United Kingdom banks hate crypto, and that’s bad news for everyone

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

Banks are, understandably and responsibly interested in fraud, but the current situation creates uncertainty. Cryptocurrency investors need to be able to move their money as they please, and crypto companies need access to pay rails for a variety of other reasons, such as paying employees and suppliers.

A catch-22 hurts market competition

By preventing crypto companies from accessing “mainstream” banking services, institutions are forced to use Payment Service Providers (PSPs), which banks categorize as higher risk because they are also used by the gambling industry. There is a lack of nuance in this process, as banks tend to handle blanket blocking transactions through PSPs.

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When it comes to specific services like payment processing, denial of crypto service is also detrimental to market competition. There is a sense that banks are reluctant to delete cryptocurrencies and facilitate crypto payments to banks because they feel that doing so is killing their own markets. If this is true, then the regulator should step in to maintain competition in the market.

Restricting individual freedoms

Calculations of economic risk and reward for banks mean that they continue to decline in their banking services to crypto asset service providers, but these relationships are fraught with danger. Take, for example, Barclays which offers faster payment services to Coinbase, which abruptly expired after three months. The risk is probably too high for the reward of the amount of money.

Increasingly, banks are banning fully encrypted payments or launching their own fraud preventions where customers are called in to verify that transactions have been made with an understanding of the “risk”. This is a violation of the freedom of ordinary people to do as they please with their money, and the weight of risk given to cryptocurrency-related transactions is simply unjustified.

Banks are contradicting themselves

Even though crypto companies struggle to open bank accounts and curtail the freedoms of investors there he is Huge interest in cryptocurrency from almost every major bank. But that’s only on one side of the bank. They’re looking at whether crypto will work from an institutional investment standpoint, but that willingness and knowledge doesn’t make it across the building for people who do banking – both individuals and companies. You can’t have your cake and eat it too: Crypto adoption as a form of institutional investment will be hampered by the same issues. Banks exhibit short-sightedness that fails to translate interest in one area into meaningful operations across others, to the detriment of every aspect.

BCB, Revolut, Clear Junction and ClearBank all offer UK bank relationships or bank accounts for those involved in cryptocurrency. The fact that a limited number of PSPs are able to work with crypto companies or investors without significant penalties from regulators, greater exposure to risk than other organizations and with compliance teams similar to major retail banks shows that this is possible. Banks fail to see the scale of this opportunity – one that has already been successfully extracted by a few institutions – to create a more competitive landscape.

Related: CFTC Action Explains Why Crypto Developers Should Prepare to Leave the US

Organizations with minority dealings in cryptocurrency are also unfairly punished by banks’ perceptions of cryptocurrency. This is where crypto makes up a small percentage of their business, which is likely a risk approved by retail banks, but they are forced to find new ways to access banking and payments, along with native cryptocurrencies. By misunderstanding the diversity of the crypto field, accounting and legal firms that engage in cryptocurrencies, no matter how small, are subject to the same blanket bans as wallets and exchanges.

The transparency of the risk rating will help, as will government intervention

We need government intervention, and we need it now. Adoption is growing, and encryption is not going anywhere. Even more, then-Economy Minister John Glenn suggested in April that there was an ambition for the UK to “lead the way” in crypto and blockchain. The current situation among British banks, cryptocurrency companies, and cryptocurrency investors is flying in the face of this ambition and is the single biggest challenge to thriving in this new economy.

In addition to emphasizing the importance of due diligence, the 2018 FCA letter to banks also says that they have a responsibility to upskill their employees with knowledge and experience to be able to conduct crypto business risk assessments. This did not happen. On the payments side, there is little evidence of skill improvement or any attempts to understand cryptocurrencies and, therefore, assess risk more accurately. Instead, they imposed a blanket industry-style ban on the gambling industry based on standard industry classification codes.

The Financial Conduct Authority (FCA) stepped in and provided licenses to crypto organizations, provided they could prove anti-money laundering and know your customer processes to be able to operate and transact in the UK – so there must be effective banking relationships to enable this.

The cryptocurrency industry is here to stay and eager to grow, in line with the government’s ambition. But the biggest challenge facing this growth comes from banks’ refusal to serve crypto companies or investors. Without urgent intervention to expose decision-making and enforce support for banking relationships, UK cryptocurrency participants are forced to either use limited banking services through PSPs or rethink being based in the UK. This is bad news for everyone.

Ian Taylor He is the CEO of CryptoUK, an independent industry body for the UK digital asset industry.

This article is for general information purposes and is not intended and should not be considered legal or investment advice. The opinions, ideas and opinions expressed here are those of the author alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.