Kraken gets banking license
Cryptocurrencies,  Regulation

Release the Kraken! Exchange wins bank charter approval in ‘world first’

Its new service, Kraken Financial, could make it easier for consumers to pay their bills and even receive their salaries in crypto

The crypto exchange Kraken says it has become the first digital asset company in U.S. history to receive a bank charter that’s recognized under federal and state law.

Kraken gets banking license
Jesse Powell, the first crypto banker (Photo: LinkedIn)

Kraken, which was founded in San Francisco nine years ago, had applied to the state of Wyoming to form “the world’s first Special Purpose Depository Institution.”

According to the Wyoming Division of Banking, SPDIs are defined as “banks that receive deposits and conduct other incidental activities, including fiduciary asset management, custody and related services.” The state’s legislature enacted a law that enabled these institutions to be formed back in 2019, subject to an application process. Explaining what SPDIs would be used for, the division added:

“It is likely that many SPDIs will focus heavily on digital assets, such as virtual currencies, digital securities and utility tokens. SPDIs may focus on traditional assets as well.”

The cryptocurrency exchange said that the venture is tentatively being called Kraken Financial. Its newfound status means it will be the first regulated U.S. bank that can provide deposit-taking, custody, and fiduciary services for digital assets.

Kraken CEO Jesse Powell was a little bemused on Twitter, saying:

Kraken gets banking license
Jesse Powell took his banking license with a sense of humor (Photo: Twitter)

A long road

According to Kraken, those service will allow Americans who use its exchange “to bank seamlessly between digital assets and national currencies.” In a blog post on Sep. 16, the company said Kraken Financial could make it easier for consumers to pay their bills and even receive their salaries in crypto—something that has been relatively difficult to do until now.

The company added that it expects its new institution to be regulated in a similar fashion to more old-fashioned U.S. banks. Announcing the news, Kraken Financial’s CEO David Kinitsky said:

Kraken gets banking license
Kraken may have beaten Caitlin Long’s Avanti Financial Group to the banking license, but it’s still a huge victory for her (Photo: Twitter)

“We’re thrilled to work in a state so aligned with our philosophy and values. Wyoming is a rare and shining example of how thoughtful regulation can drive innovation for fintech companies.”

A great deal of credit goes to Caitlin Long, co-founder of the Wyoming Blockchain Coalition and a fierce advocate for the cryptocurrency industry. From that position she pushed hard to make Wyoming the leader in providing a strong, supportive legal infrastructure for blockchain businesses.

Long is currently in the process of creating another Wyoming-based crypto-focused bank, Avanti Financial Group, which aims to open in 2021.

“Many new potential institutional users of digital assets either must deal with a U.S. regulated bank—or for many reasons prefer to do so—and once such a bank exists, these institutions can finally gain confidence to enter the rapidly growing market,” Long said in July’

The news attracted interest beyond the cryptocurrency industry. Wyoming Governor Mark Gordon tweeted:

“Today Wyoming became the first state to approve a banking charter for digital assets. This will allow those using digital assets, like cryptocurrency, to access reliable financial services, protect consumers, and allow businesses a way to safely hold digital assets.”

What the future holds

Kraken took the time to explore some of the ins and outs associated with its new venture in the blog post.

The company said it aspires to become “the world’s trusted bridge between the crypto economy of the future and today’s existing financial ecosystem”—and becoming an SPDI allows this bridge to be built in-house.

“With the charter in place, we can operate a fully independent bank that will reduce our reliance on third-party financial institutions and even help launch a new wave of innovative products for our users,” the exchange said. “A bank fully dedicated to the interests of our users is, without a doubt, the best way to deliver on this vision.”

As you might expect, Kraken was exceedingly complimentary of Wyoming’s approach to regulation—praising the state for taking the concerns of digital asset companies into account as well as the clients they serve.

Although the company wants to take Kraken Financial global, it said this service will only be available in the United States for now—and international customers won’t be able to open an account.

The license will likely make Kraken much more credible in the eyes of investors who may be looking into cryptocurrencies for the first time—and the exchange was keen to stress that, unlike the murky regulation that’s seen in other parts of the digital assets space, it will be held to the same standard as any other bank.

“Kraken Financial, as a bank, is required by Wyoming law to maintain 100% reserves of its deposits of fiat currency at all times,” the blog post explained. “If every client were to demand withdrawals of their fiat at the same moment, Kraken Financial would be able to fulfill each withdrawal immediately without regard to how many loans we had outstanding.”

More services to come

In year one, Kraken Financial will focus on digital asset custody and wire transfers—but in the years that follow, it plans to offer staking services, a debit card that clients can use to spend their crypto funds, and a complete suite of online and mobile banking products. At some stage, it also wants to launch wealth management services.

But in a sign that the times are changing, Kraken Financial says it won’t have physical branches where customers can pop in to see a friendly bank manager. Despite having a permanent presence in Wyoming, it is going to follow an “online and mobile-first banking model,” with customer service that’s available 24 hours a day, 365 days a year.

This isn’t the only big regulation news that we’ve seen in the U.S. this week—suggesting that America is becoming more hospitable to digital asset companies after years of pushback. As reported by Modern Consensus on Tuesday, 48 states have streamlined their regulations and agreed to follow a single set of rules—a move that should make it easier for big payment and crypto firms to expand.

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Connor Sephton is a journalist with an interest in cryptocurrencies, personal finance, and financial inclusion—as well as the challenges the crypto industry faces in achieving mainstream adoption. He owns cryptocurrencies.