Want to set up a company to trade cryptocurrencies in the City of London. Forget about it.
Lloyd Blankfein tweeted about spending more time in Frankfurt, now London is shunning the fastest growing sector in finance. From the FT
British banks are shunning companies that handle cryptocurrencies, forcing many to open accounts in Gibraltar, Poland and Bulgaria and prompting some to question the UK’s ambitions to be a global hub for the fast-growing fintech sector.
Investor interest in bitcoin and other cryptocurrencies has surged since their prices rocketed this year, but traditional banks are steering clear of the sector, fearing it is riddled with criminals and fraudsters. ‘Nobody will give us a bank account in the UK,’ said James Godfrey, head of capital markets at BlockEx, a platform for trading digital assets including cryptocurrencies. He said Metro Bank recently shut its UK account, forcing it to rely on a Bulgarian lender to keep trading. Mr Godfrey said the disruption had prompted BlockEx to consider moving to a more welcoming location, such as Toronto.
‘Having [Bank of England governor] Mark Carney standing at the front of the shop and saying ‘raa, raa, fintech’ just doesn’t do it for me.’ Metro Bank declined to comment. Michael Hudson, chief executive of the bitcoin investment firm Bitstocks, said:
“It is almost an impossibility to get a UK bank account. We bank in Gibraltar and Poland — the two jurisdictions that are most stable. We had an account in Bulgaria but that didn’t last long.
The fears on the part of banks relate to potential problems with the regulator as the report outlines.
“The market value of all cryptocurrencies has soared from under $30bn six months ago to more than $160bn. However, banks are keeping their distance, worried by the fact that cryptocurrencies are commonly used by criminals to trade illicit goods on the ‘dark web’. A few countries, including Japan and Gibraltar, have created rules for cryptocurrencies, but they remain unregulated in many parts of the world, including much of Europe. ‘When you look on the dark web, everything there is being paid for with cryptocurrencies,’ said one UK bank boss. ‘You don’t know who is transferring money in and out. If cryptocurrency goes to Iran and we’re involved then I get shut down.”
Banks are too scared of the regulator to open accounts for crypto trading businesses. Meanwhile, the regulator is unhappy with the banks for not opening accounts, according to the FT “The Financial Conduct Authority is worried that banks’ reluctance to open accounts for some fintechs is hurting competition after it hampered several start-ups entering its sandbox to test their business models under its supervision. ‘We are concerned that denying certain customers bank accounts on a wholesale basis causes significant barriers to entry and could lead to poor competition in certain markets,’ the regulator said.”
The double-edged sword in today’s world of excessive regulation.
Maybe the Financial Conduct Authority could adopt the common-sense approach, sit down with the banks and work something out. Nah, probably won’t happen. In the meantime, don’t mention the war crypto…
“Iqbal Gandham, UK head of eToro, a social trading firm that has handled more than $1bn of cryptocurrency trades for clients since adding the asset class to its platform this year, said: ‘The moment you mention crypto to a bank, it’s like you are a drug dealer.’
Changing bank accounts and relying on foreign lenders is disruptive and undermines the confidence of clients, said Mr Hudson at Bitstocks.
‘It makes life very difficult, just simple things like paying staff,’ he said. One British banker said opening an account in Gibraltar or Poland would cost start-up firms ‘an arm and a leg’.
UK Finance, which represents British banks, said: ‘No regulatory regime is yet in place for virtual currencies. Firms’ own risk appetites will determine to what extent they engage with any firms engaged in virtual currencies.
The European Banking Authority is yet to update guidance it published more than three years ago, advising national regulators to ‘discourage credit institutions, payment institutions and e-money institutions from buying, holding or selling virtual currencies’. Obi Nwosu, chief executive of bitcoin exchange Coinfloor, said: ‘There are British banks interested in doing this, but they don’t want to rush into it.’ His company, which says it handles a majority of UK cryptocurrency trading, is in ‘constant conversation’ with British banks about opening an account. Barclays is one of the few British lenders to have a handful of clients in the cryptocurrency sector. HSBC is talking to a few potential clients in the sector despite its 2011 ban on doing business with the money services sector because of anti-money laundering concerns.
HSBC said it was ‘monitoring the development of virtual and digital currencies such as bitcoin as well as regulations governing their use’, adding that it has ‘very limited appetite to bank issuers or dealers in virtual currencies.
By the time it does, the proverbial horse will have bolted.