UK banks HSBC and Nationwide Building Society have curbed cryptocurrency transactions in response to regulatory alerts. They join a growing list of UK banks that have tightened restrictions on digital assets due to warnings from the Financial Conduct Authority and industry scandals.
Last month, HSBC prohibits customers from making cryptocurrency purchases with its credit cards due to a perceived risk to its clients.
Limits on Crypto Purchases via Debit Cards
After a year of turmoil for cryptocurrency, leading UK banks like HSBC and Nationwide Banks are taking action to limit transactions in response to regulator alerts. They have implemented daily limits on debit card purchases of crypto as well as banning credit cards from purchasing cryptocurrency.
Nationwide recently issued an email to customers citing the Financial Conduct Authority (FCA) warning about cryptocurrency risks. "Due to this, we have decided to impose restrictions on crypto exchange purchases from your current account," reads the message. The daily limit will be 100 British pounds for Flexone accounts and 5,000 pounds for other current account types.
HSBC recently implemented limits on cryptocurrency purchases with their credit cards, in response to FCA concerns about the high risk nature of cryptocurrencies and crypto exchanges. In August 2021, HSBC banned credit card payments to Binance - the leading crypto exchange - due to concerns that such transactions could compromise customers' financial security.
These actions by the banking giants are part of a wider movement among institutions to guarantee regulatory compliance in the digital asset industry. In February, UK's Financial Conduct Authority released a consultation paper on cryptocurrency regulation in their country. According to Bloomberg, this document seeks to achieve four overarching policy objectives: foster growth and innovation; enable consumers to make informed decisions; protect U.K. financial stability; and safeguard market integrity.
Other UK-based financial services providers, such as Santander and Natwest Group Plc, have already implemented similar rules. Most of these limitations pertain to payments made to cryptocurrency exchange Binance which dominates the trading landscape with a presence in over 140 countries.
Many investors are dismayed by these restrictions, which prevent them from purchasing cryptocurrency with their accounts. This has had an adverse effect on the industry as a whole. It's essential to remember that these new restrictions are only temporary solutions; other measures will eventually replace them in order to curtail further growth of the crypto market. These could include capping how many crypto transactions banking customers can carry out and creating a regulatory framework for it.
Limits on Crypto Purchases via Credit Cards
Cryptocurrencies have become intimately tied to regulated financial institutions, and policymakers are struggling with how best to manage the risks that come along with them. The International Monetary Fund has warned that uncoordinated regulatory actions could potentially destabilize capital flows.
Due to this, several major banks have prohibited their customers from buying cryptocurrencies and associated exchanges. These include Santander, Lloyds and NatWest Group.
HSBC also forbade its credit card holders from purchasing cryptocurrencies due to the FCA's worries that these digital assets pose a high-risk speculative threat.
Nationwide Building Society has also implemented limits on the use of credit cards to purchase cryptos. According to Bloomberg News, this move comes in response to regulator warnings and scandals surrounding the cryptocurrency industry.
The bank will set daily limits of PS5,000 ($5,965) on debit-card purchases of crypto assets, while prohibiting credit cards for these purchases. These limitations apply to all customers with active accounts.
This move by the bank is a reversal from previous attempts to allow customers to buy cryptos. However, this could be an indication of increased consumer protection laws that will require banks to consider consumer harm when deciding whether or not they permit cryptocurrency sales.
Other UK banks such as Santander, Lloyds and NatWest have implemented crypto-specific limits on their customers in recent years. These include restrictions on payments to Binance Holdings - the world's largest crypto exchange.
These changes are indicative of the growing threat cryptocurrencies and related products and services pose to traditional banking institutions. Policymakers and regulators alike are grappling with how best to balance consumer protection with customer empowerment when it comes to digital assets.
In addition to setting limits, banks are also imposing regulations on exchanges that facilitate these transactions. This includes making sure these exchanges have proper registration with the Financial Conduct Authority and comply with Anti-Money Laundering and Counter Terrorist Financing requirements. Recently, the FCA published a report outlining an proposed regulatory framework for dealing with cryptocurrencies in the U.K. This report seeks to achieve four overarching policy goals: promote growth, innovation and competition; enable consumers to make informed decisions with full understanding of risks; protect U.K. financial stability; and promote market integrity.
Limits on Crypto Purchases on Exchanges
Cryptocurrency exchanges are regulated differently around the world. Some jurisdictions, like Japan and Switzerland, impose stringent regulatory frameworks and require exchanges to obtain licensing from their financial regulators; whereas, others such as the United States take an accommodating approach towards cryptocurrencies by applying existing legal frameworks where possible.
In the United States, digital assets that constitute securities must be regulated by the Securities and Exchange Commission (SEC). They can only be traded on licensed securities exchanges or alternative trading systems ("ATS") approved by the SEC. Furthermore, futures, options, swaps, and other derivative contracts referencing cryptocurrency prices must adhere to regulations set out under Commodity Futures Trading Commission's (CFTC's) Commodity Exchange Act.
Unregistered digital assets that are not securities may still be subject to regulation under state or federal law. Therefore, it's essential to determine if a digital asset is classified as either a security or commodity before investing in it; otherwise, investors could face serious legal and regulatory repercussions.
Some jurisdictions, such as China, have implemented stringent regulations on cryptocurrency and cryptocurrency exchanges. For instance, the People's Bank of China prohibited initial coin offerings (ICOs) in 2013 and domestic cryptocurrency exchanges the following year (2017).
Other jurisdictions, such as the UK, have taken a more positive attitude toward cryptocurrencies. In January 2020, they transposed EU anti-money laundering regulations into domestic law and required cryptocurrency-fiat currency exchanges to perform Know Your Customer/Do Not Disturb on customers and fulfill standard reporting obligations.
Furthermore, the UK has recently implemented a series of measures to combat money laundering and terrorist financing through crypto exchanges. For instance, it announced a crackdown on unregistered crypto ATMs and is considering fining crypto executives who breach rules related to financial promotions of cryptocurrency products.
The UK government is taking action to regulate stablecoins, which are frequently used for transactions that could facilitate money laundering and terrorist financing. By 2022, they plan to implement legislation making it illegal for issuers of stablecoin tokens not to comply with existing anti-money laundering and counter-terrorist financing regulations; additionally, new security protocols will be put into place and crypto service providers must report suspicious activity.
Limits on Crypto Purchases on Metaverse Goods
Metaverse technology is set to revolutionize how people engage online. Utilizing virtual and augmented reality capabilities, metaverse platforms will enable users to purchase virtual goods, attend meetings or concerts, visit friends and family virtually, as well as take part in other activities without physically being present.
In addition to traditional crypto-assets such as Bitcoin and Ethereum, people will also have access to blockchain crypto-assets in metaverse platforms. These digital assets look similar to traditional cryptocurrencies like Bitcoin or Ethereum but also allow people to purchase items only available there: avatar clothing, virtual decorations and weapons, as well as NFTs (non-fungible tokens) representing ownership of digital goods within the metaverse.
These digital coins, designed for easy transfer from person to person, have seen an exponential rise in value. The two most prominent metaverse cryptocurrencies are MANA (with a market cap of $4.27 billion) and SAND ($3.485 billion).
To purchase metaverse tokens, the initial step is to find a trustworthy crypto exchange. These are online trading platforms similar to traditional brokers like Fidelity or Charles Schwab that let you trade cryptocurrencies for U.S. dollars. Once selected, deposit U.S. currency into your account and complete the exchange's customer onboarding process to begin purchasing metaverse tokens.
Once you have funded your crypto trading account, you can purchase metaverse tokens by placing orders on the exchange's order book or through market orders. You may also swap cryptocurrencies held in your wallet for tokens via decentralized exchanges (DEXs). DEXs enable direct token swapping between wallets by connecting your crypto wallet to their platform's smart contract; this means trading one metaverse token for another without creating a trading account or completing customer verification processes.
In response to regulator alerts, HSBC and Nationwide Banks--two of the largest US banks--are enforcing limits on cryptocurrency transactions. These rules ensure consumers have protection for their privacy as well as prevent fraudulent or illegal activity on crypto-based metaverse platforms. Moreover, limits in crypto purchases help shield customers against identity theft that could occur if someone uses a credit card for an unauthenticated crypto transaction.
The above references an opinion and is for information purposes only. It is not intended to be investment advice. Seek a duly licensed professional for investment advice.