While Wall Street takes stock of Wednesday’s direct listing of cryptocurrency giant Coinbase, some buttoned-up U.K. banks will likely be avoiding COIN stock because of lingering worries about crypto’s role in money laundering and criminal activity.
A prime example is HSBC, which made headlines recently by banning customers from buying shares in MicroStrategy, a company holding large amounts of bitcoin on its balance sheet.
Asked if HSBC would also be avoiding Coinbase’s newly-listed COIN stock, HSBC Corporate Media Relations Manager Ankit Patel said:
“HSBC has no appetite for direct exposure to virtual currencies and limited appetite to facilitate products or securities that derive their value from virtual currencies. This is not a new policy.”
Big U.S. banks like Goldman Sachs, Morgan Stanley and BNY Mellon are now fully awake to crypto and the need to stay competitive by fielding client demand for digital assets. That said, crypto businesses still struggle to get bank accounts. Silvergate and Signature Bank cater to much of the industry in the U.S., with firms like ClearBank doing the same in the U.K. and Europe.
The same feeling of cold-feet from certain British banks also applies to dealing in shares of listed crypto firms.
During a recent IPO roadshow for mobile bitcoin app Mode (now listed on the London Stock Exchange), both HSBC and Barclays said they would not allow the firm’s shares on their respective platforms “because of the crypto element,” according to a source familiar with the matter.
Barclays press office did not respond to requests for comment about the COIN stock.
Pressure drop
Mode went through a stringent Financial Conduct Authority process to get listed on the LSE, explained the banking app’s executive chairman Jonathan Rowland.
“I would not be surprised if there are some people [banks and fund managers] who will not be allowed to trade Coinbase because of their fund mandates and restrictions,” Rowland said in an interview. “There’s a huge pressure on all these banks over money laundering, and it’s just easier to say ‘no.’”
It’s well known that HSBC, the largest bank in Europe with total assets of $2.715 trillion, is paranoid. The bank was forced to pay out $1.92 billion over anti-money laundering (AML) failings, only to be spanked again with the publication last year of the FinCEN Files.
At some point in the last couple of years, Barclays reversed its once-friendly position towards cryptocurrency companies. Barclays used to provide Coinbase with a bank account, the first and only big bank at that time to service a crypto company. It emerged in mid-2019 that the U.K. bank had quietly ended its business relationship with Coinbase.
Ex-Barclays banker and the former head of trading at Coinbase, Hunter Merghart, said he found the idea that HSBC and Barclays would eschew Coinbase stock surprising in this day and age.
“As a former banker myself, there’s a lot of fee generation, there’s going to be a lot of M&A, more IPOs – and if you as a bank say, ‘We don’t want our clients to get exposure,’ it’s going to be very hard to go and win that business,” said Merghart, now head of the U.S. business of crypto exchange Bitstamp, adding:
“If you look at the bankers for Coinbase, maybe some of the reason Goldman won that mandate is because they’ve been exploring digital assets for a long time.”