Binance-backed, crypto-friendly Founders Bank is still waiting to receive a license in Malta

Nearly two years since its unveiling, a much-hyped decentralized bank project that has backing from Binance is still waiting on a  banking license in Malta.

The Founders Bank project was unveiled with much fanfare in July 2018, with Maltese minister Silvio Schembri welcoming it to the "Blockchain Island." He said at the time: "We welcome Founders Bank with the utmost excitement and hope that their fintech solutions will attract even more world-class companies to our #BlockchainIsland."

When it launched, the project's developers said they expected it to be operational in the first half of 2019. But before it can start servicing crypto and blockchain firms, Founders Bank needs a banking license from the MFSA and approval from the ECB. Now, nearly halfway through 2020, it still hasn’t gotten approved.

An MFSA spokesperson declined to provide details, telling The Block that all banking applications are "reviewed in line with applicable internal processes and procedures based on ECB guidelines" and that it is not in a position to comment on specific applications. As for the ECB, a senior press officer also declined to comment on the bank’s "interaction with individual institutions."

What's going on? The banking license application is "very much alive," a Founders Bank spokesperson told The Block, adding that the COVID-19 pandemic has slowed down approvals. But the delay may also have something to do with recent shifts in Malta’s political landscape.

Funding drought

It's not just the regulatory process that has been delayed — funding appears to be drying up, too.

In October 2019, Founders Bank raised $10 million from Binance, Polychain Capital and Czech Republic-based Carduus Asset Management. At the time, the project’s developers said they planned to raise another $30 million. But since then it has struggled to raise money, at least in part due to the COVID-19 pandemic.

The bank's spokesperson said that the pandemic has also slowed down its fundraising efforts, and that the project has scaled down its capital raising ambitions. It won't be able to raise as much as its developers initially thought, since the licensing application is still under review, said the spokesperson: "In the medium term, we are just looking for funds to continue to build the platform."

Once the project has full regulatory clearance from the MFSA, it will engage with strategic investors to determine future funding plans, the spokesperson added.

Binance held a 5% stake in the project when it launched in 2018, at a pre-money valuation of around $155 million. It’s not clear how much more of a stake Binance acquired in October. The exchange declined to comment on the project.

Another major backer, Carduus Asset Management, confirmed that the pandemic situation has delayed the project and that it is in regular touch with the Founders Bank team. Meanwhile, the project’s third publicly-known investor, Polychain Capital, did not respond to The Block's requests for comment.

Given the uncertain times, Founders Bank has also sent all of its "non-essential" staff on furlough, said the spokesperson. Founders Bank is led by former Deutsche Bank executive Kenan Altunis, who joined the project as CEO and co-founder in May 2019. Other co-founders include former investment banker Paula Pandolfino and lawyer Alex Underwood.

No longer "Blockchain Island"?

The Founders Bank’s apparent struggles may in part reflect changes to the blockchain industry landscape in Malta. Once called "Blockchain Island" because it was so welcoming to crypto companies, the nation has seen important changes to its political environment since the start of this year that could undermine that status. 

Perhaps most importantly, in January Malta’s crypto-enthusiast prime minister Joseph Muscat resigned, amid demands for accountability over the 2017 murder of investigative journalist Daphne Caruana Galizia. Muscat had aimed for Malta to be "the global trailblazers in the regulation of blockchain-based businesses" and even welcomed Binance to Malta in 2018. Malta's current prime minister, Robert Abela, has yet to comment on crypto publicly.

The MFSA also appears to have taken a cautious approach when it comes to the crypto sector. Earlier this year, the authority issued a warning notice, saying that Binance is not licensed in Malta.

It also recently warned more than 50 other crypto and blockchain companies, saying that they are unauthorized to operate in the country since they have not indicated their intention to get fully licensed after a transitory period.

Given these changes, said The Founders Bank’s spokesperson, "it's very hard to have any views about the future."