Last year, the UK financial regulator, FCA, was tasked with creating a regulatory sandbox in which they can test financial services related to blockchain technology. A year after this sandbox was established, the FCA has published a report which details its achievements and lessons that they learned in the past year. However, this report also included some damning evidence against banks in the UK.
The FCA notes in their report that they have witnessed the denial of banking services first-hand spread across a number of firms involved in the regulatory sandbox. There increased the difficulty to procure banking services especially for those firms who wished to become blockchain payment institutions or digital money institutions.
In the report, the FCA emphasized their concern in the matter, by stating that most DLT startups are currently experiencing a seemingly blanket refusal from UK-based banks. The FCA has also added that there are several inconsistencies within individual banks, especially in terms of how they go about applying their assessment criteria to approve granting banking services to certain firms or individuals.
The FCA noted that banks which denied services to DLT startups were seemingly motivated by strategic business reasons, among other reasons, as speculated by the regulator. The FCA stated in their report that banks denying DLT startups services is a cause for concern, as it creates significant barriers to entry and is likely to discourage competition within the market. The report noted that the current assessment criteria and policies used by banks posed a threat, as well, to innovation and competition.
The FCA warned against this practice, by stating that if certain startups are unable to secure a bank account, they will be unable to meet the conditions as set out by the FCA to become authorized institutions. In turn, this would mean that said firms would be unable to enter the market, even for testing purposes within the sandbox. In addition, the report confirms that several promising firms were prohibited from testing their services in the sandbox, due to being unable to procure a bank account and access to other financial services.
The report stated that many financial institutions currently associate blockchain related firms with money laundering and terrorist financing. Banks often site these mostly unfounded reasons for denying DLT companies access to banking services. However, the FCA strongly rejected this argument by stating that there is no basis for these reasons. In addition, the FCA stated that this reluctance is unlikely to aid in money laundering risk management. The report concluded by stating that the FCA remains committed to ensuring that the UK financial system is a hostile environment for money laundering.
The FCA notes in their report that they have witnessed the denial of banking services first-hand spread across a number of firms involved in the regulatory sandbox. There increased the difficulty to procure banking services especially for those firms who wished to become blockchain payment institutions or digital money institutions.
In the report, the FCA emphasized their concern in the matter, by stating that most DLT startups are currently experiencing a seemingly blanket refusal from UK-based banks. The FCA has also added that there are several inconsistencies within individual banks, especially in terms of how they go about applying their assessment criteria to approve granting banking services to certain firms or individuals.
The FCA noted that banks which denied services to DLT startups were seemingly motivated by strategic business reasons, among other reasons, as speculated by the regulator. The FCA stated in their report that banks denying DLT startups services is a cause for concern, as it creates significant barriers to entry and is likely to discourage competition within the market. The report noted that the current assessment criteria and policies used by banks posed a threat, as well, to innovation and competition.
The FCA warned against this practice, by stating that if certain startups are unable to secure a bank account, they will be unable to meet the conditions as set out by the FCA to become authorized institutions. In turn, this would mean that said firms would be unable to enter the market, even for testing purposes within the sandbox. In addition, the report confirms that several promising firms were prohibited from testing their services in the sandbox, due to being unable to procure a bank account and access to other financial services.
The report stated that many financial institutions currently associate blockchain related firms with money laundering and terrorist financing. Banks often site these mostly unfounded reasons for denying DLT companies access to banking services. However, the FCA strongly rejected this argument by stating that there is no basis for these reasons. In addition, the FCA stated that this reluctance is unlikely to aid in money laundering risk management. The report concluded by stating that the FCA remains committed to ensuring that the UK financial system is a hostile environment for money laundering.