E-Money institutions offer banks a way into crypto

E-money institutions – sometimes referred to as challenger banks – represent an important route to helping traditional banks break into the crypto space, says leading cryptocurrency exchange BeQuant.

A recent report published by the government’s Cryptoassets Taskforce shows how increased regulation is improving the credibility of cryptocurrencies. This is accompanied by Bulge Bracket investment bank Morgan Stanley publicly recognising cryptocurrencies as a valid asset class. Examples of increased inflow of institutional investment alongside regulatory progress mean that the prospect of investing in digital currencies is an increasingly attractive one for big banks.

Despite the growing maturity of the crypto space and an inflow of institutional investment, the risks associated with cryptocurrency often outweigh the high-yields this asset class can bring. In practice, this means that many traditional incumbents are not able to take advantage of the benefits of crypto, leading to an ‘unbanked’ crypto community.

Concerns surrounding the risks associated with crypto are particularly acute for big banks that are subject to strict regulatory requirements. European banks, for example, are dependent on the European Central Bank where licensing is concerned. Restrictions such as these mean that traditional banks are by nature risk averse.

E-money institutions offer a medium for established financial services organisations to invest in the crypto space without exposing themselves to high levels of regulatory risk, however. By virtue of their fluid nature, e-money institutions are inherently better suited to adapt to the regulatory requirements that many established banks simply cannot respond to as quickly or efficiently.

Also, unlike European banks, e-money institutions only need to abide by jurisdictional regulation, making them more agile and able to take advantage of certain jurisdictions that are more ‘crypto friendly’. This paves the way for big banks to enter the crypto space accompanied by digitally native companies that are best placed to adapt to risk.

George Zarya, CEO of BeQuant says:

“E-money institutions offer established players in the FS space an opportunity to break into cryptocurrencies and take advantage of the high-yields this asset class can offer. As the crypto market gets closer to reaching maturity, we can expect to see more traditional banks looking to invest in cryptocurrencies. E-money institutions represent an important channel to bridge the gap between banks and regulators until the cryptocurrency market becomes fully regulated.”