Edouard Daunizeau’s cryptocurrency company SavingBlocks has an East London office and over 200 customers who have tested its services. However, opening a bank account has been a difficult task for the year-old startup.
SavingBlocks offers passive investors a range of digital-asset portfolios. Nine different banks service providers were contacted to apply for a corporate account. Seven of them declined. The two who did accept it began to bombard Daunizeau over the last few months with requests for additional documentation. This included detailed descriptions of the screening processes that he uses to screen clients’ transactions.
Daunizeau’s woes are a reminder of the critical challenge facing Rishi Sunak, UK Prime Minister. He announced his year-old goal to make the country a worldwide crypto hub. Major banks, including HSBC Group Plc, have increased the limit on the amount customers can transfer to digital-asset exchanges in Britain. This has caused a new blow to the industry.
According to 12 UK crypto executives, the problem goes far beyond that. The difficulties they faced ranged from rejections of applications to being buried under paperwork. Recently, the access to banking has become more difficult to the point where companies have directly complained to Sunak’s government.
“There aren’t many options – most traditional bank won’t offer banking services for crypto firms,” Daunizeau stated in an interview. He declined to identify his banks. It will be more difficult with the recent events. We are looking for licenses in France, where we believe it will be more straightforward.
The crypto sector has been a concern for banks all over the globe. They fear that its reputation for money laundering and other compliance violations could make them vulnerable to regulatory scrutiny. This meant that smaller lenders Silvergate Bank, Signature Bank and others were able to serve the market with a profitable niche.
However, the sector’s reputation was further damaged by a number of scandals and corporate failures in the last year. These included the collapse of TerraUSD stablecoin and the bankruptcy of FTX crypto exchange FTX. Silvergate and Signature’s attempts to invest in digital assets failed when Silvergate collapsed and Signature was taken by regulators. These failures caused a shakeup in global financial markets.
Although crypto may like to claim it is poised to replace traditional finance, banks are necessary for both investors to convert fiat currency to digital assets and for everyday tasks like paying suppliers or workers. Crypto entrepreneurs in the UK now have a dilemma: While the government encourages them to expand, they are being turned down by lenders.
“The UK’s banking reaction was more acute than that of the EU,” stated Tom Duff-Gordon (Vice President of International Policy at Coinbase Global Inc.), who has customers in more than 100 countries. As a possible reason, he cited the progress of the bloc in establishing its own crypto regulation. The Markets in Cryptoassets directive will be up for final vote in April.
The UK doesn’t publish statistics about the number of cryptocurrency firms that have opened since Sunak’s announcement on April 4, last year. However, by at least one measure, the country is rapidly losing ground to the rest Europe.
According to PitchBook data, venture capital investment in UK digital-asset businesses fell 94% from the previous year to $55million in the first quarter. This compares to a 31% increase in the rest of Europe.The UK’s crypto market has seen a decline in VC funding over the past year than any other hubs.
Access to banking is a major problem in the UK, as Rishi and the government want it to be,” stated Jeff Hancock, cofounder and chief executive at Coinpass, a London-based crypto exchange. Coinpass was established in 2018.
Coinpass is one of the crypto companies that has turned to payment-service provider like BCB Payments Ltd. or Stripe Inc. to handle tasks such as taking deposits from clients and facilitating payments. These platforms include CLEAR Junction Ltd. and Paysafe Financial Services Ltd. They are licensed by the UK and can offer basic services to digital asset companies like “ring-fenced” accounts that are managed by third-party lenders and money transfers.
Regulators are essential for the success of providers. Paysafe, which provides crypto exchange Binance UK customers, announced in March that it would cease providing one of its products due to the “challenging regulatory environment”.
Binance had to suspend withdrawals and deposits via bank transfers for clients in Britain. This effectively made it impossible to withdraw money to a UK account from the platform. According to the exchange, the disruption was not felt by more than 1% of its global users and that it is currently working to fix the problem.
Nephos Group, an accounting and professional services company based in the UK that serves crypto, had its account with the money transfer platform WISe Plc for more than three month starting in November. Joe David, Nephos’ co-founder, stated. Nephos was initially told that it had violated Wise terms and conditions. He asked Wise for more details and was referred to a section in its user terms which included its policy regarding cryptocurrencies.
David says that Nephos used subsidiaries to make payments. Wise then unlocked the account. It now has accounts with two additional providers, “just in case we get locked out” to ensure that it can continue to have activity even if it is. You can’t pay anyone if you don’t have a bank account.
David says that the company accepts crypto payments for its services but doesn’t process transactions for customers. Wise spokeswoman, David, stated that it does not support the trading or exchange of digital assets and will block accounts if there is suspicion that clients are violating its terms.
According to two people present, the discussion was confidential at the meeting with Andrew Griffith, Treasury Economic Secretary. After proposing a comprehensive set of new rules in February, the Treasury held the meeting as part of its ongoing dialogue with the industry.
Griffith stated at the meeting that the government would work with lenders to solve the problem, according to one person. A Treasury spokesperson stated that the government will continue to engage stakeholders on “emerging topics” as it consults. He did not comment on the specific details of the meeting.
Simon Jennings, executive Director at the UK CryptoAsset Business Council, stated that “when crypto began, the purists were saying it will bring down banks.”