Why are banks refusing business customers who accept cryptocurrencies?


By Dr Tim King

In response to the news that NatWest will refuse to serve business customers who accept cryptocurrencies, Dr Timothy King, Senior Lecturer in Finance Banking and Innovation and Director of the Centre for Quantitative Finance in Kent Business School, gave his insights, saying:

‘The news that NatWest, one the UK’s largest banks, will refuse to serve business customers who accept cryptocurrencies is an interesting development and comes only a month after HSBC made a similar statement. This news was delivered by Morten Friis, head of the bank’s risk committee and a member of the board, who framed the news by stating that the bank was taking a “cautious approach” to dealing with cryptocurrencies and views them as being high risk. This echoes the thoughts of the UK regulator who has repeatedly outlined the risks associated with investing and trading in digital assets, citing issues with consumer protection, price volatility, product complexity, charges and fees and marketing materials.

‘Although the sector is largely unregulated, the UK regulator has begun to impose regulations that impact the use of digital assets. For example, in October 2020 the Financial Conduct Association (FCA) published final rules which prohibited the sale, marketing and distribution of derivatives and exchange traded notes (ETNs) that reference certain types of cryptoassets to retail consumers.

“Increasingly cautious approach”

‘So why have NatWest made this decision now? This should in fact come as little surprise and reflects a noticeable movement by the UK banking sector to adopt an increasingly cautious approach to dealing with cryptocurrencies. Specifically, this cautious stance is one shared by other UK banks who have generally been less willing to embrace the use of banking with cryptocurrencies compared to their European counterparts. Major concerns include the riskiness of cryptocurrencies and their potential use for illicit purposes such as money laundering and terrorism, which have implications for regulatory compliance, as well as the uncertain and evolving regulatory environment.

‘For example, one major concern of banks’ is that their customers, enticed by the buzz of cryptocurrencies, may choose to borrow heavily on credit cards to speculate on cryptocurrencies and then be exposed to huge losses that they cannot settle. This concern has led many lenders to prohibit their customers from this, including banks such as Citigroup and JPMorgan in the US, whilst in the UK; Halifax, Lloyds, Bank of Scotland, and MBNA refuse to accept the use of credit cards to purchase cryptocurrencies citing protection of their customers.

‘Although the stance of NatWest and HSBC, amongst others, may be astute from a risk management perspective given the current risks and uncertain future of cryptocurrencies, it could also lose them valuable business from innovative and forward-looking firms seeking to embrace cryptocurrencies as a means of payment. This is in addition to the potential for competitor banks and other financial institutions willing to accept them. The US Bank of New York Mellon announced in February this year it would begin storing and managing cryptocurrencies for its clients.

‘Only time will tell how the landscape will evolve in the UK and internationally, but for now the decision of NatWest does appear to be a sensible and measured one.’

Dr Timothy King, Senior Lecturer in Finance Banking and Innovation and Director of the Centre for Quantitative Finance, Kent Business School

Dr King’s research focuses on the theme of corporate governance in banks (and non-banks) and on the response of the banking community to technological and regulatory disruption including the emergence of cryptocurrencies and blockchain technology.

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