© Reuters.
By Sam Boughedda
Reacting to reports that lawmakers have requested a regulatory review of SoFi Technologies Inc.’s (NASDAQ:SOFI) cryptocurrency business, analysts at Morgan Stanley (NYSE:) said the company is now a Bank Holding Company, and cannot directly engage in cryptocurrency business.
Analysts, who have an Equal Weight rating and a $7 price target on SoFi, explained today that four Democratic lawmakers on the Senate Banking Committee sent letters to SoFi and banking regulators (the Fed, the FDIC and the OCC), requesting a review of SOFI’s crypto trading activities.
SoFi shares fell more than 4% on the news.
However, analysts added that while bank holding companies cannot directly engage in crypto business generally, following bank charter approval in early 2022, SoFi was allowed to continue offering cryptocurrency. crypto to retail customers for two years (with the possibility of 3 one-year extensions thereafter), as long as it does not expand its crypto business.
In today’s letters, lawmakers raised concerns about: 1) SOFI’s apparent expansion of crypto services despite the agreement not to (by allowing deposit customers to invest a part of direct crypto deposits), 2) capital requirements for SOFI’s crypto business, and 3) investor protection concerns related to at least one “high-risk” coin offered by SOFI,” the authors wrote. analysts.
They add, “Later in the day, SOFI issued an 8K. The company said it takes its regulatory and compliance commitments seriously, including its non-banking operations in the area of digital assets. SOFI also noted that it believes it has been in full compliance with banking license mandates and all applicable laws, and maintains a consistent and constructive dialogue with federal and state regulators.”
They said this specific point may be “intended to effectively argue that regulators were in fact aware of SOFI’s plans.”
“Crypto is a very small part of SOFI’s revenue, but we see higher chances of a crypto outflow and potential regulatory scrutiny on the bank. Crypto is an intangible part of SOFI’s revenue base today. today, integrated into the brokerage line that represents less than 1% of total SOFI revenue (or as much as 3% in 2Q21 when crypto valuations and trading volumes were much higher). we believe investors were already discounting a lack of crypto revenue growth from SOFI going forward, but not a full exit from the company Today’s news appears to increase the odds of an eventual crypto exit , for example at the end of the compliance period in January 2024, or possibly even before,” the analysts concluded.