UK high street lenders are tightening their stance on cryptocurrencies, citing a rising tide of scams involving the highly volatile and speculative assets.
Their position contrasts with some fintechs who are pushing deeper into the sector, despite prices crashing and major players collapsing. FTX, one of the world’s biggest crypto trading venues, unravelled in spectacular fashion last week with rival Binance ditching an eleventh-hour rescue and leading to fears of contagion.
“The collapse of FTX is just another data point that tells us we did the right thing,” said Paul Davis, director of fraud prevention at TSB, that blocked crypto purchases last year. “The risks to consumers are huge.”
Both Santander UK and Virgin Money have taken action to limit or stop customers from purchasing cryptocurrencies in the coming months.
Santander said earlier this month it would restrict the amount that customers could spend on cryptocurrency exchanges using online and mobile banking payments from November 15. It said the move was driven by “a large increase in UK customers becoming victims of cryptocurrency fraud”, with plans to block all faster payments to cryptocurrency exchanges next year.
Virgin will prevent existing as well as new customers from purchasing cryptocurrencies by the end of this month.
“As a result of the increase in fraudsters using cryptocurrency to obtain funds, we have written to customers to let them know that we will not process cryptocurrency payments in future,” said Virgin.
Their measures reflect the cautious approach adopted by most high street lenders towards cryptocurrencies, which one senior banker said had become “the main avenue for cashing out” for fraudsters.
While TSB became the first bank to ban its customers from all cryptocurrency payments last year, lenders including Lloyds, NatWest and Virgin banned cryptocurrency purchases using credit cards in 2018.
A number of lenders also began blocking payments to Binance in 2021, after the Financial Conduct Authority said it was not authorised to undertake crypto business within the UK.
Barclays does not currently restrict payments to exchanges with the exception of Binance while other lenders, such as NatWest, restrict payments to specific exchanges which they say present “the highest risk of financial harm”.
Annual losses as a result of crypto fraud reported to Action Fraud, the UK’s national reporting centre, had surpassed £160mn by the end of August, already more than the amount for all of 2021.
“It’s just a paradise for scammers,” said a senior executive at one of the biggest high street banks, with over a fifth of payments to some exchanges being fraudulent. “We need to regulate crypto and we haven’t.”
A House of Lords report released on Saturday also raised concerns about the use of cryptocurrencies for fraud and called for the government to work with the private sector on strengthening ‘know your customer’ checks.
“We think it’s understandable that banks would treat it as a red flag,” said Baroness Nicky Morgan, chair of the House of Lords committee behind the report and a non-executive director at Santander UK. “From the evidence we have heard and seen, crypto is often involved in fraud cases.”
The FCA said last month that the number of potential crypto scams reported by consumers jumped 55 per cent in the year to the end of March, from the year before.
The regulator said that it had not instructed banks to stop allowing transfers to cryptocurrency exchanges, but emphasised that digital assets are “high-risk investments and largely unregulated”.
The forthcoming Financial Services and Markets bill will permit greater regulatory oversight of the crypto sector. Currently the FCA only supervises companies’ approach to anti-money laundering.
CryptoUK, a trade body for the digital assets industry, said that fraud is increasing across the board, not just related to cryptocurrencies.
“There are many ways in which scammers can attempt to trick you into parting with your digital money. We urge investors to be smart and do some due diligence.” it added.
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