The UK fintech and crypto industry faces a significant hurdle: widespread debanking. A recent survey revealed that half of these firms have been denied banking services or had their accounts closed by major UK banks. This alarming statistic stands in stark contrast to the government’s decade-long campaign promoting the UK as a global fintech and crypto hub. The inability to access basic banking services hinders innovation, scaling, and the introduction of new products and services, impacting the competitiveness of UK firms on the global stage. This situation presents a direct challenge to the Labour government’s stated goals of supporting innovation and digitization, and undermines the UK’s ambitions to lead in the digital asset race. The lack of access to banking services is not limited to startups and scale-ups, but also affects medium and large companies, creating a significant barrier to growth across the entire sector.
The survey, conducted by prominent industry bodies, highlighted that the vast majority of affected firms are UK-based and operate within the UK. This debanking phenomenon forces companies to explore expensive alternatives, such as establishing accounts in other countries like Estonia, Poland, and Bulgaria. Furthermore, it pushes them towards riskier financing options, making the UK a less attractive location for new crypto and Web3 ventures. The FCA, in a previous report, acknowledged the issue but admitted limitations in their data prevented detailed conclusions. However, survey responses from affected firms clearly indicate that their business profiles, even with FCA regulation, were the reason for account rejections. This situation underscores the urgent need for a solution to prevent the further exodus of innovative businesses from the UK.
The current situation stands in contrast to the approaches adopted by other jurisdictions. France, for example, has legal provisions to ensure that crypto-related businesses (VASPs) are not discriminated against by banks. Similarly, the Hong Kong Monetary Authority encourages banks to support licensed VASPs, and the incoming US administration has signaled its intention to support the crypto and broader tech industry. These examples demonstrate how proactive policies can foster a more welcoming environment for fintech and crypto businesses. Learning from these international examples is crucial for the UK to regain its competitive edge.
While the UK made strides in 2023 with the Financial Services and Market Act (FSMA), aiming to reform capital markets and regulate stablecoins, the debanking issue continues to undermine these positive developments. Despite the FSMA’s strategic focus on international competitiveness and economic growth, the on-the-ground reality for many fintech and crypto firms is one of financial exclusion. While other initiatives like the Property (Digital Assets Etc.) Bill and the Digital Securities Sandbox offer positive contributions, they appear to primarily benefit established players, leaving smaller, innovative companies struggling to access basic banking services. Furthermore, the UK’s previous ban on crypto derivatives and the initial challenges with the FCA’s crypto registration scheme have contributed to setbacks, contrasting with a potentially more favorable environment developing in the US under the incoming administration.
The UK’s focus on AI as a driver of economic transformation, while important, should not overshadow the urgent need to address the debanking problem within the fintech and crypto sector. The government’s commitment to AI is welcomed, especially given the dominance of US-based players in the AI landscape, but the fintech and crypto industry remains determined to hold the government accountable for resolving the debanking crisis. This issue is fundamental to the UK’s ability to attract and retain talent and capital in the global digital race. Failing to address this will further marginalize the UK in the rapidly evolving world of blockchain, Web3, and digital finance.
To effectively position the UK as a true global hub for fintech and crypto innovation, addressing the debanking issue is paramount. Promoting transparency and competition within the banking sector is essential, requiring UK banks to move away from generic justifications for account refusals, particularly for firms that are compliant with regulations. The current situation not only undermines the government’s stated ambitions but also casts doubt on the credibility of the UK’s claim to be a leading fintech center. The lack of major UK players in the global fintech and crypto landscape further underscores this point. The new Labour government must prioritize a solution to the debanking problem to revitalize the sector, foster innovation, and ensure the UK’s competitiveness in the global digital economy. This is a crucial opportunity to demonstrate tangible support for digital innovators and solidify the UK’s position as a welcoming environment for growth and investment in the fintech and crypto space.
