Banks in the UK hate crypto and this is bad news for everyone

In 2018, the UK’s Financial Conduct Authority (FCA) wrote to the heads of the country’s largest high-street banks to stress the importance of due diligence when dealing with crypto trades. This appears to have led to widespread high-risk ratings and bans on crypto-related banking, affecting both crypto companies hoping to operate in the UK and investors alike.

Banks are understandably and responsibly concerned about fraud, but the current situation creates uncertainty. Crypto investors need to be able to move their money around as they please, and crypto businesses need access to payment tracks for a variety of other reasons, such as: B. to pay employees and suppliers.

A catch-22 that hurts competition in the market

By denying crypto companies access to “mainstream” banking, organizations are forced to use payment service providers (PSPs), which banks deem riskier because they are also used by the gaming industry. There is a lack of nuance in this process as banks tend to block transactions across PSPs blanketly.

Related: Federal regulators are preparing to issue a verdict on Ethereum

When it comes to certain services like payment processing, the refusal to serve crypto also hurts the competition in the market. There is a sense that banks are reluctant to de-risk crypto and simplify crypto-to-bank payments because they feel this is cannibalizing their own market. If that’s true, the regulator needs to step in to keep the market competitive.

restriction of individual freedoms

Banks’ economic risk-reward calculations mean they will continue to provide banking services to crypto-asset service providers, but those relationships are strained. Take Barclays, for example, which offers Coinbase faster payment services that ended abruptly after three months. It is likely that the risk was considered too great in exchange for the reward of the amount of money.

Increasingly, banks are blocking crypto payments outright or triggering their fraud prevention processes, prompting customers to verify that transactions are being conducted with an understanding of the “risks.” This is an encroachment on citizens’ freedom to do as they please with their finances, and the risk weighting given to crypto-related transactions is simply not warranted.

Banks contradict each other

Although crypto companies are struggling to open bank accounts and investors are restricted in their freedoms there is Significant interest in crypto from almost every high street bank. But that’s only on one side of the bank. They’re evaluating whether crypto will work from an institutional investment standpoint, but that willingness and knowledge isn’t making it across the building to the people running transaction banks — retail and corporate. You can’t have your cake and eat it too: The adoption of crypto as a form of institutional investment is hampered by the same issues. Banks exhibit a myopia that fails to translate interest in one area into meaningful processes in others, damaging every aspect.

BCB, Revolut, Clear Junction, and ClearBank all offer banking relationships or UK bank accounts for those involved with crypto. The fact that a limited number of PSPs are able to work with crypto companies or investors without significant sanctions from regulators, a greater risk than other organizations and with comparable compliance teams as large retail banks, shows that this is possible. Banks do not realize the magnitude of this opportunity – an opportunity that has already been successfully exploited by some companies – to create a more competitive landscape.

Related: CFTC Action Shows Why Crypto Developers Should Prepare to Exit the US

Organizations doing minority business in crypto are also being unfairly penalized by banks’ perception of crypto. Here, crypto represents a small part of their business that would otherwise likely be risk-approved by the retail banks, but they are being forced to find new ways to access banking and payment services alongside crypto-natives. By misunderstanding the diversity of the cryptosphere, accounting and law firms involved in crypto, no matter how small, are subject to the same blanket bans as wallets and exchanges.

Transparency in risk assessment will help, as will government intervention

We need government intervention, and we need it now. Adoption is growing and crypto is going nowhere. What’s more, MP John Glen, then Business Secretary, hinted in April that the UK was looking to “lead the way” on crypto and blockchain. The current state of affairs between UK banks, crypto companies and crypto investors belies this ambition and represents the greatest challenge to thriving in this new economy.

In addition to emphasizing the importance of due diligence, the 2018 FCA letter to banks also states that they have a responsibility to up-skill their staff with the knowledge and expertise to undertake risk assessments of crypto trades. That didn’t happen. On the payments side, there is little evidence of further education or attempts to understand crypto and therefore assess risk more accurately. Instead, they have opted for a blanket ban along the lines of the gambling industry based on Standard Industrial Classification Codes.

The FCA has stepped in and has offered licenses to crypto organizations provided they can demonstrate anti-money laundering and know-your-customer processes to operate and do business in the UK – so effective banking relationships must be in place to do this to allow.

The crypto industry is here to stay and grow in line with government ambitions. But the biggest challenge to this growth comes from banks refusing to serve crypto companies or investors. Without urgent intervention to uncover decision-making and enforce banking relationship support, UK crypto participants are being forced to either use limited banking services via PSPs or reconsider being UK-based. This is bad news for everyone.

IanTaylor is Executive Director of CryptoUK, an independent trade body for the digital asset industry in the UK.

This article is for general informational purposes and should not be construed as legal or investment advice. The views, thoughts, and opinions expressed herein are solely those of the author and do not necessarily reflect or represent the views and opinions of Cointelegraph.

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