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British Banks Are Shunning Crypto Investors – But Why?

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British Banks shun away crypto clients
British Banks shun away crypto clients

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British banks have been turning away crypto investors due to money laundering and fraud concerns. According to the majority of sources interviewed in a report by Bloomberg, crypto platforms are facing difficulties accessing banking services. However, this move has been criticized by several individuals as an overreaction to perceived risks linked with digital assets.

According to Telegraph reports, some significant banks that have refused to work with clients engaging in crypto-related activities include Barclays, HSBC, and Standard Chartered. The banks have noted regulatory concerns, including money laundering and fraud, to be the reasons for their decisions. On the other hand, the few banks still working with crypto platforms are requesting more documentation and information on monitoring clients’ transactions. 

Some of the challenges the crypto companies face range from having their applications turned down and accounts frozen to overwhelming paperwork. However, as the situation worsened over the past few weeks, the crypto companies have given out their complaints to the government of Prime Minister Rishi Sunak. Nonetheless, this move opposes Sunak’s plan to prioritize financial tech disruption.

Last year, Sunak and Truss were competing to be the next leader of the Conservative party and the country. Both individuals gave their views on digital assets and how they will likely influence financial policy. Sunak requested that the country’s Royal mint should create a nonfungible token as part of an effort to make the U.K. a global crypto hub. Notably, as a member of a parliament who served as a chancellor from 2020 until his resignation in July, Sunak previously asserted that the U.K. government should prioritize financial technology. This included the central bank’s digital currencies and stablecoins, aiming for the country to keep pace with innovation.

Criticism of the Bank’s Action 

Noteworthy, the move by banks to shun away crypto clients has received some reactions from various individuals. Tom Duff-Gordon, a vice president of international policy at Coinbase, asserted to Bloomberg that:

“The U.K. banking reaction has been more acute than the E.U. one.” 

As per Gordon, the European Union’s efforts to set up a framework for digital assets are making the banks more receptive to crypto firms in other countries. However, in October, the European Parliamentary Committee on Economic and Monetary Affairs approved the Markets in Crypto Assets (MiCA) legislation. This was nearly two years after it was introduced in September 2020, as it awaits its final vote, which is scheduled for this month. 

The ECON member Stefan Berger revealed the approval via a tweet, noting that the parliamentary committee members passed the crypto framework policy in a vote of 28 in favour against one.

Furthermore, some have argued that banks have been involved in various scandals related to financial crimes. In that, turning away legitimate clients could be viewed as hypocritical and may damage the banks’ reputation. 

According to the data from PitchBook, the venture capital investment in digital asset platforms has dropped to $55 million (94%) in the U.K., against a 31% increase in other European countries in 2023. This has led to various crypto firms becoming payment service providers, including BCB and Stripe, to maintain business operations in the U.K. 

Regulatory Pressure on Banks

The U.K.’s Financial Conduct Authority (FCA) has been cracking down on crypto-related activities in the past few months. In early January, the regulator announced the ban on selling derivatives to retail investors, citing concerns over their lack of transparency. On the other hand, in early March, HSBC Holdings and Nationwide Building Society reportedly banned crypto purchases via credit cards for retail customers. The ban contributed to the growing list of banks in the country to reinforce restrictions on digital assets.

Notably, the FCA has pushed the banks to improve their anti-money laundering and financing measures. This is by the regulators reviewing banks’ financial crime controls, focusing on their activities. 

Additionally, CryptoUK, the self-regulatory trade association, proposed the creation of “an allowlist” of registered firms in the U.K. to address banks limiting transactions with the crypto platform. CryptoUK asserted:

“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.” 

However, as the regulatory landscape around cryptocurrencies continues to escalate, how the banks and other financial institutions respond remains to be seen. It is worth noting that the crypto ecosystem needs a conducive regulatory environment that encourages growth and innovation. 

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