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It took two years to build the infrastructure, but on September 16 the Wyoming banking division finally got a major pioneer.
It was then that Kraken Financial became the first entity to receive a Special Purpose Depository Institute (SPDI) card in Cowboy State, providing the cryptocurrency industry with insights into how long it takes to become a bank. It is also the first newly established (de novo) bank approved by the state since 2006.
While Kraken Financial still has some hurdles to overcome before it has a certificate of authority to operate, Wyoming is racing to maintain its lead in the digital asset space. And it’s a priority shared by the state’s highest elected official, Wyoming Governor Mark Gordon.
The biggest challenge going forward for state leadership in the blockchain space will be seeing how the federal government responds to the regulatory framework the state is creating, Gordon told CoinDesk.
The Wyoming SPDI card may still be impacted by future decisions by the US Office of the Comptroller of the Currency (OCC) on national banks protecting cryptocurrencies and other decisions made by Congress in response to large projects like Facebook’s Libra.
“We don’t want to wait for an MIT or a Facebook to do something,” Gordon told CoinDesk in an interview. “We really do have the opportunity here.”
“I’m really grateful that Kraken looked beyond Los Angeles and really understood that a small, business-friendly state and a big tax environment was the place to bring new innovations,” said Gordon.
Promontory Financial, a state-owned and prominent consulting firm based in Washington, DC, is taking advantage of current Federal Financial Institutions Examination Council manuals such as the Bank Secrecy Act. This includes a guide for bank examiners on how to question banks that manage digital assets.
Read more: Kraken becomes the first cryptocurrency exchange to found a US bank
“Even though we knew early on that we had supervision manuals available from federal agencies and our internal procedures, no one really combined the two,” said Albert Forkner, Wyoming Banking Commissioner. “He could send a 500-page document.”
After the first round of reviews, the manual will be revised to ensure consumer protection without stifling innovation, Forkner added.
The Wyoming Approach
Forkner said the Wyoming Division of Banking will work to ensure state law isn’t too dissimilar to what the federal government will do in the future so Wyoming doesn’t cause confusion for banks.
The level of visibility the SPDI Charter is giving to Wyoming is significant, Forkner said. The state does not have the presence of foreign banks and not many branches of other state banks. Of Wyoming’s approximately 30 state-owned banks, most hold less than $ 1 billion in assets.
“If you think of traditional banks, unless you are a niche bank, they all have similar businesses,” Forkner said. “These companies have different markets and targets”.
Among traditional bankers, there isn’t much attention to the SPDI card because it’s a special institution, said Silvergate CEO Alan Lane. (Kraken is a longtime Silvergate customer.)
Read more: What it takes to get a Crypto-friendly bank card in Wyoming
“It doesn’t get many titles because there’s no FDIC insurance behind it,” said SPDI’s Forkner. “Everyone who is interested in digital assets recognizes the Kraken name and Kraken has various licenses around the world.”
Having more banking options in space will mean investors and crypto companies won’t have to worry about being less risky in the future, Lane said.
“Access to the Federal Reserve wire transfer system is one of the differentiators for banks and one of the reasons why fintechs and cryptocurrency exchanges need banking partners,” Lane said. “Most of the players in this ecosystem, especially if you’ve been in it for some time, want to have diversity, they want to have redundancy in their banking partnerships.”
Limited scope
The SPDI will not compete at all levels with Silvergate due to their inability to lend, Lane added. While the cryptocurrency industry will have completely confidential banks to turn to, Kraken and new entrants like Avanti will not be able to offer products like SEN Leverage, a bitcoin-backed lending program that Silvergate has just finished piloting.
While the SPDI wait for the Federal Reserve Bank of Kansas City to determine whether it will provide the newly established banks with the main Fed accounts, Silvergate is willing to work with the de novo banks on payments.
“About a year ago, we started a correspondent bank effort to work with other banks that provide cryptocurrency-related banking services in other countries,” Lane said. “It is certainly possible that we can help them get started.
Broader goals
The Wyoming SPDI card could play a role in new financial innovation in the state at a time when the state has been economically depressed.
Gordon said he believes digital assets could play a role in funding environmental sustainability efforts. For example, blockchain could offer a better venue for trading carbon credits, which are tokens that give companies the right to emit a certain amount of carbon.
“One of the challenges we’ve seen on the West Coast this year is that energy markets have started to collapse a bit because people have become very possessive,” said Gordon. “There is an opportunity for [blockchain] innovation in a renewable world where you can start selling energy and recovering energy “.
