Some of the UK’s largest banks have imposed restrictions on their customer’s ability to buy cryptocurrency. And the latest instance of the trend might be the strictest example yet.
On Tuesday, September 26, Chase, the UK-based digital bank operated by JPMorgan, announced an outright ban on all payments to crypto exchanges citing concerns over scams. But could regulatory pressure also have informed the decision?
In an email to customers, Chase said “If we think you’re making a payment related to crypto assets, we’ll decline it.” The new rules will come into force on October 16, it added.
“If you’d still like to invest in crypto assets, you can try using a different bank or provider instead – but please be cautious, as you may not be able to get the money back if the payment ends up being related to fraud or a scam,” the email continued.
In a statement explaining the rationale behind the ban, a Chase spokesperson said “we’ve seen an increase in the number of crypto scams targeting U.K. consumers.”
As a result, “we have taken the decision to prevent the purchase of crypto assets on a Chase debit card or by transferring money to a crypto site.”
While Chase may be the first UK bank to go as far as imposing a blanket ban on all crypto-related transactions, others have set their own restrictions on customers’ freedom to buy crypto.
For example, HSBC and Nationwide have moved to prevent customers from using a credit card to purchase cryptocurrency.
Meanwhile, NatWes t and Santander have capped how much money people can transfer to crypto exchanges. Both banks impose a daily limit of £1000 and a rolling 30-day limit of £5000 and £3000 respectively.
On the surface, UK banks have moved to inhibit crypto transactions to protect consumers from fraud. However, there is good reason to believe that pressure from regulators has been a catalyst for action.
Until recently, the Financial Conduct Authority (FCA) had limited powers to regulate the crypto sector besides issuing warnings and publishing advice.
However, this year, the UK government passed the Financial Services and Markets Act (FSMA), expanding the FCA’s regulatory perimeter to include crypto asset activities.
When it comes to how banks treat crypto payments, one of the most significant changes to the FCA is the introduction of the “Consumer Duty,” which came into force in July.
Under the Consumer Duty, FCA-regulated firms are subject to a higher standard of care for consumers. And if the regulator deems that they have failed to meet consumer protection standards, banks and other financial institutions may be liable to pay a fine.
Away from the FCA, the Payment Systems Regulator (PSR) has also ramped up the pressure on banks to protect customers from fraud.
Following provisions in the FSMA, in July, the PSR confirmed that Authorized Push Payment (APP) fraud victims will be entitled to claim back money lost to scams.
Previously, banks were only liable to reimburse fraud victims if they didn’t authorize a payment. But under the new regime, all fraudulent payments are subject to compensation schemes, even those authorized by the scam victim.
More than any other changes in recent years, the FCA’s Consumer Duty and the PSR’s new APP rules incentivize banks to prevent fraud, given the threat of financial penalties if they fail to do so.
Ultimately, no UK regulator can force banks to stop processing crypto payments. But as long as the sector is associated with heightened fraud risk, Chase and others like it seem to be erring on the side of caution, rather than risk fines for insufficient consumer protection.