Crypto bosses have amped up their calls for robust regulation of the industry, as the embattled sector fends off a bashing from high-street banks.
While big financial institutions like JP Morgan, Standard Chartered and Citi have made recent significant crypto investments, high-street banks have been somewhat apathetic about the virtues of the crypto world.
But now amid a crypto winter, this apathy appears to be turning into antipathy towards crypto.
Lloyds, Barclays, RBS and neobank Starling are among those banks which have all restricted crypto investments. This includes blocking credit card transactions and blocking bank transfers with crypto exchanges.
With nearly 50 per cent of UK banks not allowing its customers to carry out transactions with crypto exchanges, crypto bosses feel under siege.
Ban raises multiple questions
Undoubtedly a fresh body blow for the crypto industry, the move to block crypto activity also raises other issues, such as questions about freedom of customer choice; whether the banks are guilty of double standards, as well as raising the clamour for crypto regulation.
Amanda Shoffel, general manager and chief compliance officer at crypto exchange Bitstamp UK, said: “Until the UK makes vital regulatory developments, we’ll continue to see this trend of traditional banks turning away from digital assets and enforcing the so-called crypto clampdown.”
Security checks not robust enough
By this strike against crypto, the banks are effectively saying the crypto exchanges do not have robust enough security checks to prevent criminals from using them for fraudulent purposes, a claim rejected by the crypto firms.
Crypto firms say they are being tarred with the same brush of a few rogue actors.
Some of the public statements from the banks have been combative. For instance, Starling said cryptocurrencies are “heavily used for criminal purposes”.
But there is little doubt that banks have reason to be concerned, a fact acknowledged by the crypto industry, which doesn’t offer consumer protection over scams due to lack of regulation.
In June last year, the Financial Conduct Authority banned Binance, the world’s biggest crypto exchange by trading volume, from operating in the UK for failing to meet regulatory requirements, marking the latest sign of a crackdown on crypto.
Crypto scams on rise
Meanwhile, research by crypto consultancy firm Capital Block shows crypto scams reported to the FCA more than doubled in 2021, with the regulator receiving 6,372 reports of scams in 2021, up from 3,143 the year previous. In 2017, the FCA received zero complaints
But Capital Block points out the increase is unsurprising given the “relative nascence of the sector”.
“Until the UK makes vital regulatory developments, we’ll continue to see this trend of traditional banks turning away from digital assets and enforcing the so-called crypto clampdown”
Blanket ban is failing on banks behalf
While crypto bosses understand banks’ concern about scams, they believe that such “blunt measures’ of blocking transfers and transactions are excessive.
Jamie McNaught, founder and CEO, Solidi, an FCA-regulated crypto exchange, says he understands the banks’ concerns but he says imposing such a blanket ban is a failing of banks own controls which will bite them on the bum and result in them losing customers.
He said: “The customers are seeing it for what it is, which is the banks saying ‘you can’t do what you want with your money.’
“The banks have taken the fairly blunt approach to it and fairly lazy approach.”
There are no fraud incidents in transactions between Starling and Solidi, yet it’s hit with a blanket ban, he pointed out.
More measured approach
More measured alternatives for banks to take, McNaught says, would be the widespread use of 24 hour cool-off periods so transactions can be cancelled to help prevent fraud.
He also believes in some cases some customers might need extra restrictions on their accounts to protect them.
On the impact of the ban on Solidi, McNaught says there has been an increase in support calls from customers frustrated by the banks’ ban. He said the exchange will see a downtick in revenue.
On a positive note, he is hoping that Solidi can strike a deal with a more crypto-friendly bank like Monzo, so that customers can be referred across.
Like McNaught, Tim Mangnall, CEO, Capital Sports Media & Capital Block, is railing against the blunt tool approach taken by the banks.
He says the younger demographic wanting access to cryptocurrencies will ditch Starling and move to more crypto-friendly neobanks like Monzo and Revolut.
He says instead of a blanket ban, making customers aware of the volatility of crypto and limits on one-off transactions are more measured actions.
No block on gambling websites
As a comparison, he points out that the banks have not blocked customers’ access to gambling websites, which he says is a financial risk more dangerous to customers.
He says: “Yes, cryptocurrencies are used by criminals, but so is Sterling, Dollar, Yen and the Euro that floods through many of the traditional banks.”
Banks accused of double standards
Crypto bosses have also suggested that the banks might be accused of double standards, given their own interests in the area.
Many high-street banks have been sizing the rich rewards offered up by crypto as both an investment and trading opportunity, following the lead of US banks.
If they are so anti-crypto, then they should pull back from crypto interests altogether, they say.
Loud calls for regulation and collaboration
Experts say that the bank block, together with the high-profile crash of FTX ( one of the largest crypto exchanges in the world) and a liquidity crisis across the industry, has illuminated more than ever the need for regulation in the UK.
Dan Moczulski, UK MD at eToro, the crypto trading platforms, said: “Once we have a solid regulatory system in place, we’ll have a framework that all parties can function within, providing certainty for banks, consumers and responsible platforms offering crypto.
“We appear to be making some ground on this with the Government’s Financial Services and Markets Bill and it can’t come soon enough.”
Shoffel adds: “In order to make crypto mainstream in the next decade and help stabilise coins, the industry must collaborate with both the financial sector and governmental regulators.
Embrace crypto like Europe
“Ultimately, if the UK wants to embrace crypto like their European neighbours, it will need to make the necessary regulatory moves to do so.”
Kate Anderson, who speacialises in fintech at Finder, the personal finance platform, said: “I think there is a feeling among the crypto community that regulation could promote more engagement. I think banks are still trying how to fit cryptocurrencies into their services.
She adds: “There are lots of moving parts within the crypto industry. I think obviously there have been crypto winters before, they [the crypto industry] have come through it. It could be similar to the dot.com crash, where you are wheezing out the bad actors.”
Crypto built on reinvention
Crypto bosses are keen to get around the table with bank bosses to come to a resolution that suits both parties, but it seems for the moment at least the banks are less keen and want to play hardball.
But crypto bosses point out that the industry is built on reinvention and has surmounted major challenges before. Perhaps as it will in the case of its feud with high-street bank?
Kristina Taylor is a highly knowledgeable journalist who has been following the financial news and cybercrimes space since 2011. She holds a degree in communication and media studies from Aarhus University and has always had a passion for writing.
Throughout her career, Kristina has become a well-traveled journalist within the industry and has contributed to many well-known publications. She has a keen eye for detail and is often found poring over white papers to gain deeper insights into the latest trends and developments.
Kristina’s extensive knowledge and experience in the field of finance and technology make her an invaluable contributor to Financial Magazine. She is highly respected in the industry and is known for her ability to break down complex concepts into easy-to-understand pieces for her readers.