Watch: Why UK banks are blocking transfers to and from crypto exchanges | The Crypto Mile
Many UK high street banks are blocking payments to and from major cryptocurrency exchanges such as Binance and Coinbase. Yahoo Finance speaks to a financial services expert about the underlying reasons for this crackdown on crypto.
As we venture forth into 2023, will banks reverse their course and let crypto back in from the cold, or will they allow this infant industry to wither on the vine?
On this week’s episode of The Crypto Mile Yahoo Finance speaks to Adrian Ip, managing director at Aquis Exchange about the underlying motivations behind this stern response from the UK banking industry.
The stance UK banks are taking varies from blocking customer access to cryptocurrency trading completely or just making it a lot harder.
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Many customers of retail banks have become frustrated as some of the banks have not only banned money transfers to exchanges, but have also blocked withdrawals from exchanges into banks.
This locks user funds on exchanges such as Binance and Coinbase (COIN), leaving customers no other option but to find a bank that is still crypto-friendly if they want to convert their crypto into fiat money, and this list is getting smaller.
Ip says the reason why banks have taken such a cautionary approach to the burgeoning cryptocurrency sector is down to their appetite for risk.
He said: “Banks must consider the risks of allowing their consumers to interact with organisations that potentially have the capability to cause consumer detriment and to do things with consumer money that would result in bad outcomes.”
The managing director at Aquis Exchange says that the traditional financial ecosystem is heavily regulated and that this regulation has been built up through real world examples of consumer detriment and illegal activities occurring all over the world.
Consumer detriment means customers losing funds due to being misled by unfair market practices.
Retail banks can be hit with fines in the millions of pounds over customer detriment. One look at the state of play that surrounded the implosion of the FTX cryptocurrency exchange is enough for high-street banks to decide that the risks of exposure outweigh the benefits.
Ip added: “What is clear to a lot of the industry today is that there are things that are occurring in the crypto world which perhaps are not really what we’d expect to see within traditionally regulated and authorised financial services.
“Obviously a lot of things that get talked about quite commonly are blackmarket transactions, terrorist financing, market manipulation, money laundering and things like that.
The exchange manager added that traditional finance organisations that are regulated and authorised need to have audit and risk and compliance committees.
He added: “These committees ask questions such as ‘are the things that we are allowing to take place leading to things that could fall foul of regulation and the law, or could mean that our clients might lose money’.”
Many entities in the crypto-sector may be less willing to ask themselves these questions.
The UK banking sector’s relationship with the cryptocurrency sector
Let’s look at how some of the UK’s major banks have responded to the reputational damage that the cryptocurrency sector took after the implosion of the FTX exchange in November 2022.
After the collapse of the FTX exchange UK high-street bank NatWest (NWG.L) stated: “Due to an increase in scams relating to some cryptocurrency exchanges we have taken steps to either block payments or restrict the amount you can send each day to these firms, until further notice.”
“We have decided to take proportionate action to keep our customers safe and secure. This doesn’t mean that we block cryptocurrency payments altogether but we will restrict payments to cryptocurrency exchanges that present the highest risk of financial harm.”
The latest being Starling Bank which claimed crypto exchanges are “a high risk, and heavily used for criminal purposes”.
Concerning crypto-payments, Lloyds have said: “We no longer allow purchase of crypto via a credit card, you can look to purchase crypto via a debit card, or transfer funds to a crypto site at your own risk.”
Online banks such as Revolut and Monzo are still crypto-friendly. Monzo said: “As a Monzo customer you can use a range of cryptocurrency exchanges to buy crypto, as part of your personal banking with us.”
And Nationwide, technically a building society and not a bank, is largely positive towards cryptocurrency transactions. You can use your debit card to buy crypto, make transfers to an exchange or cash out your crypto investments to your current account.
The only restriction in place is that you won’t be able to make a transfer to Binance as this exchange has been banned by the Financial Conduct Authority (FCA).
Traditional Finance makes moves into the digital asset sector
Adrian Ip explained that multiple traditional finance regulated firms considering the business opportunities in the digital asset space.
He said: “How do we make sure we are doing things for the benefit of consumers and people that want to trade this stuff.
“The traditional finance space is catching up to looking at ways to incorporate some of the innovations that come out of the crypto industry as part of our regulatory practices.
“There is a lot that is occurring in the traditional finance space, both with blockchain and with crypto and with central bank digital currencies.
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However, he stressed that the inroads made by traditional finance into blockchain and crypto does not necessarily mean an existential threat to crypto-exchanges like Binance and Coinbase.
He added: “But, the traditional financial industry is looking to take a slice of the business in the digital asset space, but offer additional consumer protection.”
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