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SoFi Technologies Inc., a financial services company, has decided to exit the cryptocurrency sector due to increased scrutiny by banking regulators.
On November 29, the company announced that it would terminate its cryptocurrency trading services for users by December 19. The company informed its crypto customers that they would need to liquidate their accounts in the coming weeks or migrate to the crypto exchange and wallet provider Blockchain.com.
$SOFI announces they are exiting crypto. pic.twitter.com/cz1HXPhg5K
— Michael McQuaid (@michaelgmcquaid) November 29, 2023
They will also be suspending new crypto account openings immediately as their existing SoFi crypto users migrate their accounts to Blockchain.com or close them.
Customers residing in certain states, including Hawaii, Louisiana, New Jersey, Nevada, Tennessee, Texas, and Virginia, must liquidate unsupported altcoins through Blockchain.com before transferring accounts.
Additionally, SoFi crypto clients in New York are required to close their accounts by January 2024 due to the unavailability of Blockchain.com in the state. The decision to end crypto services at SoFi does not impact other SoFi Invest offerings, including brokerage accounts and Individual Retirement Arrangements (IRAs).
SoFi, which began as a student-lending refinancing company in 2011, expanded its services over the years and entered the crypto space in 2019, allowing users to buy and sell Bitcoin, Ethereum, and Litecoin directly through its app.
In its latest earnings report, SoFi revealed that it held $139 million worth of Bitcoin (BTC), Ether (ETH), and other altcoins in clients’ deposits, marking an increase from $107 million a year earlier.
The decision to work with Blockchain.com, a cryptocurrency financial services firm, was attributed to their long-standing work in the crypto industry. Blockchain.com reported tens of thousands of users migrating to its platform in the first hour following the announcement, expecting to welcome hundreds of thousands of customers and hundreds of millions of dollars.
Joseph Otting, independent director at Blockchain.com and former U.S. Comptroller of the Currency, commented that SoFi’s choice is a testament to Blockchain.com’s commitment to security and innovation in the financial commerce sector.
He added, “This collaboration will open new doors and opportunities for SoFi members, providing access to a broad range of digital tokens and advanced trading features.”
SoFi Faces Regulatory Challenges, Decides to Cease Crypto Operations Amidst Uncertainties
SoFi’s announcement comes amid increasing regulatory scrutiny in the U.S. cryptocurrency industry following actions taken by the Securities and Exchange Commission (SEC) against major exchanges like Binance and Coinbase.
SoFi’s decision is attributed to regulatory guidance from the Federal Reserve Board, which granted SoFi a bank charter in January 2022. The Federal Reserve had determined that certain crypto-related activities conducted by SoFi Digital Assets, LLC, were not permissible for a bank holding company under the Bank Holding Company Act and Regulation Y.
Despite the determination, SoFi was allowed to continue its crypto operations for a limited period, with the possibility of extensions. However, the company has decided to cease its cryptocurrency services amid increasing regulatory scrutiny in the U.S. cryptocurrency industry. This move follows regulatory guidance from the Federal Reserve, which introduced a “novel activities supervision program” in August, imposing stringent requirements on how banks engage with emerging financial technologies, including cryptocurrencies. SoFi is seen as the first major financial institution to exit the cryptocurrency space due to the Federal Reserve’s heightened scrutiny.
The Federal Reserve’s program, aimed at supervising relationships between banks and cryptocurrencies, appears to have influenced SoFi’s decision to discontinue its crypto services. The regulatory guidance became particularly relevant after SoFi received approval as a bank holding company earlier in the year. The company expressed concerns about the growing strictness of the Federal Reserve’s requirements for crypto-related activities over time, leading to the belief that full approval for their crypto business was becoming increasingly unlikely.
Additionally, SoFi highlighted concerns about the Securities and Exchange Commission’s (SEC) proposed adjustments to Regulation ATS and the Exchange Act Rule, which could impact the classification of crypto exchanges.
SoFi’s move to exit the crypto business echoes a broader trend, with Metropolitan Commercial Bank also deciding to exit its crypto business in January. Regulatory developments and changes in the environment regarding banks’ involvement in crypto-asset-related businesses are cited as key reasons for these exits.
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