UK Banks Impose Stricter Rules on Crypto Clients, Hampering Industry Growth?
Cryptocurrency has been a controversial topic for many years. While some people see it as the future of money, others hesitate to embrace it. This scepticism is especially true for traditional banks, which have long been wary of the crypto sector due to concerns about money laundering and other compliance issues. However, smaller banks like Silvergate Bank and Signature Bank in the US were able to carve out a profitable niche serving the industry.
The reputation of the crypto sector was further damaged last year by a series of scandals and corporate failures, such as the collapse of stablecoin TerraUSD and the bankruptcy of the crypto exchange FTX. Unfortunately for the industry, Silvergate Bank failed, and Signature Bank was seized by regulators, causing tremors in the global financial markets.
Crypto entrepreneurs in the UK are now facing a conundrum as the government encourages them to expand while banks give them the cold shoulder. Tom Duff-Gordon, Vice President of International Policy at Coinbase Global, stated that the UK banking reaction has been more severe than the EU’s. He cited the EU’s progress in establishing its own crypto regulation, with the Markets in Cryptoassets directive (MiCA) set to face a final vote in April.
However, the UK quickly loses ground to the rest of Europe by at least one metric. Venture capital investment flowing into UK digital-asset companies dropped by 94% from a year earlier to $55 million in the first quarter, according to data from PitchBook. This is in contrast to the roughly 31% increase for the rest of Europe.
Jeff Hancock, Co-Founder and CEO of London-based crypto exchange Coinpass, believes that the lack of access to banking “hampers any effort to make the UK a crypto hub, which is what Rishi and the government say they want.” Coinpass is among the crypto companies that have turned to payment-service providers like BCB Payments and Stripe Inc. for handling tasks like taking deposits from clients and facilitating their payments.
These payment platforms operate under the UK’s money-licensing regime and are able to offer basic services to digital-asset companies, such as “ring-fenced” accounts managed by third-party lenders and money transfers. However, these providers are still dependent on the goodwill of regulators. Paysafe Financial Services announced in March that it would stop providing one of its products to UK customers of crypto exchange Binance, citing the “challenging” regulatory environment.
Nephos Group, a UK-based accounting and professional services firm that serves the crypto industry, had its account with money transfer platform Wise Plc locked for more than three months starting in November. Nephos was initially told that it had breached Wise’s terms and conditions, but it was later referred to a section of its user terms that included its policy on cryptocurrencies. The company had to use subsidiaries for making payments until Wise unlocked its account.
At a meeting on March 8th with Economic Secretary Andrew Griffith, crypto executives raised the issue of banking access. The meeting was part of the Treasury’s ongoing dialogue with industry representatives after it proposed a sweeping set of new rules for the sector in February. Griffith said he would try to resolve the problem with lenders, according to one of the people who attended the meeting.
Simon Jennings, Executive Director at advocacy group the UK CryptoAsset Business Council, pointed out that “when crypto started, the purists were saying crypto will bring down the banks. But ironically, it’s the banks that could bring down crypto.” It remains to be seen how the UK government and banking sector will respond to the growing demand for cryptocurrency.
