CryptoUK and members write open letter to HMT, FCA & Payment Standards Regulator relating to UK banks limiting or banning transfers from customer accounts to crypto exchanges
The following open letter, relating to UK banks limiting or banning transfers from customer accounts to crypto exchanges, was sent to Gwyneth Nurse and John Owen (HM Treasury), Sheldon Mills and Matthew Long (Financial Conduct Authority), and Chris Hemsley (Payment Systems Regulator). You can read the contents of the letter below, or download a PDF version here.
Dear Gwyneth, John, Sheldon, Matthew, Chris,
Re: UK Banks limiting or banning transfers from customer accounts to crypto exchanges
I am writing on behalf of CryptoUK members to draw your attention to a concerning development in the industry whereby a number of UK banks have introduced blanket bans in respect of, or are severely limiting the value of, transactions from their customers accounts to any business identified as a crypto exchange.
This may be coming in response to a Payment Systems Regulator (PSR) consultation that proposes making UK retail banks liable for compensating customers for losses related to fraud or scams. However, these restrictions are in place even where the customer holds an account at a regulated firm (such as e-money institutions and firms registered with the FCA under money laundering rules), and are anti-competitive, disproportionate and discriminatory. Moreover, these measures are non-compliant with PSD2 payment rules on refusal of payment orders and the FCA should take steps to address this. Finally, these restrictions run counter to the Government’s crypto objectives; the fiat to crypto on-ramp is a key element of the ecosystem, which – if stifled – will significantly impact the Government’s ambition to become a global crypto hub.
While we recognise the importance of addressing scams and fraud in respect of all transactions, including crypto transactions, we believe there are more effective and proportionate steps that should be taken than blanket bans or the imposition of arbitrary limits, such as additional risk warnings or verification for customers. The banks should also reconsider their approach to FCA licensed and registered firms.
One UK bank has alleged that crypto assets are “heavily used for criminal purposes”, and that banks can “no longer support them”. New technologies are always going to attract criminal attention and all firms are focused on reducing fraud and scams as this negatively hurts the entire industry. However, it is important that preventative measures imposed do not inhibit the development of an entire industry, where fraudulent transactions, linked to a small number of bad actors, make up a tiny proportion of overall volume.
We set out each of these issues in turn and we request the opportunity to discuss these issues in more detail in a meeting with you.
Non-compliant with PSD2 payment rules
In introducing blanket banks or severe limits, the banks are contravening Regulation 82 of the PSRs 2017 (Refusal of payment orders), which sets out that:
(5) Where all the conditions set out in the payer’s framework contract with the account servicing payment service provider have been satisfied, the account servicing payment service provider may not refuse to execute an authorized payment order irrespective of whether the payment order is initiated by the payer, through a payment initiation service provider, or by or through a payee, unless such execution is otherwise unlawful.
Anti-competitive
By preventing ‘fiat on-ramping’, banks are preventing financial services being provided to users by competing companies, including for publicly listed, FCA licensed e-money institutions.
This ‘de-risking’ by the banks has a similar impact on competition as the de-risking previously seen when banks refused to provide bank accounts to payment institutions, thereby preventing these payment institutions from carrying out competing services.
The principles the FCA developed to address de-risking under regulation 105 of the PSRs should be similarly applied by banks to decisions to block transactions to crypto platforms. That approach would mean that banks should not deal generically with certain destination businesses, but should treat each payment individually using a proportionate, objective and non-discriminatory (POND) approach.
Further, there is case law which does support the position that competition is an important aspect to these types of situations (for example Dahabshiil Transfer Services v Barclays Bank PLC ([2013] EWHC 3379 (Ch)). Where an entity abuses its dominant position in the UK then that can amount to illegal anti-competitive activity. In this case a significant proportion of the UK banking industry (which can be taken as a whole to have a dominant position) have taken these actions, which we believe could be argued as an abuse of dominant position.
Disproportionate
With the acceleration of interest and adoption of digital assets and the ease by which new tokens are created and distributed, frauds and scams are an inevitable risk – as with all payment instruments.
While the underlying technologies in crypto may be different, the techniques used by fraudsters and scammers are frequently reflected in traditional finance and online marketplaces as well. For example, PayPal continues to be one of the most impersonated brands in the world.
The restrictions come in response to a PSR consultation that proposes making UK retail banks liable for compensating customers for losses related to fraud or scams. However, rather than ban or significantly limit transactions, the UK banks should take other, more proportionate measures to address these issues such as additional risk warnings or verification for such transfers.
Likewise, CryptoUK members acknowledge and understand the importance of protecting customers from bad actors. This is why we invest significant resources in preventing fraud, through in-app notifications and machine learning tools which allow us to recognize and block fraudulent activity. We want to take a collaborative approach to working with the UK banks to minimize fraud and scams, while not punishing the vast majority of people who are using our platforms for legitimate purposes.
Runs Counter to the Government’s Ambitions
The Government has been clear in its ambition to make the UK a global hub for crypto innovation and has included crypto, digital assets and Web3 businesses within this remit. Key to this will be delivering a regulatory framework that raises standards, supports the development of a legitimate and trusted industry of crypto asset exchanges, and provides legal and regulatory certainty to the market.
However, regulation alone will not be sufficient: intervention is needed to ensure that banks and other financial services firms work with the crypto sector to mitigate any risks and deliver on consumer protection. Without this the UK will not be able to capitalise on the potential of crypto assets to deliver innovation, job and revenue creation, and better and more transparent financial services.
Our members stand ready to work with the UK banking sector to tackle fraud and scams, and hope that in turn, the UK banks will consider alternative measures (e.g. additional risk warnings and verification), and take a more targeted and proportionate approach to addressing these challenges, particularly with respect to FCA licensed and registered firms.
CryptoUK and its members would also very much appreciate the opportunity to discuss this with you in person, and we look forward to hearing from you on whether a meeting is possible.
Yours Sincerely,
Ian Taylor, Executive Director, CryptoUK – and behalf of our members (ian@cryptouk.io)
About CryptoUK
CryptoUK is an independent industry body that exists as a cohesive, credible voice for the evolving UK crypto industry. It represents the UK’s crypto asset sector, working directly with policymakers and market players to advocate for better education, mutual understanding, and fair and balanced policy. Its 155+ members include crypto natives, services, custodians, and institutional investors.
CryptoUK works with policymakers and agencies to improve protections where they are needed and remove barriers where they are not. It works with industry market participants to identify and promote use cases for digital and crypto assets which create value for UK PLC as well as promoting the UK crypto industry on the world stage. To find out more, please go to cryptouk.io.
