherlands, Lithuania, Luxembourg, and Estonia. Only 21% of these individuals reported experiencing difficulties in this process(compared to, as noted in the previous section, 50% of those who opened an account in France). 

Consistently, 85% of respondents believe thatrelationships are more difficult in France than in other EU countries, with 45% describing them as “much more difficult.”

Opening an account and keeping it: what's the problem?

The reasons cited by the various financial institutions are very often the same. 

First and foremost, it istherespondents’line of businessthat leads banks and financial institutions to refuse to open an account for them. The stakeholders consulted reported three scenarios:  

• Crypto-related activities are explicitly prohibited in the account opening policies of certain banks.
• Engaging in crypto-related activities is implicitly a deal-breaker: 
  • The advisor refuses to engage even before learning the details of the business, sometimes merely at the mention of the words “blockchain” or “cryptocurrencies.”
  • Even when the advisor is interested, his superiors do not give their approval.
  • The reason given for the rejection is either missing or vague, such as “the company does not meet the criteria.”

When the most flimsy excuses are given to the parties involved, some institutions then refuse to issue a letter of rejection.

Second, some parties were informed by their counterparts thatthe legislation was not considered sufficiently advanced to allow the institution to open an account for them.

Some respondents exercised their right to open an account in the face of repeated refusals. Despite the designation by the Banque de France, the institutions in question sometimes still refused to open an account. Some respondents (6) then filed a complaint with the ACPR, but did not receive the Authority’s ruling required to resolve the situation; in one case, the Authority even blocked the procedure initiated by the Banque de France. Ultimately, only one respondent obtained a favorable resolution.

Strained relationships that affect customers, employees, and company executives

67% of companies report that their customers have experienced difficultiesin their dealings with financial institutions regarding crypto transactions conducted through them.

Respondents' accounts of the nature of their clients' challenges

• Accounts frozen or closed when crypto activity is detected
• Transfers to and from blocked or rejected customers will be blocked or rejected, resulting in the freezing of funds, with no possibility of appeal, even if the origin of the funds can be clearly traced
• Blocked transactions
• Potential purchases of digital assets that were discouraged or prevented
• Request for the customer's release signatures

43% of business leaders report having been personally affected by their business activities, whether through account closures, loan denials, or a decline in the business leader index published by the Banque de France. 

Respondents' accounts of the nature of the challenges faced by leaders

• Closure of accounts, including those held by all members of the household
• Banque de France's credit rating downgraded
• Rejection of funds from the sale of digital assets in connection with a personal loan application
• Loan renegotiation

At the root of the challenges faced by stakeholders is a lack of understanding of the sector

The difficulties encountered in the relationships between stakeholders and their financial institutions can be attributed to two main reasons that stood out particularly clearly in the responses collected following the survey: 

• These institutions’lack of understanding of digital asset activities and the sector(68%), which is consistent with their lack of understanding of the PSAN framework, which 36% of respondents also cited; and 
• Concerns about the sanctionsinstitutions might face for working with these actors (61%), which reflects their limited knowledge of AML/CFT practices, as noted by 21.5% of participants. 

However, more than a third of respondents also cite less legitimate reasons, believing that financial institutions view them as acompetitive threatand allegingbad faithon the part of these institutions in an effort to ultimately discourage them from pursuing their goals. 

Harmful consequences for French industry

The current situation is jeopardizing the growth of French industry and could, in the relatively near future, lead companies to relocate abroad. 

A competitive threat to market players

85.7% of respondents (24) believe that the current situation between digital asset firms and financial institutions undermines free competition (or market access) for these firms. Six respondents (21.5%) also believe that the fees charged by their bank are discriminatory compared to those charged to firms engaged in other activities.

Testimonials from respondents 

• Credit card processing fees are at least five times higher than those for traditional retailers, and ancillary costs (disputes, correspondence, account statements) are ten times higher.
• Transfers outside the EU must be made manually, and there is no option to open an international account, resulting in significant fees (particularly currency conversion fees).
• The bank requires a minimum monthly balance of €2,000.
• A commission is charged on each transaction.

In its response to the Competition Authority’s sector inquiry in June 2020,ADAN had already raised concernsabout the competitive situation in the industry.

A lack of support for the industry that hinders its development

Half of the respondents (50%) reported thatthe status of their banking relationships prevented them from obtaining credit or bank financing, while five of them weredenied the PGEspecifically because of their activities related to digital assets.The Adan survey on the state of the crypto-blockchain industry during the COVID-19 crisis, launched in the spring of 2020, had already established this second finding.

The brain drain

Thus, for nearly a quarter of respondents (6),the state of their relationships with financial institutions in France leads them to “very certainly” consider relocating their business. This is an “option” for 12 respondents (approximately 43%). Only 8 respondents indicate that they “probably will not” relocate their business, and 2 have no plans to do so.

Conclusions and Recommendations from Stakeholders 

Digital assets and blockchain technologies offer highly promising prospects, particularly in the areas of payments and so-called decentralized or open finance, which should be encouraged to improve their efficiency and accessibility. These activities, which compete directly with the current offerings of the banking and financial sector, must not be stifled by the current deadlock. 

Respondents to the Adan survey have therefore proposed several initiatives that could be undertaken jointly by the financial/banking and crypto-blockchain sectors to address these challenges. 

Increase the visibility of successful French projects in order to improve the sector’s image.

Conduct educational initiatives for financial institutions on digital assets, their opportunities, as well as the regulations and tax treatment of activities related to these assets; and dispel common misconceptions (AML/CFT, crypto players are banks, etc.). These initiatives could take the form of professional communications (such as letters from the ACPR or Tracfin) and positive messaging from authorities and public officials regarding a sector with high potential. Ultimately, encourage dialogue and help the banking and financial sector understand the opportunities available to it and how it could collaborate with the crypto industry. 

Target specific educational initiatives within banks’ compliance departments to help them better understand how crypto entities comply with their AML/CFT obligations. For example, share and explain aspects of the systems put in place by crypto-blockchain entities. In this way, develop specific and non-discriminatory onboarding procedures.

Apply the right of access to the account under reasonable conditions (particularly with regard to fees).

Effectively enforce the penalties provided for the most serious cases(unjustified account closure, obstruction of the right-to-an-account procedure, refusal despite registration as a PSAN, etc.).

Establish specialized innovation and crypto departments within each major bank: while smaller branches may lack expertise in this area, crypto stakeholders should be able to find qualified contacts at the business center level. 

Whitelistcustomer transactions originating from or destined for digital asset sector entities registered with regulatory authorities. Encourage a shift in the ACPR’s approach: rather than systematically pushing entities toward PSP status,guide them toward the appropriate regulatory framework and procedures for accessing enhanced accounts.