Watch: Why UK banks are blocking transfers to and from crypto exchanges | The Crypto Mile
Many UK banks are blocking payments to and from major cryptocurrency exchanges such as Binance and Coinbase. Yahoo Finance speaks with a financial services expert about the underlying reasons for this crypto crackdown.
As we venture into 2023, will banks reverse course and let crypto come back from the cold, or allow this fledgling industry to wither on the vine?
On this week’s episode of The Crypto Mile, Yahoo Finance addresses Adrian Ipchief executive of Aquis Exchange, on the motivations behind this harsh response from the UK banking industry.
The stance taken by UK banks varies between completely blocking customer access to cryptocurrency trading or simply making it much more difficult.
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Many retail banking customers became frustrated as some banks not only prohibited money transfers to exchanges, but also blocked withdrawals from exchanges to banks.
This locks user funds on exchanges such as Binance and Coinbase (PIECE OF MONEY), leaving customers with no choice but to find a bank that is still crypto-friendly if they want to convert their crypto to fiat currency, and that list is shrinking.
Ip says the reason banks have taken such a cautious approach to the booming cryptocurrency sector is because of their appetite for risk.
He said: “Banks must consider the risks of allowing their consumers to interact with organizations that have the potential to cause harm to consumers and to do things with consumers’ money that would lead to poor outcomes. .”
The general manager of Acquired Exchange says that the traditional financial ecosystem is heavily regulated and that this regulation has been built through real-life examples of consumer harm and illegal activity occurring all over the world.
Consumer detriment means that customers lose funds because they have been misled by unfair market practices.
Retail banks can be hit with multi-million pound fines for harming customers. One look at the state of play surrounding the implosion of cryptocurrency exchange FTX is enough for major banks to decide that the risks of exposure outweigh the benefits.
Ip added: “What is clear to much of the industry today is that things are happening in the crypto world that may not really be what we expect. to be seen in traditionally regulated and authorized financial services.
“Obviously a lot of the things that get talked about quite often are black market transactions, terrorist financing, market manipulation, money laundering and things like that.
The exchange director added that traditional financial organizations that are regulated and licensed must have audit, risk and compliance committees.
He added: “These committees ask questions like ‘do the things we allow lead to things that could violate regulations and the law, or could mean our customers could lose money’.”
Many entities in the crypto industry may be less willing to ask these questions.
The UK banking industry’s relationship with the cryptocurrency industry
Let’s take a look at how some of the UK’s leading banks reacted to the reputational damage the cryptocurrency industry suffered after the FTX exchange implosed in November 2022.
After the collapse of the FTX exchange Great British bank NatWest (NWG.L) said: “Due to an increase in scams related to certain cryptocurrency exchanges, we have taken action to block payments or restrict the amount you can send to these businesses each day, until further notice. .”
“We have decided to take proportionate measures to ensure the safety of our customers. This does not mean that we block cryptocurrency payments completely, but we will limit payments to cryptocurrency exchanges that pose the highest risk of financial harm.
The latest being Starling Bank, which claimed that crypto exchanges are “high risk and widely used for criminal purposes”.
Regarding crypto payments, Lloyds said: “We no longer allow the purchase of crypto via a credit card, you can seek to buy 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 At national scale, technically a building society and not a bank, is largely supportive of cryptocurrency transactions. You can use your debit card to buy crypto, make transfers to an exchange, or withdraw your crypto investments to your checking account.
The only restriction in place is that you will not be able to transfer to Binance as this exchange has been banned by the Financial Conduct Authority (FCA).
Traditional finance is getting into the digital asset space
Adrian Ip explained that several regulated firms in traditional finance are eyeing the business opportunities in the digital asset space.
He said: “How can we make sure that we are doing things for the benefit of consumers and people who want to trade these products.
“The traditional financial space is looking for ways to incorporate some of the innovations coming out of the crypto industry into our regulatory practices.
“A lot is happening in the traditional financial space, both with blockchain, crypto and central bank digital currencies.
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However, he pointed out that the forays made by mainstream finance into blockchain and crypto do not necessarily mean an existential threat to crypto exchanges like Binance and Coinbase.
He added: “But the traditional financial sector is looking to take a slice of the activity in the digital asset space, but provides additional protection for consumers.”
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