In recent years, the UK has been keen on positioning itself as a global crypto asset hub, however it’s currently facing critical obstacles which are hindering its effort.
While the industry has worked hard to make early gains in the crypto space, it’s encountered a dual challenge linked to the legacy banking sector which is preventing progress being made according to insiders.
One of the major issues is currently revolving around retail customers’ ability to access crypto products, with large banks, including Chase Bank, blocking transactions with crypto exchanges.
Perhaps the primary reason for this is the new app reporting requirements introduced by the Payment Systems Regulator (PSR), making banks increasingly risk-averse.
While risk management is crucial, the new stringent measures have implications for crypto businesses, creating a scenario where potential customers are denied access to essential financial services.
The second challenge being put in the way of progress in the sector is related to the difficulties companies are now facing when trying to open and maintain banking accounts in the UK.
Many businesses involved in blockchain, crypto, web3, fintech, and payments are forced to rely on second-tier banks or operate offshore due to their inability to secure accounts with major banks.
This is inadvertently pouring water on the crypto flame, hindering companies from scaling and expanding their operations within the UK.
NorthPoint Strategy, a leading emerging tech lobbying firm, managing director Simon Jennings believes the UK should urgently address these issues as they are preventing the UK from fulfilling its ambitions to become a ‘global cryptoasset hub’.
He tells Payments Review: “Firms within the UK’s digital asset and Web3 ecosystems have long struggled to establish and maintain banking relationships.
“Even with significant progress in providing legal and regulatory certainty, these firms still face obstacles that continue to undermine the sector’s growth potential.
“Even some firms that are registered and supervised by the FCA have difficulty obtaining banking services from major providers”.
“This situation has led to reduced innovation and scalability, hindering these businesses from introducing new products and services on a global scale.”
Jennings pointed out that the issue has forced many UK-based cryptoassets and blockchain companies to seek expensive alternatives.
“These include setting up accounts in countries like Estonia, Poland, and Bulgaria. Some are even considering relocating core functions to jurisdictions where banking services are more accessible.
“In the absence of adequate banking services, these firms are pushed to seek riskier financing options, potentially creating concentrated risks within the sector.”
The challenge extends beyond the issue of risk appetite as, in some cases, large institutions are offering investment banking services but deny essential banking services, Jennings claims.
This issue gained prominence, in part, thanks to Nigel Farage’s involvement in the banking saga with Coutts. After initiating an enquiry on the issue, the Financial Conduct Authority (FCA) concluded that there wasn’t enough action to support regulatory action.
In response to the findings, a number of credible industry bodies are in the process of collaborating to gather evidence on the issue by demonstrating the extent of the issues faced by firms seeking access to essential banking services.
The challenges faced by the UK crypto industry regarding banking issues are currently in a complex position.
Jennings believes the UK can take a leaf out of others’ books. He says: “International examples from places like Hong Kong and France show that banks can support crypto-related businesses while ensuring compliance with regulations.
“These jurisdictions have put in place measures to prevent discrimination against regulated cryptoasset service providers. A similar approach in the UK could bolster confidence in banks and enhance transparency.”
The issues at hand have the potential to influence the country’s ability to establish itself as a global crypto asset hub, as well as hinder the growth of businesses across multiple industries relating to emerging technologies.
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