Yesterday's news that JPMorgan’s British retail bank Chase will introduce a ban on crypto transactions is just the latest step in the direction of travel around banks increasing pressure and restrictions around the interactions between the crypto market and the financial services space. 

No one will need to be told about the general pressures which have developed on US Banks servicing individuals and regulated businesses from the space, and most will also be aware of the position taken by HSBC in August around the single transaction limits of £2,500 and the 30-day rolling limit of £10,000. 

These changes were generally commented on as HSBC ‘shooting itself in the foot’, but there are also many other high street banks which have followed the same narrative with far lower thresholds, or simply not permitted payments to be made into or out of the crypto space. In February this year, statements from Alison Rose, CEO of Natwest Group told the House of Commons Committee that the bank was “blocking retail and wealth customers from transferring into crypto assets because of the volatility and stability of the platform.” The Chase announcement is another pointer to the direction of travel. So why has this happened and what are the solutions?

WHY BANKS SHY AWAY FROM CRYPTO

The reasons that these banks tend to cite are the risk of fraud and regulatory standards. Interestingly, most of the executives questioned by the House of Commons Committee saw potential in new rules being proposed by the sector. Charlie Nunn, CEO of Lloyds bank stated that the bank was “very supportive of the regulation and the regulators looking at regulation of crypto, our focus will always be about customer outcomes in that context.” 

But arguably, if the objective is really to focus on customer outcomes, banks should be investigating and investing in the technology being used to manage this risk. They should also be seeking to provide their customers with a secure environment to gain exposure to these markets in the right way. Some banks seem to be starting to take those steps. Commerzbank in Germany has been reported as starting its licensing application to offer exchange and crypto asset services. DBS in Singapore already operates its regulated Digital Payment Token Exchange, but these are principally focused on institutional or high-net worth markets. Shouldn’t retail users also be given the same opportunity for secure exposure to the right markets, or even ways of moving the value of their assets from insecure or risky markets to solid and safe banking environments? Should your bank be justified in blocking access to entire markets that you choose to invest in, or providing you the security to exit those markets?

Let’s look at some of the data around how risky these markets are. Chainalysis reported that for 2022, around 0.15% of transactions in the crypto space involved an element of criminality with money laundering accounting for 0.05%. While the number of $8.6 billion relating to laundering activity sounds significant, let’s bear in mind that the United Nations Office on Drugs and Crime (UNODC) estimated around $2 trillion value for the same activity through the traditional finance system — around 232x the volume. Should banks be able to access high-value art markets, foreign property markets, and commodities markets, and completely restrict access based on the assessment of the bank, rather than the individual?

XAPO BANK. THE BRIDGE

Xapo Bank has approached this completely differently. We have created the most highly regulated Virtual Asset Service Provider (VASP) entity possible to allow our members to acquire interest in BTC. Better than that, we allow our users to earn a yield on the BTC they hold, at zero risk. Member BTC is completely segregated, we are fully audited, and deploy our own assets (not the member’s assets) to generate the return we provide to our users. There is no other platform in the world that does this.

We have also developed blockchain-based payment rails in USDC and USDT into your Bank account. This is the perfect bridging system between the security of a deposit guarantee insured USD Bank account, and a payment rail into, and out of the crypto space. Do we believe that there are risks in these markets, yes absolutely. But do we believe that there are processes, and systems that allow modern platforms to proportionately manage that risk, yes we do. 

People often talk today about CBDC’s and the advantages of blockchain based infrastructure. But we are a bank that already offers this from a practical and modern perspective, for users that are attracted by the idea of a secure, solid infrastructure allowing them access to this developing asset class in the right way.