Due to worries about money laundering and fraud, British banks have begun excluding cryptocurrency investors. The vast majority of sources consulted for a Bloomberg study claim that crypto platforms are having trouble using banking services. However, this decision has drawn criticism from a number of people who see it as an excessive response to the perceived hazards associated with digital assets.
Barclays, HSBC, and Standard Chartered are among the notable institutions that have reportedly said no to working with customers involved in cryptocurrency-related operations. The banks cited regulatory considerations, such as fraud and money laundering, as factors in their choices. The few banks who are still using crypto platforms, on the other hand, are asking additional paperwork and details on how to track client transactions.
The difficulties the cryptocurrency businesses have include having their applications rejected, having their accounts blocked, and dealing with excessive paperwork. However, when things deteriorated over the previous several weeks, the cryptocurrency businesses complained to Prime Minister Rishi Sunak’s administration. However, this action goes against Sunak’s strategy to emphasize financial tech innovation.
The race to head the Conservative party and the nation was between Sunak and Truss the previous year. Regarding digital assets and how they can affect financial policy, both people expressed their opinions. In an effort to establish the United Kingdom as a centre for the cryptocurrency industry, Sunak asked that the Royal Mint produce a nonfungible coin. Notably, Sunak earlier argued that the U.K. government should give financial technology top priority when serving as a member of parliament and chancellor from 2020 until his retirement in July. In an effort to stay up with innovation, this also includes stablecoins and digital currencies from the central bank.
Attacks against the Bank’s Initiative
Notably, numerous people have responded to the decision by banks to reject crypto customers. Vice President of international policy at Coinbase, Tom Duff-Gordon, said to Bloomberg that: “The U.K. banking reaction has been more acute than the E.U. one.”
According to Gordon, the European Union’s initiatives to create a framework for digital assets are encouraging banks to cooperate with foreign crypto companies. The Markets in Crypto Assets (MiCA) legislation was, nevertheless, adopted by the Economic and Monetary Affairs Committee of the European Parliament in October. As it awaited its final vote, which was set for this month, it had been introduced in September 2020, almost two years earlier.
Stefan Berger, an ECON committee member, tweeted the news of the adoption, saying that there were 28 votes in favor and one against the crypto framework policy.
Some people have also claimed that banks have been linked to a number of scandals involving financial wrongdoing. The reputation of the banks may be harmed if they turned away genuine customers since it would appear hypocritical.
According to PitchBook statistics, compared to a 31% growth in other European nations in 2023, venture capital investment in digital asset platforms has decreased in the U.K. to $55 million (94%). Due of this, a number of cryptocurrency companies—including BCB and Stripe—have shifted their focus to providing payment services in order to keep up with UK company demands.
Banks are under regulatory pressure
In recent months, the Financial Conduct Authority (FCA) of the U.K. has stepped up its enforcement of laws governing cryptocurrency-related operations. The regulator prohibited the sale of derivatives to ordinary investors at the beginning of January, citing issues with their lack of transparency. On the other hand, HSBC Holdings and Nationwide Building Society reportedly prohibited retail consumers from purchasing cryptocurrency using credit cards in early March. Due in part to the prohibition, more banks in the nation are tightening their regulations on digital assets.
In particular, the FCA has compelled the banks to enhance their anti-money laundering and funding controls. To do this, regulators focus on the actions of banks’ financial crime controls when examining them.
In addition, the self-regulatory trade group CryptoUK suggested developing « an allowlist » of registered businesses in the U.K. to ease banks’ restrictions on transactions with the cryptocurrency platform. CryptoUK claimed:
Many of the significant U.K. banks have put in place restrictions, and we are concerned that their banks and Payment Services Providers (PSPs) may soon follow suit. We trust that government action is now warranted.
How banks and other financial institutions react, though, will be interesting to watch as the regulatory environment surrounding cryptocurrencies continues to deteriorate. It is important to remember that the cryptocurrency ecosystem requires an environment with supportive regulations that foster development and innovation.
