A survey of U.K. fintech and crypto firms found that 50 percent of the firms surveyed have been rejected from opening a bank account or had an account closed by a major U.K. bank. Only 14 percent managed to successfully apply for a bank account with one of “the CMA 9” – the nine biggest mainstream banks in the UK – without it being closed at a later date.
These figures will shock policymakers following a decade of promoting the U.K. ecosystem as the global home of fintech and crypto, as well as the new Labour Government, with its stated intention of supporting innovation and digitization.
The lack of access to this basic universal service has meant that firms from across the fintech, crypto, blockchain, and Web3 ecosystems have faced challenges in innovating and scaling, limiting their capacity to introduce new products and services while remaining competitive on a global scale.
Katie Harries, who leads Stand With Crypto’s U.K. initiative commented, “The growing difficulties firms face is a huge barrier to growth. It’s not an issue reserved for start and scale-ups but also one medium and large companies face too. We are hugely supportive of Labour’s ambitious growth and investment plans but we currently have a situation where some of the U.K.’s most innovative companies are effectively being deprived of access to basic banking services – hampering these objectives.”
The survey, conducted by the Startup Coalition , the U.K. Cryptoasset Business Council (UKCBC), and Global Digital Finance (GDF) found that 81 percent of respondents were legally based in the U.K. with 98 percent having activities in the U.K.
“Such findings severely undermine the U.K, Government’s ambition to becoming a global cryptoasset hub and the world’s web3 centre,” commented Simon Jennings, executive director of the UKCBC.
Regulatory Roadblocks And Risks
On the debanking crisis, the U.K. Financial Conduct Authority (FCA) stated in their report in September last year, “given the limitations of the data, [they] had not been able to draw detailed conclusions on the types of personal or business customers affected by suspensions, terminations and declines.”
One firm surveyed and rejected by HSBC indicated on their survey response that they were “[rejected because of our] business profile (despite that we are an FCA Regulated firm).”
The survey found 81 percent of firms agreed that difficulties accessing banking services are a significant barrier to their company succeeding in the U.K. and 70 percent had found that this made it more likely they would leave the U.K.
“This obstacle has pushed many U.K. based firms to consider expensive alternatives like setting up accounts in locations such as Estonia, Poland, and Bulgaria,” says Marcus Foster, head of policy campaigns at the Startup Coalition.
Adds Foster, “In the absence of adequate banking services, these firms are being pushed to seek out riskier financing and banking options. This also makes the U.K. a less attractive place to found a crypto or Web3 startup.”
What Can The U.K. Learn From Other Countries?
In France, the law governing cryptoasset regulation has a specific provision for the treatment of Virtual Asset Service Providers (VASPs) or crypto-related businesses, to ensure that they cannot be discriminated against in terms of banking services. The law specifically states that they cannot be denied a bank account by virtue of being a designated VASP.
Elise Soucie, director of global policy and regulation at GDF says, “In addition to France, The Hong Kong Monetary Authority has issued guidance to support responsible innovation by stating that banks should endeavour to support virtual asset service providers (VASPs) licensed and regulated by the Securities and Futures Commission (SFC) on their legitimate need for bank accounts in Hong Kong.”
The U.S. crypto industry was prepared, to some extent, for regulation by enforcement in 2023, following the collapse of FTX, but evidence of Operation Chokepoint 2.0 sent a chill down the spines of crypto CxOs and financiers. Yet, in the past year, with Blackrock and a growing list of financial institutions launching hugely successful bitcoin ETPs and strong crypto overtures from a new incoming U.S. administration, positive changes appear afoot in the U.S.
The U.K.’s 2021 ban on crypto derivatives, which was in contrast to industry consultation data including its own survey data, was also a setback for the U.K. in maintaining its dominant position as a global fintech and digital hub. A clumsy start to the earlier FCA’s crypto registration scheme was another contributor to setbacks.
The ban was also in contrast to global market practices, where the U.S. Commodity Futures Trading Commission (CFTC) “approval” of the first bitcoin futures contract introduced on the Chicago Mercantile Exchange (CME) in December 2017.
In announcing the 2021 ban, the FCA stated, “Retail consumers can’t reliably assess the value and risks of derivatives like contracts for differences (CFD’s), futures, options and exchange traded notes (ETNs) that reference certain cryptoassets.” However, the FCA has recently changed this position slightly by approving crypto ETNs for professional investors only.
Following the optimism of the competition mandate granted to the FCA more than a decade ago, in response to the Great Financial Crisis and the failure of two of the four main U.K. banks, there is again much work to do in the U.K. to make Digital Britain attractive to fintechs and crypto firms across both retail and wholesale markets.
Making Changes In The U.K. That Count
Progress has been made laying the legal foundation to position the U.K. as a leading financial hub with the Financial Services and Market Act (FSMA), 2023. Its aim to reform the capital markets, bring payment stablecoins into the scope of regulation, and strengthen the objectives of the financial services regulators to include advancing the international competitiveness and medium to long-term growth of the U.K. economy is good strategic policy being enacted.
FSMA, along with a new Property (Digital Assets Etc.) Bill, clarifies that certain digital assets, such as crypto tokens, can be recognised as property, even if they do not fit into the two traditional categories of personal property in English and Welsh law.
The Digital Securities Sandbox is also a positive development by the Bank of England and the FCA to help to deliver a smooth transition to the issuance, trading and settlement of digital securities in the U.K. This month, and following significant industry advocacy, HM Treasury amended a law to clarify that crypto staking doesn’t fall under the definition of a “collective investment scheme,” which is typically heavily regulated.
However, all of this new policy and legislation often appears to favour incumbents, when taking into account the U.K. fintech and crypto debanking experience to date.
Let’s get back to first principles: For the U.K. to position itself as a hub for new innovators in fintech, digital and crypto innovation, and to deliver on the promises of growth from the new Government, the fintech and crypto debanking problem must be effectively addressed, and now.
Fixing fintech and crypto debanking is Labour’s opportunity to make a tangible change for digital innovators so that they will commit to build and grow new and transformational businesses in the U.K.
Following the election, the Labour government has their chance to fix this problem and fix it for good. With U.K. fintech funding down by a reported 68 percent in 2023, and global fintech funding down a further reported 20 percent in 2024, the U.K. is going to have to increase its incentives to fintechs and digital firms to attract both more homegrown talent and foreign interest and investment.
A key action to remedy the fintech and crypto banking problem is to promote transparency, competition, and growth, and to mandate U.K. banks to move away from using generic statements justifying account refusal, especially on the grounds of being engaged in innovative technologies. This is particularly relevant for firms that have demonstrated their compliance with regulatory and registration requirements.
The big concern in industry is, that despite the progress the U.K. is making to deliver greater legal and regulatory certainty for the cryptoasset sector, it is being undermined as the fintech and crypto sector is further de-banked and the crucial on-ramp from fiat to digital assets is choked off.
As importantly, fintech and crypto de-banking is making a mockery of the U.K. Government and its agencies, including the Competition and Markets Authority (CMA), with the U.K.’s claim to be the “home of global fintech” and “a global digital hub”. It is neither now, if it ever was. An web search of top ten global fintech and crypto firms is telling.
The U.K. is likely to have future challenges competing for talent and capital in the global digital space race, especially in crypto, blockchain, and Web3, none of the largest market players are U.K. domiciled or headquartered. This is not going to be made easier now that the U.K. Government has shifted its digital priorities to Artifical Intelligence (AI) as the digital solution to transform the economy and the lives of its citizens, where most of the big players are U.S. based.
U.K Prime Minister Keir Starmer this week set out a blueprint to turbocharge AI with the promise that AI will deliver a decade of national renewal. While governments and their agencies are always keen on big new and exciting announcements, the fintech and crypto industry is set on holding the U.K. Government’s feet to the fire on the debanking issue.
It is time to fix fintech and crypto debanking in the U.K., now.
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