Coinbase has gotten the FDIC to release documents about the de-banking of crypto firms

What’s new? Coinbase, the chief legal officer of leading US centralized crypto exchange (CEX) Coinbase, Paul Grewal announced the issuance of an important court order in a case against the Federal Deposit Insurance Corporation (FDIC). Coinbase filed a lawsuit against the FDIC in July, accusing it of violating the Freedom of Information Act (FOIA) and attempting to cut off the crypto industry from the banking sector.

Source: X.com

What else is known? According to the lawsuit, the FDIC refused to provide the exchange with internal documents related to the cryptocurrency de-banking operation — specifically, so-called “pause letters” that the regulator sent out from March 2022 through May 2023 to certain financial institutions.

They contained requests not to expand the cryptocurrency business. Banks were allegedly instructed to limit deposits from crypto firms to 15% of total deposits.

According to Coinbase, the FDIC unilaterally imposed these deposit limits without providing a public comment period on the new measures, which is required by US law.

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The operation has been unofficially dubbed Choke Point 2.0. in the crypto community — a reference to the campaign launched in 2013 by the US Treasury Department against banks to combat illegal transactions.

Under FOIA, the public can petition federal regulators to release internal records in whole or in part, but Coinbase was denied review of those letters — the FDIC said their public release would disrupt the regulator’s interactions with banks.

Under the new court ruling, Grewal said, the FDIC was ordered to suspend action on the campaign to de-bank crypto firms and release related internal documents. Grewal called it a significant step toward regulatory transparency.

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Coinbase also filed a similar FOIA non-compliance lawsuit against the Securities and Exchange Commission (SEC). In that case, the regulator refused to provide documents related to an internal investigation into the status of the Ethereum (ETH) native token as to whether it is a security or commodity after the blockchain’s transition to the Proof of Stake (Pos) consensus algorithm in September 2022.

The commission also did not provide documents about already completed investigations against encryption startup Enigma MPC and entrepreneur Zachary Coburn with his Ether Delta crypto trading platform, which could also shed light on the SEC’s stance on ETH.

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Coinbase believes that the intentional withholding of documents is designed to prevent the exchange from understanding the basis on which the regulator attacks the industry.

These lawsuits are part of Coinbase’s campaign to clarify crypto regulation in the United States. As the largest local exchange and custodian for most bitcoin and Ethereum-based spot exchange-traded funds (ETFs), Coinbase is committed to complying with the necessary regulations, but many of them are still unclear.

In an effort to understand how crypto firms can operate without violating securities laws, Coinbase has been petitioning the SEC to clarify this point, but was denied and then sued for violating securities laws. That proceeding has not yet been finalized.

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The situation with crypto regulation can be improved by the Financial Innovation and Technology for the 21st Century Act, known as FIT 21, which has already received approval from the lower house of Congress, the House of Representatives. Coinbase CEO Brian Armstrong is extremely positive about this document.