Paul Lewis: Banks and regulators are the losers in the cryptocurrency war

Illustration by Dan Murrell

It took four phone calls recently to finally establish that the Financial Conduct Authority (FCA) couldn’t stop a popular cryptocurrency website from openly selling banned products to people in the UK.

I called the dispatcher because at the start of the week he had banned Binance Markets Ltd to sell regulated financial products in the UK.

After the warning was given, the company’s website,, flagged the FCA ban. It turned out that Binance Markets Ltd had not started selling anything here and would not do so now.

But FCA’s real target was its parent company, trading through its own website,

There you could – and still can – buy and sell Bitcoin and other cryptocurrencies. This is not regulated by the FCA, although it must be registered so that money laundering rules can be monitored. But you can also buy and sell derivatives. Cryptocurrency derivatives have been banned for sale in the UK since January 6 of this year.

But in summary, the FCA does not have the power to stop Binance from selling these banned products through its .com website.

Of course, that wouldn’t tell me directly. But after several calls urging him to say what he had done, he told me, “We have issued a consumer warning.” Wow.

When we talk about the perimeter of the FCA, we normally mean the investment products it does not regulate – property, wine, mini bonds, stamps, whiskey, art, parking lots, rice paddies, rainforests, carbon credits, plots of land. ‘half an acre of muddy fields. I could go on.

But there is another perimeter which arouses much less discussion. Cyberspace. It appears that any business outside the UK can sell banned products like crypto derivatives to UK residents with impunity.

Binance itself appears to be located in the Cayman Islands, where Binance Holdings is registered. Its general manager Changpeng Zhao said the company does not have a head office. Some of its supporters say their nationality is binancian. Like the currencies in which it trades, the firm wishes to dematerialize and live outside national borders, so it is not subject to national or even international laws.

Regulators around the world are trying to deal with this new threat to their power, although of course they always say they are doing it to protect the public. From Singapore to Malta, Canada to Germany, and even the Cayman Islands Monetary Authority (yes, there really is one), many have tried but failed to control this will-wisp corporate will. .

The latter released a statement after the FCA failed to control Binance in the UK to say that it was “not registered, licensed, regulated or otherwise authorized by the Authority to operate a crypto exchange -currency from or within the Cayman Islands “. The website remained in place. Cryptocurrencies and derivatives continue to be available in the UK and around the world.

But where regulators failed, banks began to act. Days after the FCA banned Binance Markets Ltd, first Barclays and then Santander announced that they would not allow their clients to pay money to Binance using their debit or credit cards. Both said it was to keep their clients’ money safe. Natwest had edged them ahead with a ban just the day before the FCA’s consumer warning, and other banks are considering similar things.

The theory is that if the ramps to the sites are blocked, no real money can be used to buy crypto and you starve the virtual beast to death.

So where the regulator fails to work, banks are happy to trample on the rights of their customers to spend their own money as they see fit. As an angry former Barclays customer told the BBC’s Money Box, the bank was happy to let her gamble her money in a casino or allow other customers to get into unaffordable debt, so why ban the purchase of crypto-currencies?

One answer is that banks are afraid of the Financial Services and Markets Act 2000 (right?) And in particular of section 27. If a regulated bank lets us invest in products banned by the regulator – like crypto-derivatives – the bank may be responsible for any loss we make. So there is an element of personal interest.

But a deeper answer is that banks are afraid of cryptocurrency. Once people buy it, sell it, spend it, and invest it without touching the banking system, they lose their 500-year-old business model of sitting between us and our money and taking a tiny bit of it out ( or not so tiny) fraction. every time. Contactless cards are the latest example of how it works – skimming off a fraction of the £ 10.4 billion spent this way in March alone is good cash flow. So, it pays the banks to ban us from converting our own money into intangible crypto. Once he’s gone, he’s most likely gone forever.

Even more frightening for them is the growing interest in central banks to create their own cryptocurrency. The Bank of England is about to look at a Britcoin. And the European Central Bank also said it was considering a digital euro so that “citizens can retain free access to a simple, universally accepted, secure and reliable means of payment.”

If that were to happen, then the disintermediation of the banks, which have scratched our money since the Florentine banks loaned money to Edward III in the 14th century against next year’s wool harvest, would begin in earnest.

Paul Lewis is a financial reporter and host of Radio 4’s Money Box


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