Revolut faces a crackdown on cryptocurrency investment as ministers prepare for action on unregulated trading strategies offered by the banking app.
According to Treasury documents, “staking”, where investors deposit crypto in the hopes of earning double-digit returns on their investments, could be subject to new City surveillance.
Revolut – was valued at $33bn, (PS27bn in 2021), making it Britain’s largest private company. Last week, the company began offering cryptocurrency staking to customers. It joined exchanges like Coinbase and eToro, allowing customers to lock up their holdings to receive rewards. It can offer returns up to 11.65pc depending on which cryptocurrency it is. According to the business, it supports new regulations.
US regulators have recently closed down Kraken’s staking service. The company was criticized for promising “outsized returns untethered from any economic realities” and fined $30m. There were fears that staking might be banned entirely after the intervention.
According to a Treasury consultation, ministers are looking into the regulation of staking in the UK.
It states: “There may not be an argument to capture staking activities inside the regulatory perimeter” and “some models, depending on their particular characteristics, may already fall within this perimeter.”
Any restrictions would be part of new laws to more tightly control cryptocurrency transactions and investments, much which is currently outside the Financial Conduct Authority’s purview.
Respondents are asked by the Treasury to consider whether staking should also be considered cryptoasset lending. This is likely to be treated as a priority and regulated with rules that make it more similar to traditional loans.
Revolut lets customers already invest in over 100 cryptocurrencies, nine times more than it did a year ago. Revolut launched its crypto staking services last week. Users can lock their cryptocurrency holdings for up to a month and receive returns between 2.99pc and 11.65pc.
Revolut’s wealth and foreign exchange business, which includes cryptocurrency trading revenues, grew from 19% to 31% of total sales in 2019 from the previous year. Although Revolut has stated that they have filed their accounts for 2021, it is still months late.
Staking is the pledge of cryptocurrency to support the maintenance of the blockchain technology. When staking for users, online exchanges often combine multiple users’ holdings. US regulators claim that this makes the service similar in nature to lending.
Revolut finally received approval to operate its cryptocurrency business within the UK in September. It earned a spot on the FCA Register of Crypto Asset Businesses, but has yet to obtain a UK banking license.
A spokesperson for FCA stated that “Cryptoassets can be high-risk, and anyone who buys them should be ready to lose all of their money.”
Rishi Sunak stated that he wanted to make the UK an international cryptocurrency hub. However, his ambitions have been met with resistance from banks and regulators, while cryptocurrency companies have warned lenders that they are being blocked by lenders.
Crypto UK wrote a letter to the Treasury criticising British banks for imposing “blanket bans on customers receiving or transferring payments from crypto-related businesses.”
The trade association representing the digital asset industry claimed that the bans violate payment regulations and are anti-competitive.
It stated that “Intervention is necessary to ensure banks and other financial service firms work with crypto sector to mitigate risks and provide consumer protection.”
“Without these, the UK won’t be able capitalise upon the potential of crypto assets for innovation, job creation and transparency in financial services.”
Revolut spokesperson said that the Kraken issue did not affect its crypto staking product. It is currently not available in the US.
According to the company, “Revolut welcomes clear cryptocurrency regulation and our products will always be in compliance with all applicable regulations.”
We want to be the most responsible provider for crypto services. We have created a Learn & Earn course in order to help our customers understand both the risks and opportunities of trading crypto assets.
“We are pleased to have been included in the recently launched consultation of HM Treasury on this matter. We look forward to working closely with regulators and policymakers to make this a reality.”