Apr 2, 2023
Sunak’s UK Crypto Ambitions Are Flummoxed by Reluctant Banks
(Bloomberg) -- Edouard Daunizeau’s crypto company SavingBlocks has an office in East London’s technology hub and more than 200 customers testing its services. But getting a bank account for his year-old startup has proved an almost insurmountable challenge.
SavingBlocks, which offers a suite of digital-asset portfolios for passive investors, applied with nine different banking service providers for a corporate account and was turned down by seven of them. In the past few months, the two that did take it on began peppering Daunizeau with requests for additional documentation, such as describing in detail the processes he uses to screen clients’ transactions.
Daunizeau’s plight illustrates a crucial challenge for UK Prime Minister Rishi Sunak’s push to make the country a global crypto hub, announced a year ago. Since February, major banks including HSBC Holdings Plc and NatWest Group Plc have made headlines by further restricting the amount of money customers in Britain can move onto digital-asset exchanges, dealing a fresh blow to the battered industry.
But the issue goes beyond that, according to a dozen UK crypto executives interviewed by Bloomberg News. They spoke of a host of difficulties, ranging from having applications rejected to getting buried in paperwork. In recent weeks, access to banking has worsened to the point that companies have complained directly to Sunak’s government.
“There aren’t many options available – most traditional banks won’t offer banking services to crypto firms,” said Daunizeau in an interview, declining to identify his banks. “With the recent string of events it will be even tougher. We are seeking licenses in France where we think it will be easier.”
Crypto’s Cold Reception
Big banks around the world have long been cautious about the crypto sector, fearing its reputation for lax money-laundering and other compliance controls could expose them to regulatory fallout. In the US, that meant smaller lenders Silvergate Bank and Signature Bank were able to carve out a lucrative niche serving the industry.
But a series of scandals and corporate failures last year – from the collapse of stablecoin TerraUSD to the bankruptcy of crypto exchange FTX – further damaged the sector’s reputation. And Silvergate’s and Signature’s forays into digital assets backfired in March, when Silvergate failed and Signature was seized by regulators. Those failures sent tremors through global financial markets.
- Read more: Crypto Cries Foul as Banks Close Ranks: Bloomberg Crypto
As much as crypto likes to portray itself as poised to replace traditional finance altogether, it needs banks – both as a way for investors to swap fiat currency into digital assets and back again, and for the everyday tasks all companies face, like paying suppliers and workers. In the UK, crypto entrepreneurs now face a conundrum: The government is encouraging them to expand there, but they’re getting the cold shoulder from lenders.
“The UK banking reaction has been more acute than the EU one,” said Tom Duff-Gordon, vice president of international policy at Coinbase Global Inc., which has customers in over 100 countries. He cited the bloc’s progress in establishing its own crypto regulation as a potential reason, with the Markets in Cryptoassets directive (MiCA) set to face a final vote in April.
Read more: UK Banks Ramp Up Crypto Restrictions With New Retail Limits
The UK doesn’t publish statistics on the number of crypto firms that have set up shop since Sunak’s initiative was announced on April 4 last year. But by at least one metric, the country is quickly losing ground to the rest of Europe.
Venture capital investment flowing into UK digital-asset companies slumped 94% from a year earlier to $55 million in the first quarter, according to data from PitchBook. That compares with a roughly 31% increase for the rest of Europe.
Lack of access to banking “hampers any effort to make the UK a crypto hub, which is what Rishi and the government say they want,” said Jeff Hancock, co-founder and chief executive of London-based crypto exchange Coinpass, which was founded in 2018.
Coinpass is among crypto companies that have turned to payment-service providers like BCB Payments Ltd. and Stripe Inc. for handling tasks like taking deposits from clients and facilitating their payments. Such platforms, which also include CLear Junction Ltd. and Paysafe Financial Services Ltd., operate under the UK’s money-licensing regime and are able to offer basic services to digital-asset companies, like so-called “ring-fenced” accounts managed by third-party lenders, and money transfers.
However, even those providers are dependent on the goodwill of regulators. In March, Paysafe announced that it would stop providing one of its products to UK customers of crypto exchange Binance, citing the “challenging” regulatory environment.
Binance was forced to suspend deposits and withdrawals via bank transfers and credit and debit cards for its clients in Britain, essentially making it impossible to withdraw money from the platform to a UK bank account. The exchange said the disruption affected less than 1% of its global user base, and it is working to resolve the issue.
Nephos Group, a UK-based accounting and professional services firm that serves the crypto industry, had its account with money transfer platform Wise Plc locked for more than three months starting in November, co-founder Joe David said. At first, Nephos was told only that it had breached Wise’s terms and conditions. When he pressed again for a reason, Wise referred him to a section of its user terms that included its policy on cryptocurrencies.
Nephos used subsidiaries for making payments until Wise unlocked its account, according to David. It now has accounts with two other providers “just to make sure if we did get locked out we can still have activity. If you haven’t got a bank account, you can’t pay anyone.”
The company accepts payments in crypto for its services, but it doesn’t process any transactions for customers, according to David. A Wise spokesperson, while unable to comment on the Nephos case, said it doesn’t support companies engaging in the exchange or trading of digital assets, and will freeze accounts to investigate any suspicion that a client might be in breach of its terms.
At a March 8 meeting at the Treasury with Economic Secretary Andrew Griffith, crypto executives brought up the issue around banking access, according to two people who were present and asked not to be identified the discussions were confidential. The meeting was part of the Treasury’s ongoing dialogue with industry representatives after it proposed a sweeping set of new rules for the sector in February.
Griffith said at the meeting that he would try to resolve the problem with lenders, one of the people said. A Treasury spokesperson said the government would continue to engage with stakeholders on “emerging issues” as its consultation progresses, without commenting on specifics of the meeting.
“When crypto started, the purists were saying crypto will bring down the banks,” said Simon Jennings, executive director at advocacy group the UK CryptoAsset Business Council. “But ironically, it’s the banks that could bring down crypto.”
©2023 Bloomberg L.P.