On The Brink with Castle Island - Amber Scott (Outlier Canada) on crypto-bank relationships in Canada (EP.158)

Episode Date: December 14, 2020

Compliance expert Amber Scott joins the show to explain why crypto-firms are systematically excluded from the bank sector in Canada. In this episode:  Our objective in launching a series on bank suppression of the crypto industry The current bank landscape in Canada Why crypto firms struggle to get access to banking in Canada Why money transmitters face a more burdensome treatment from banks What derisking is and why it is so common Whether MSBs and crypto firms deserve the treatment they get from banks Why derisking often forces crypto firms into using grey market payment processors, exposing them to the risk of fraud The underlying reasons for reluctance on the part of banks to bank crypto firms Why informal guidance from regulators is so critical How US regulations are structurally imported into Canada How a service provider called Central One imports US policy for thousands of credit unions Follow Amber on Twitter and learn more about Outlier Canada. 

Hello and welcome back to On the Brink with Castle Island. Today we are kicking off a new series, a new mini-series, this time devoted to the challenges the crypto firms have in getting stable bank relationships and the underlying reasons for that. So a lot of you will be familiar with Operation Choke Point. This was a classic case study back in about 2013. In the U.S., there was informal guidance from the FDIC. coming from the highest levels of the administration to redline entire industries, without passing any explicit laws, it was a way to marginalize disfavored industries through the banking sector. And now it's very clear to anybody that works in the crypto industry that something similar is going on, although it may not be as coordinated.

So this series is designed to get to the bottom of this. Now, we're starting with Canada in this episode. So in Canada, crypto firms have had a pretty hard time getting, banking relationships. It's not necessarily, again, due to policy at the government. There's not really any laws you can scrutinize saying, hey, banks don't do business with crypto companies. It's typically a function of incentive structures in the bank sector and, of course, some centralized entities that are importing policy from the U.S. So to discuss this topic, we have Amber Scott. She's the founder of Outlier Canada, which is an AML consulting firm. So Amber really deep

deeply understands the crypto industry and the structure of financial regulation in Canada. So she's the perfect person to explain to us how this system works and why exactly crypto firms have such a hard time getting banking. This is going to be the first of money. I'm really excited to do this series. I think it's a totally underappreciated and undercover topic. Let's dive right into the episode. Brought down by bad mortgage investments, Lehman, which has 25,000 employees will be liquidated.

The federal government loans American International Group, AI, IG $85 billion. This is a different kind of market, and the Fed is asleep. The federal government is stepping it to stabilize Fannie Mae and Freddie Mac, the two mortgage giants that have been threatened by the housing crisis. The Bank of England has pumped 75 billion pounds more into Britain's ailing economy with a new round of concentrated easing. You print a couple trillion dollars, and all of a sudden, people start to worry.

So out of this worry, we have something called the Bitcoin. Amber Scott, welcome to the show. Thanks for coming on. Thanks for having me. I think we met in person. It was in Riga at the Baltic County Badger Conference was the last time. Fabulous conference. I miss in-person events so much. That one was really special and really great. Yeah.

And I know it's been a whole year. The last conference I did was the MIT Bitcoin Expo in March. And even that one, I probably shouldn't have gone to. But we chanced it. I feel that way about Satoshi Roundtable, and that one was in February, and we went and it was phenomenal. Yeah, I have no regrets about it, but I think it was my first real inkling that what was happening from a pandemic perspective was probably bigger than I realized. Yeah, the first thing I heard about it was, or when I realized conferences were maybe questionable was I think after Eith, some Ethereum conference, in Paris maybe and like a ton of people got sick. And a bunch of people posted on Twitter that they got sick, like really badly sick.

There was like a terrible flu going around. And then they realized that it was COVID. And it had been kind of a hot spot. That theorem conference. I think that was in late February. And yeah, I guess we haven't had any conferences since then. But hopefully we can resume next year

and meet up again at one of them? I hope so. So outlier Canada. Tell me a little bit about your firm. We're essentially compliance nerds, which in short form means that we try to keep people out of trouble. We work with regulated financial businesses and our practice is primarily anti-money laundering

and privacy compliance. And are you exclusively focused on Canada or just primarily focused on Canada? We are exclusively focused on Canada. I feel like compliance is really like speaking a language. And it's one thing to say, so I speak English and French and Spanish. I can do business fairly effectively in English and French. But if you asked me to write a contract in French, I would struggle.

If you asked me to read a contract in Spanish, I would struggle. And if I told you that I spoke all of the languages in all of the world, you would tell me that I was absolutely full of it. And this is how I feel when people say that there are global, compliance professional and they know all of the AML in all of the globe. There's no way to do that effectively. You really have to understand what the regulators from each jurisdiction are looking for. And what they mean when they say the specific words, both within regulation and within guidance, it's never straightforward, unfortunately. I wish that it was. I wholeheartedly believe that if we get it right, eventually, my job can be obsolete. And then I'll go solve a different problem.

So tell me a little bit how you work with financial services companies. What sort of engagements do you take with them? We do audit work, so compliance audits, not financial audits. We design policies, procedures, risk assessments. We do training both for frontline staff and compliance officers. And if there's a remediation that needs to be done, so if another auditor or a regulator has said, hey, you need to fix your program, then we can assist with that.

And you're obviously, you know, very attuned to the crypto industry. What fraction of your work would you say is with crypto firms directly? It ebbs and flows. Certainly in the last year, we've seen more crypto business than normal. So I would say we're probably at about 40% right now. I had to just guess off the cuff. So this is the first episode in what is hopefully a very exciting and dare to save an explosive series that we're running on the podcast. Basically, the objective is to demystify the relationship that banks have with crypto firms.

And it's an open secret in the industry that basically it's very hard as a crypto business is an exchange, any business that touches crypto. to actually get and retain these bank relationships and to get a fair treatment from banks. So that's the premise of the whole series. We see it in our portfolio. All of our entrepreneurs have issues. They had much worse issues, you know, five years ago. And so a lot of people think it's getting better and it is to a degree, but it's still not optimal. And there's a long history in this country of banks treating certain industries in a disfavored way.

So, you know, it's not a secret that this happens. And so my objective here is to basically get to the bottom of it, which is, you know, I think you're a subject matter expert and you can maybe tell us a little bit about the situation in Canada specifically. So maybe to get the lay of the land, tell us a little bit about the banking food chain in Canada, what the major players are. I think there's sort of six major banks in Canada. Is that right? Five or six, depending on how you're counting. Some people will say big five. Some people will say big six. But those are federally chartered large banks. We also have the credit union system, which is regulated. There are actually now both federally regulated and provincially regulated credit unions. All of those from an anti-money laundering perspective will deal with Fintrack, which is the financial. transactions and reports analysis center of Canada. And the federally regulated banks also have OSFI as a prudential regulator. So OSFI is the Office of the Superintendent of Financial Institutions. For credit unions that operate provincially, there are also additional provincial regulators,

and I won't name all of those, but they do exist and have a similar function to OSFI. So it's a relatively small and insular system. One of the things that I think is interesting is that as Canadians, we often look to the U.S. as a harbinger of things that will likely be coming down the pipe in Canada because I think our financial system is very much influenced by the goings-on in the U.S. And we look at the policy of those big banks. as being very influential in terms of what's happening in the rest of Canada. And part of that is because they're providing underlying services to other smaller regional banks

as well as to credit unions. And so, for instance, if BMO, which is the Bank of Montreal, BMO provides a lot of correspondent banking services to smaller Canadian financial institutions. So if BMO decides that a particular jurisdiction is too risky for them to deal with at all whatsoever, then you're going to see a lot of the other smaller banks, a lot of the credit union system also not being able to deal with that country or jurisdiction or industry, as it were. So on that last point, I mean, just broadly, what is your view of the experience of crypto firms as it pertains to getting banking? Do they kind of structurally have issues?

Absolutely. Of those big banks, there are two that provide accounts for money service businesses, which would include what we've termed in Canada as dealers in virtual currency, so crypto companies. And for those that are listening with rapt attention to find out exactly which those are, they're BMO and RBC. There's also TD, so Toronto Dominion Bank, which provides operating accounts, which are accounts that you can use to pay your taxes and employees, but you can't actually use them to transact with clients or they will close them relatively quickly. There are a few, a handful of smaller banks and credit unions

that provide some services, and those tend to be relatively limited. Part of that issue is that there's a company called Central One, which is a private company, so they're not a government agency, they're not a regulator, that provides back-end services for credit unions. So think about them as kind of being sort of like a central bank, but really more of a service provider for the credit union system. And they came out with an edict in 2018 where they said that dealers in virtual currency and money service businesses generally were considered to be ultra high risk. And well credit unions that use Central One services, which is a vast swath of Canadian credit unions, could theoretically open accounts for money service. businesses, they couldn't use them to do things like electronic fund transfers or international

wires. And so from a crypto perspective, even if you can get an account that you can use to write checks and maybe deposit some cash, it's probably not incredibly interesting for most businesses, which are going to be online and electronically focused and wants to deal with suppliers maybe that are that are outside of Canada. So really looking to be able to do those types of transactions like international wires. I think that it's difficult as well with the financial institutions that do open accounts for crypto companies. We're going through a process right now with a client with one of those banks. And we've been told that we should expect a three-month lag in terms of when we get every scrap of documentation in that they need to when

they have a decision about whether or not they're going to open an account. And at this point, the client has paid about $2,000 to the bank as an application and screening fee. So there's a lot of costs that are associated with that with no guarantee of an outcome, which is incredibly different from when I walk into a bank for my business. And I'm annoyed if it takes more than an hour, because all of my paperwork is in order to get a new account open and just move on with my day. So it's an incredibly different landscape as soon as you're dealing with crypto or MSB business. Right. And so, you know, even if you do get over those hurdles and you can obtain a banking relationship as an MSP or a crypto firm, you then have a slightly potentially impaired experience or things are just more costly for you?

Is that kind of the case? So both of those things can be true. Part of the experience is that you're going to pay most likely a monthly screening fee. You're going to pay higher monthly fees than any other type of business account that I'm aware of. So that's definitely something that you have to factor into your cost model if you're a startup. The other part of that is that you're going to get all sorts of information requests. some of them are going to seem like they're a pretty big privacy overstep. And frankly, I think that some of these are privacy oversteps.

We've actually had a particular banking partner that was asking for money service businesses that were banked with them to give them copies of all of their suspicious transaction reports. So the Canadian equivalent of SARS in the U.S. that you would submit to Finsen. And they were asking for copies of all of these reports that they were. regulator themselves has said, no, these reports are highly confidential. They're protected, and you shouldn't just be willy-nilly submitting them to various other partners. They should come to Fintrack for that purpose point final. So there's actually a policy position that's published now to say, don't do this. But these are the types of things that are quite common. And often

our crypto and MSB clients find these requests a little bit asinine because you might get a request for information for information from person A in your bank, and then you might get the same request two months later. Right. And the bit about that is that you're vulnerable. At any point in time, if you are a jerk to that person who's asking for the information, that's something that goes on your file. So even though these are repetitive and they're asinine and they're a big time suck to go

through and answer all of them as you should, which is in clear language. in full sentences, they take time to respond to. But each time, you have to treat it as if it's a wholly new thing, answer it completely, treat the person well who's asking you those questions, or you're at risk of having your account unceremoniously closed or de-risked, as we like to call it. Yeah, the euphemism always gets me. You know, it's, you're not being deplatformed or deprived of financial services. You're merely being derrised as if that makes it any better.

Yeah. In terms of the justification for banks imposing these extra steps or being leery of MSBs, I mean, would you say that's warranted or it's, you know, despite the additional risks of interacting with MSBs and crypto companies, it's still, you know, is somewhat excessive. I think that, frankly, the MSBs that are going to be ultra, ultra risky probably aren't going to declare themselves as MSBs, to be really frank. They're going to set up different company structures and carry on the business

without having a compliance program, without filling out the 15-page bank application. They're going to self-identify as flower shops, or whatever other low-risk thing can very easily open an account and carry on with their days. So I think that that's probably your highest risk segment of MSBs and crypto companies. They're not the ones that are going to register with a regulator and take the time to try to figure out what they're doing. I do think that in certain ways,

there is more risk or at least equipment. risk to banks. I actually think that in a lot of cases, these companies are lower risk when they're very well developed internally in terms of their own risk management processes. But I do think because there's a very small perceived cost to start up some of these companies, it's something that we've seen where there's someone that wants to do a startup. They have no financial experience. They have no technical experience. They have no real sense, even what to do, to protect themselves from a fraud perspective, but they have a dream and they want to start these types of companies.

And I think that in certain ways can make these companies more risky simply because there isn't the resources in some of these cases to do risk management right. That said, I've seen very small companies handle risk management incredibly well and budget for it and think about it and run a very tight technology-enabled ship. So it goes both ways. I don't think I would say across the board that MSBs and crypto companies are deserving of being considered ultra high risk. Right. In terms of quadrigae, that's actually not the only exchange in Canada that failed. Did that have an effect at all? I mean, did that cause crypto firms to be treated with even more suspicion? I think it did, and I think it certainly caused some of our regulators, particularly on the security side of the house, to sit up and take notice and try to figure out if there was any way

that they could potentially intervene and come up with requirements that would apply to crypto companies that would prevent some of those things. Quadriga is interesting as well because it existed at a time where crypto exchanges didn't have to be registered with FinTrack. They did register with FinTrack for a period of time, but they weren't required to do so, and they actually, I think, let that registration lapse or cancel it. But it wasn't necessarily that they were all that much offside with financial regulation when you look back at it as much as they were just committing good old-fashioned fraud. They were taking user assets and misappropriating them.

I, from what I recall, and I'm not an expert on Kodriga at all, but I believe that they also suffered fraud from payment processors that they were using. I don't know if that is completely accurate. Wasn't it the case, you know, because they had, you know, virtually no banking relationships, they were sort of forced to use these really shady payment processors as well that they, that they that they were the victims of fraud from themselves? Yeah, so there were some shady payment processors. There were some payment processors that I wouldn't have before reading the case with the

CIBC funds have considered shady. So you had a payment processor that was using his own personal accounts to move certain funds. And then the bank, which was CIBC, had just entered those funds into the court to decide whose funds they were because you had Codriga saying these are our funds. and the payment process are saying, no, there ares. And they were in a person's personal account, which is something that shouldn't happen.

But I think this is one of those effects of derisking, where suddenly you have companies that are legal, legitimate businesses, and Quadriga, granted, is a bad example because they would think fraud. But quite frankly, I think that even in the case of Quadriga, if they had been able to bank transparently, So let's say de-risking didn't exist. Quadriga could have just directly had an account with CIBC or whatever bank they chose. That bank would have observed suspicious activity much sooner than we actually saw it.

You wouldn't have the pieces that you have where users in the crypto community are kind of going, yeah, okay, you know, it takes five weeks to get a wire and it's coming from, you know, half of it comes from a country in Serbia and half of it comes from a company. in Poland, but, you know, big shrug, it's crypto. We don't have that in other industries. So if I, you know, for instance, if I was selling gold or if I was selling anything else, and all of a sudden I'm getting these wires from jurisdictions that just are nowhere near where I am or where I perceive the buyer or vendor as being, that would be a huge red flag.

Yeah. But it isn't in this crypto world. We're so used to all of these shady things because there isn't this clear transparent access to banking. So because crypto firms are siloed off and they're sort of shunted out of the actual financial system, they're more opaque and they're kind of harder to reckon with. That's such an interesting point on the trajectory of Quadriga. I mean, you see this as well with, you know, dare I say tether, you know, that 850 million that they lost, I think, was due to a shady payment process. or that defrauded them. They should never have had to use.

Right. They shouldn't have had to use. There's no world in which I can figure out this is a legitimate company that has $850 million that they could deposit with you that as a bank, you can't figure out an appropriate fee structure and management of that risk. So we have, well, some of these businesses

are less than legitimate and some are legitimate, but we have crypto firms that are forced to look for these kind of gray market alternatives and just in terms of satisfying basic payment processing because they're kind of structurally excluded from these relationships. Absolutely. And the crypto companies suffer for it. The users, at the end users suffer for it because those services aren't just gray market services that are charging normal fees. Usually you get into what's called high risk payment processing. And if it's considered to, be high risk, then you're paying a higher fee for that as well. And that's passed on to you and me

and everyone who's buying crypto from a company that's been forced to use this alternative system. So zooming out a little bit, would you say the reluctance for these major banks, the big five, big six, to really engage with crypto firms? Is that a spontaneous thing that, you know, the banks themselves have come up with? They just happen to have. have the same policy or is that more top down? I mean, is that coming from the, from regulators at the top? There's always a degree of it coming from regulators. There's always a degree of it coming from correspondent banks. So there are a couple of things at play. Any time that something is identified as a risk area by the Financial Action Task Force or FATF, then all of the banks

globally are looking at it and saying, okay, do we understand this risk? How are you managing this risk? are we doing with it? There's also what happens from the regulators directly and from law enforcement directly, both what they're saying formally and what they're saying informally. And what I mean by formally is that regulators will issue all sorts of guidance and notes. Sometimes those are in conflict with what's happening on the ground in examinations, in conversations with banks and credit unions and different types of financial institutions. And this is something that we see fairly clearly in Canada on the MSB front. We did an access to information request with Fintrack just to ask them, hey, what's your policy when you examine financial institutions in terms of

what you expect them to do from an MSB perspective? What are you asking them in examinations? And formally, they didn't have, it wasn't part of their list of questions. to ask about money service businesses. Practically, because I also deal with bank and credit union clients, and sometimes I'll sit exams with them, what we observed was that in 100% of those exams, one of the questions was, do you deal with money service businesses? And now they would add to that,

this includes Bitcoin exchanges and dealers in virtual currency. And if the answer is no, one of the things that commonly comes out of the examiner's mouth is good, which I find grotesque. And if they say yes, the next thing that the regulator is saying is, okay, give me a list of all of the MSBs that you deal with. We're going to pick a sample of those or maybe we'll look at all of them. And we want to see the enhanced due diligence. So what you would do for your customers that you deem to be high risk for the sample that we select. Now, there's an assumption there that all of your money service businesses are going to be high

risk and that there's no room for any type of nuance there, which I find particularly interesting. But I also found it really interesting that this wasn't disclosed as being part of the normal set of questions, but it was happening with such a high frequency. So I do have some empathy for the banks in this regard. And I think that you deal with things that are similar in the U.S. in that at the same point that Finson came out with some guidance notes that was talking about not just wholesale derisking all money transfer organizations and money service businesses, but looking at it with a more nuanced of view.

And it was a beautiful piece of guidance that came out on one hand. So here's your formal piece. And at the same time, there was a leak where it was revealed that in certain states they had pulled. hold a list of all of the regional banks and credit unions known to be servicing money transfer organizations, and they got examinations. And those examinations were partly focused on the measures that they had around these high-risk clients. So I think that there's a really important distinction between what the regulators are saying publicly, that piece of tone, and what financial

institutions are experiencing. And frankly, as a former banker, banks and credit unions will share those experiences amongst themselves. So where you get policy that tends to be very similar is that if you have five of your colleagues saying, yeah, we had examinations last year, they just went to town on all of our files about these crypto companies. And now we have all this big expensive remediation that we have to do and we have to figure out how to handle it, you might find your colleagues with less resources looking at it and saying, you know what, if this big bank isn't appropriately resourced to deal with it, maybe I as a smaller regional credit union or bank just don't have the resources to deal with it. And maybe it doesn't make sense for me to try to do that.

That's fascinating. So there's a distinction between what regulators are explicitly saying in their guidance and then it's a little more insidious the informal the engagements they have with these financial firms on the ground and their general attitudes that come through and this actually shapes behavior and it's not necessarily the public statements absolutely and you can within the context of an examination have a certain degree of pushback so you could turn around and point at the public statements and make arguments as far as the examination and your results in an examination goes, there's always a certain reluctance on the part of a regulated entity to do that. So you generally want your examinations to be relatively jovial.

A degree of pushback is expected, so there should be a degree of back and forth in clarification, but no one wants to get into an all-out fight with a regulator. I think the other side of that that folks are generally reluctant to talk about is what's really the motivator for a bank or a financial institution to go to bat for one of these businesses. Even if I'm making a couple thousand dollars a month in fees from an MSB client, if that's the thing that's causing tension in my regulatory relationship, maybe that's not worth it. Yeah. And in particular, maybe that's not worth it for a business that's doing some activities that directly compete with some of the activities that I do. So you hinted at this before, this kind of import of regulations from abroad.

And in particular, Canada, someone entangled with U.S. regulations and making attitudes. and you mentioned this shadowy institution known as Central One, which the name really kind of cracks me up because it's sort of like the complete opposite of decentralization. It's the Central One. So tell me a little bit more about the influence of Central One and, you know, how this pertains to banking activity in Canada. Sure. Sure. So they serve the credit union market. They provide sort of back-end services. So anything to do with the movement of funds, with foreign exchange, some linkages to systems. They're often the plug-in to the SWIFT network. So when you send a wire, that's what they're using. So essentially like a correspondent banking type service, as well as a number of other different things. So they have. some risk and fraud management type services as well.

And where they're really influenced, I think, by U.S. policy is in that correspondent banking piece. And this is true with federally regulated banks and their correspondence as well, in that anything that has a U.S. dollar touchpoint goes through New York. And the correspondent banks that deal with that in the U.S. can push policy out to say that if you're going to use our network. If you are going to have access to the U.S. dollar market, which for Canadians, the U.S. is our neighbor. It's our biggest trading partner. It's really hard to be a financial institution in Canada and not have access to a U.S. dollar market. So there's a tremendous amount of power there. But if you want access to that U.S. dollar market, then you must follow

whatever the edicts of the day are. And some of those might be relatively benign. So, one of the things that comes up fairly often from correspondence, including, you know, including services that are pushed by Center 1, is that you might want to scan the OFAC list, for instance. So there's an expectation that you're scanning a U.S. specific sanctions list. It might be that you can't deal with specific jurisdictions that the U.S. has sanctioned, but Canada hasn't. And I think the most interesting example of that is always Cuba. And for context, as Canadians, we've never had an embargo against Cuba. We can travel freely between Canada and Cuba.

It is a really common Caribbean vacation destination for Canadians. And so there's a ton of resorts there and Canadians go to them. Really, you know, nice and expensive vacation for us. But it is impossible right now for companies that do remittance to Cuba, and it's a very remittance dependent country. It's impossible for a Canadian company that wants to do remittance to Cuba to be banked in Canada. So all of the banks have said Cuba is not a jurisdiction that we deal with from a remittance perspective. And even companies that do certain goods trades with Cuba have been derrised in the Canadian financial system.

I know more than one company that's just left Canada altogether and now operates from another jurisdiction that I won't mention as a foreign money service business. So they're still serving the Canadian market, but they don't have operations here. They don't have banks here. So literally businesses have left and found a way to serve Canadians as a foreign company. Wow. So Central One is importing kind of American financial attitude. and sanctions to Canada, what's their attitude towards crypto activities

and how did that affect the credit unions? As far as crypto activities, it's something that they consider to be ultra-high risk. Credit unions are generally discouraged from dealing with crypto specifically, MSBs more generally. They are not permitted if they have Central One as their backbone.

to send any wires or electronic fund transfers on behalf of those types of companies. So it's really kind of an ugly situation. And most credit unions in Canada have just taken the position that they don't want to deal with it. It's too much of a hassle. It's not a fight that they want to have with their major and powerful service provider. And so I would say that probably the vast majority, if I had to ballpark it, certainly well over 95% of Canadian credit unions don't deal with these types of companies at all. So I guess to kind of summarize, we have a very tenuous situation, Canada, as it pertains to crypto firms, getting access to banking.

That said, certain exchanges, you know, and crypto companies do have access to banking, although their options are kind of limited and most likely it's more costly for them. What do you kind of expect the prospects to be on a sort of go forward basis? Do you expect anything to change or is this kind of what we're in for? I think unfortunately for the foreseeable future this is what we're in for. I see it slowly getting better and there have been some really promising legal developments. There was a case in in Quebec where a money service business sued their bank after they were de-risked and ended up actually having to close their business. And they were successful in suing the bank.

And the amount of money is trivial from a bank perspective. But I think the piece of that that ends up being important is that the judge in Quebec had said part of where the bank erred is that the company that was being de-risk shouldn't have just been told, hey, we think you're risky. you have 30 days of restricted activity to find another bank, see you later. But they should have been told exactly why they were being de-risked. They should have had the opportunity to cure that, if you will. So they should have been presented with, here's a problem.

Here's what we think is happening. We're not comfortable with how we perceive this activity. Can you explain the activity? And the bank is actually appealing that. So we're currently all of us who geek out over this stuff, waiting with bated breath to see the Quebec judge's decision in terms of the most recent appeal because the bank had fought that decision to say,

no, we don't think we should have to do these things. We think just this year too risky, see you later, you have 30 days letter should be enough. And this is one of the things that's been pretty fascinating. There's another case in Quebec where a money service business was de-risk. And it's been published publicly where there was one of these audits,

so these effectiveness review reports. And the report had said, well, you know, the MSB is substantially compliant with all of their requirements. And that was something that they used when they fought in court against the idea that they would be de-risk. And the judge had said,

essentially to the bank, do you disagree with this report? Do you think it's wrong? Do you think there's something characteristically off about it? No. So they're substantially compliant, reinstate their account. And that was also in the province of Quebec. So I'm hopeful based on developments like that. Well, looking forward to see the outcomes there. Did you, I know we were talking about it before the call. So this interesting release from the OCC, not Canada, of course, but I really found this to be quite surprising actually that the OCC would say banks basically shouldn't de-platform entire industries and should be generally fair, which is clearly a rejoinder to some of the ugliness that we saw with

Operation Chokepoint back in the day where whole industries were just kind of structurally de-platformed or had their access to bank services limited. So I was super excited about this? I don't know if this is going to become policy. I saw it and I would love to see it become policy. As a Canadian, I think we often look at the U.S. as a harbinger of what's going to happen and what we might see coming up from a policy perspective in Canada. I also think from an international perspective, the U.S. has tremendous influences in forums like the FATF. And so I would love to see that become policy in the U.S. I would love to see it be successful in the U.S. and spread globally because quite frankly, access to banking shouldn't be the biggest

barrier to entry for a legitimate business into an industry. And that's where I think we stand right now with crypto. It's not, have you figured out technology or security or the financial model? It's can you open a bank account and carry on your business with some kind of continuity? And the thing that gets me is the banking is not a free market. I mean, you cannot freely enter into the bank industry. It's highly regulated and highly controlled in terms of entry. So if the banks are misbehaving, there's no market alternative there. I mean, you have to get a bank charter.

And you can only really do that at the behest of the state, although I don't know exactly how it works in Canada. But so that's really my issue with this is that if it were a free market, then there would be an opportunity for, you know, entrepreneurs to kind of arbitrage away that sort of, you know, if banks weren't platforming crypto companies, then there'd be an opportunity to be, you know, the crypto bank and to profit from that. But that is not the case because it's so difficult to actually start a new bank. It really is. And I've answered that question so many times that I actually wrote an article

about it that I think I cheekily called something like why your rich friend doesn't just start a bank. but it's your fee for entry, if you will, is that you have to have all of your executive team, they have to be approved by the regulator. You have to have millions of dollars that are there strictly for the operation of the bank before you ever deal with your first customer. And I think the floor for that is something like $25 million, and you're probably not going to get a return on that investment for a relatively long. time the way that the regulatory structure works. And so if you have $25 million to spend,

unless you're really, really passionate about this issue, that's probably not how you're going to choose to spend it. Right. Yeah, that was why I was so excited about the SPDI in Wyoming was because that barrier to entry had been lowered somewhat, although, of course, the requirements are still fairly robust and and you know crack and was able to do it because they had the backing of a large institution and and kailin long was able to do it because she's incredibly passionate about this issue and was able to raise capital um but i am hopeful that it becomes easier to start a competing institution because clearly there's gaps in the market here where the banks just aren't are you know they're sort of excluding kind of whole industry sectors unfortunately

Absolutely. And I think once those institutions are there and they're having financial success, they're attracting customers, they're having successful regulatory exams, that you start to see these things. And if I'm if I'm not mistaken, this is actually something that happened in the U.S. once, I believe it was a smaller regional bank that had banked Coinbase and became just incredibly profitable. And that started to generate interest from some other. banks that we're looking at it and saying, ooh, this is quite profitable and you seem to be passing your regulatory examinations. Maybe we should also look into this as a type of customer that we would consider. Right. Yeah, now they have JPMorgan, which is huge. And the other bank that really has done a lot with crypto in this country is Silvergate. And they're publicly traded. So you can see their prospects getting brighter alongside the crypto industry as they get more and more deposits in the door. So maybe that will be beacon to other banks because it's still a relatively small number of banks, Silvergate, Metropolitan signature are the main ones that are servicing

crypto companies. You know, JPMorgan only does Gemini and Coinbase, I believe. So it is still a limited menu in the U.S. where banks, where there's meant to be more dynamism in banking. But there are some. There are some options, which I think is certainly better than no options, and it's just a matter of looking at how we expand those over time. I honestly think that one of the things that we can do better on as a crypto community is demystifying things and making it less complicated. So a huge thank you to all of the people that are doing education work, presentations, videos, everything like that. Because I think part of the issue that banks deal with is that when it comes to their regulator and the regulator is doing an exam, they have to explain

who this client is and what the activity is. So if that's part of the sample that gets picked and I can't explain in a sentence or two what your company is doing, that's a problem. As far as bank applications, one of the things that we always recommend is to have a three to five page business plan that just talks about how does money go in, how does money go out, what are you doing, who are your customers? Why is your management team qualified, which sounds silly, but it's incredibly important and just very short, snappy with a few diagrams, not a 50 page pitch deck because no one who is in a stressful situation sitting there in front of a, their regulator with pressure to explain what your business is has time to digest your pitch deck. They want something a grade 9 student can understand. That makes perfect sense. Amber, how would you recommend people follow you?

I'm on Twitter at Outlier Canada. I'm relatively easy to find on LinkedIn, and our website is outlier Canada.com. Well, this has been very educational. I feel like I understand the Canadian bank environment much better than I did before. thanks so much for coming on. It's been a pleasure. Thank you for having me.