FV Bank launched digital-asset custody and settlement services Wednesday, becoming the first bank based in Puerto Rico to allow clients to hold, transfer and settle crypto and fiat currencies in one account.
The bank is set to provide Bitcoin custody initially and add Ethereum, USDC and USDT in the next few weeks.
The move puts FV in exclusive company. BNY Mellon last month began receiving customers’ Bitcoin and Ethereum.
However, it also came on a day when confidence in the crypto sphere appeared shaken. Binance CEO Changpeng Zhao on Tuesday announced his intention to buy competitor FTX, which, seemingly suddenly, had fallen victim to a “liquidity crunch.” But Zhao backed out Wednesday, after looking at FTX’s balance sheet.
The Securities and Exchange Commission, Commodity Futures Trading Commission and Justice Department, incidentally, are investigating whether FTX improperly handled customer funds.
FV, for its part, seems to have done some extra regulatory legwork to ensure it can strike a balance between traditional and digital currencies.
Natalia Zequeira, Puerto Rico’s commissioner of financial institutions, told Bloomberg her office has given just a handful of banks preliminary approval to become digital asset custodians. But only FV has built out a compliance department and met the capitalization and regulatory requirements to earn final approval. And it secured a license to exchange the assets in addition to holding them.
“We are not opening the door to do business in Puerto Rico to just anyone anymore,” Zequeira said.
Her office has doubled the size of its inspection staff over the past year and denied applications from at least 20 banks, she told Bloomberg.
“We do not want to hinder financial innovation,” she said. “But it has to be done in a way that is safe and does not put clients’ deposits at risk.”
Being based in Puerto Rico, FV must thread a needle of sorts. The island’s international financial entities and international banking entities are barred from doing business with institutions or individuals based there. But the island allows FV a lower corporate tax rate.
Because Puerto Rico is a U.S. territory, banks based there must adhere to the U.S.’s Bank Secrecy Act and anti-money laundering standards. Still, FV would have access to the Federal Reserve System. FV has applied for a master account but has not been approved yet, American Banker reported. The bank has integrated its ACH payments processing service for debits, it said in a press release.
FV CEO Miles Paschini said he aims to give institutional clients a “technology solution [that’s] seamlessly integrated into a regulated bank.”
"The infrastructure we are delivering to the marketplace will help bridge the divide between the traditional financial sector and the digital asset economy,” Paschini said in the release.
About 20% of FV’s clientele are from the U.S. mainland, and 80% are non-U.S. entities.
“Those companies need a place to go so that they can build, say, the next super app — the next cash app that is better than what they have in Argentina or Brazil or someplace,” Paschini told Bloomberg. “They need infrastructure that’s regulated and compliant. And that’s really what this is about. We’re delivering that infrastructure to the marketplace.”
Being a first mover, however, “creates some risk,” Steven Beattie, financial crime consulting and crypto risk leader at EY, told the wire service. But such companies “have a chance to change [their] competitive position across the industry.”