Title: Leaving Young Fintechs Behind: The U.K.'s Debanking of Crypto, Blockchain, and Web3
Unveiling the Challenge of Fintech and Crypto Firms in the U.K.
Recent findings uncovered a concerning situation for U.K. fintech and crypto firms, as half of the surveyed businesses reported experiencing rejection or account closures by major U.K. banks. Once fortunate and promoted as the global hub of fintech and crypto, only 14% of these firms managed to secure and maintain a bank account.
This alarming reality has put a spotlight on policymakers, particularly the new Labour Government, with its commitment to fostering innovation and digitalization. The lack of access to basic banking services has presented significant hurdles to these firms, limiting their capacity for innovation, product development, and maintaining a competitive edge globally.
Katie Harries, head of Stand With Crypto’s U.K. initiative, pointed out the issue's severity and impact, expressing support for Labour's ambitious plans but emphasizing the need for action to eliminate these barriers.
The survey, conducted by the Startup Coalition, the U.K. Cryptoasset Business Council (UKCBC), and Global Digital Finance (GDF), revealed that 81% of businesses were legally based in the U.K. and had at least 98% of their activities within the country.
Simon Jennings, executive director of the UKCBC, highlighted the significance of tackling these obstacles for the U.K. to fulfill its aspiration to lead the global race in digital assets.
However, the U.K. Financial Conduct Authority (FCA) has signaled the complexity surrounding the debanking crisis, acknowledging that the limitations of available data had prevented them from drawing definitive conclusions.
Marcus Foster, head of policy campaigns at the Startup Coalition, described the predicament, resulting in U.K.-based firms considering more costly options such as establishing accounts in Estonia, Poland, and Bulgaria.
Moreover, the absence of adequate banking services leads firms to seek riskier financing options, which makes the U.K. a less attractive destination for crypto and Web3 startups.
Some nations like France have implemented specific provisions to support crypto-related businesses in accessing banking services, preventing discrimination in opening accounts. The Hong Kong Monetary Authority and the incoming U.S. administration are also present in this category, advocating for banking opportunities for virtual asset service providers (VASPs).
The U.S. crypto industry faced regulation by enforcement in 2023, following the collapse of FTX, and braced for changes under the new administration. However, evidence of Operation Chokepoint 2.0 had chilling effects on crypto CxOs and financiers.
The recent election, though, brought forth positive signs for the U.S., with Blackrock and other financial institutions launching successful Bitcoin ETPs, and the administration expressing support for the crypto and tech industry.
The U.K. faces the risk of falling behind in the global fintech and crypto landscape due to the lack of a clear regulatory framework, as well as the debanking problem. The U.K.'s 2021 ban on crypto derivatives, and the faulty start to the FCA's crypto registration scheme, were significant setbacks.
Progress has been made to promote digital asset growth in the U.K., with legislation like the Financial Services and Market Act (FSMA), 2023, and the Property (Digital Assets Etc.) Bill.
However, the legal foundation often appears to benefit incumbents, exacerbating the U.K. fintech and crypto debanking issue driven by the major mainstream banks in the U.K.
This year, following significant industry advocacy, HM Treasury amended a law to clarify that crypto staking does not fall under the definition of a "collective investment scheme." Sprinkling of hope, but further efforts to close the gap with other jurisdictions are necessary.
To position itself as a hub for fintech innovators in crypto, blockchain, and Web3, the U.K. must effectively address the debanking problem to deliver on the ambitious growth promises of the new Government.
- The UK Cryptoasset Business Council (UKCBC), along with Global Digital Finance (GDF) and the Startup Coalition, conducted a survey highlighting that 81% of fintech and crypto firms in the U.K. are legally based within the country.
- Simon Jennings, executive director of the UKCBC, urged that tackling the debanking issue is crucial for the U.K. to maintain its leading position in the global digital assets race.
- Katie Harries, head of Stand With Crypto’s U.K. initiative, emphasized the importance of Labour's plans to foster innovation but stressed the need for concrete actions to overcome the obstacles faced by these firms.
- Elise Soucie, a prominent figure in the crypto industry, suggested that nations like France and Hong Kong have implemented measures to support crypto firms, preventing account rejections and closures.
- The U.K. cryptoasset business council and Startup Coalition, together with GDF, called upon the new Government to "stand with crypto UK" and support efforts to eliminate the barriers faced by these innovative firms.
