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British banks – even after the inclusion of cryptoassets in UK money laundering regulations – have taken a cautious approach when dealing with the crypto industry. This has manifested itself in a variety of ways, including a reduced desire to provide banking services to crypto firms and limiting the interaction of retail banking customers with digital asset companies, either by restricting or restricting the flow of cash payments to crypto exchanges.
This came about for a variety of reasons. These include banking prudence and conduct regulators, the Bank of England (BoE) and the Financial Conduct Authority (FCA), outlining their regulatory concerns in the sector and the challenges of assessing the risk of starting crypto firms. However, it is worth noting that this should be an integral part of the bank’s normal risk management and insurance controls if they offer banking services to these types of firms.
Another concern is the obligations and responsibilities a bank has to its retail customers – particularly in relation to the risk of fraud and fraud and their duty to vulnerable customers – leading many to be cautious about cryptocurrencies.
The crypto asset industry in the UK has sought to partner with banks to address some of these issues, but to date this has not been successful. This prompted the crypto industry to send a letter to Andrew Griffith – the Economic Secretary to the Treasury – and the FCA, to bring banking and the crypto industry together to address the issues and find an amicable solution.
HM Treasury (HMT) and the BoE/FCA may want to consider the fact that this approach – bringing two parties together to discuss – has been adopted by the Hong Kong Monetary Authority (HKMA), where there are similar challenges to an effective ecosystem to achieve a successful fintech hub. The HKMA is taking proactive steps “to facilitate a direct dialogue” between banks and the crypto industry, scheduled for April 28.
Similar to Hong Kong, the UK is developing its own broader regulatory framework for cryptoassets. However, if the government’s intention is to make the UK a global fintech hub, it will need to look beyond simply introducing a regulatory framework. It will also be important to consider other aspects that are vital to the UK becoming a global hub, such as access to talent, an easier tax regime and, more importantly, access to banking services.
The solution must be to better understand the concerns of both the crypto and banking industries, looking at solutions including how to deal with scams, fraud and protect vulnerable customers. Positive regulatory engagement and the use of blockchain analytical tools can also help, so that banks’ approach to counterparty risk and indirect risk is better focused, rather than taking a blanket and non-specific approach to cryptoasset risks.
As the UK moves forward in its bid to be a fintech global hub, HMT, the BoE and the FCA may want to consider Hong Kong’s approach.
Regulatory Financial Services EMEA
