Payments Association: How red tape is choking UK’s crypto ambitions


The UK has been keen on positioning itself as a global crypto asset hub in recent years, however it is now facing critical obstacles that are hindering its effort, writes George Iddenden, Reporter at The Payments Association.

While the UK has worked hard to make early gains in the crypto space, it has encountered a dual challenge linked to the legacy banking sector, which is preventing progress being made, according to industry insiders.

One of the major issues revolves around retail customers’ ability to access crypto products, with large banks, including Chase Bank, blocking transactions with crypto exchanges. Perhaps the primary cause for this is the new app reporting requirements introduced by the Payment Systems Regulator (PSR), making banks increasingly risk-averse. While risk management is crucial, the new stringent measures have implications for crypto businesses, creating a scenario where potential customers are denied access to essential financial services.

The second challenge is related to the difficulties companies are now facing when trying to open and maintain banking accounts in the UK. Many businesses involved in blockchain, crypto, web3, fintech, and payments are forced to rely on second-tier banks or operate offshore due to their inability to secure accounts with major banks. This is inadvertently pouring water on the crypto flame, hindering companies from scaling and expanding their operations within the UK.

Addressing the challenges

Simon Jennings, managing director of NorthPoint Strategy, a leading emerging tech lobbying firm, believes the UK should urgently address these issues as they are preventing the UK from fulfilling its ambitions to become a ‘global cryptoasset hub’. He said: “Firms within the UK’s digital asset and Web3 ecosystems have long struggled to establish and maintain banking relationships.

“Even with significant progress in providing legal and regulatory certainty, these firms still face obstacles that continue to undermine the sector’s growth potential. Even some firms that are registered and supervised by the FCA have difficulty obtaining banking services from major providers. This situation has led to reduced innovation and scalability, hindering these businesses from introducing new products and services on a global scale.”

Jennings pointed out that the issue has forced many UK-based cryptoassets and blockchain companies to seek expensive alternatives. “These include setting up accounts in countries like Estonia, Poland and Bulgaria. Some are even considering relocating core functions to jurisdictions where banking services are more accessible. In the absence of adequate banking services, these firms are pushed to seek riskier financing options, potentially creating concentrated risks within the sector.”

The challenge extends beyond the issue of risk appetite as, in some cases, large institutions are offering investment banking services but deny essential banking services, Jennings claimed. This issue gained prominence, in part, thanks to Nigel Farage’s involvement in the banking saga with Coutts. After initiating an enquiry on the issue, the Financial Conduct Authority (FCA) concluded that there wasn’t enough action to support regulatory action.

In response to the findings, a number of credible industry bodies are in the process of collaborating to gather evidence on the issue by demonstrating the extent of the issues faced by firms seeking access to essential banking services.

The challenges faced by the UK crypto industry regarding banking issues are in a complex position. Jennings believes the UK can take a leaf out of others’ books, citing how Hong Kong and France support crypto-related businesses while remaining compliant with regulations. “These jurisdictions have put in place measures to prevent discrimination against regulated cryptoasset service providers. A similar approach in the UK could bolster confidence in banks and enhance transparency,” he said. 

All the ingredients to be the premiere crpyto asset hub

The UK boasts a talented workforce, a robust legal framework, and a government open to crypto’s potential – all the ingredients are there to establish itself as the premiere crypto asset hub. Yet, needless red tape is stifling this potential growth and pushing promising companies overseas. 

A proactive approach that balances risk management with industry support can turn the tide and establish the UK as a global leader in this burgeoning space. A collaborative effort to address banking access, streamline regulations, and foster innovation is crucial to securing the UK’s place at the forefront of the crypto revolution.