Cryptocurrency specialist to push for UK banking licence
DAG Global will resubmit application despite regulatory caution
A UK start-up is applying to become the country’s first bank for cryptocurrency businesses, in what will be a test of regulators’ openness to the digital assets as they grapple with concerns over links to financial crime.
Companies that handle cryptocurrencies such as bitcoin and those that provide services to them have struggled to maintain relationships with mainstream banks because of their perceived links to money laundering and other forms of criminal activity.
However, DAG Global, a London-based start-up established in 2018, said it would resubmit its application for a banking licence next month with a view to providing bank accounts for crypto businesses from 2021.
“It’s a lack of understanding and reputation risk that has kept others away — we think it can be a cleaner sector [than mainstream finance],” said Sean Kiernan, chief executive.
He said that since the bank submitted a first application last May it had had several rounds of “constructive dialogue” with UK regulators, the Prudential Regulation Authority and Financial Conduct Authority. “Thus far, the regulators have not raised any red flags,” he added.
DAG’s efforts to secure a licence have taken longer than it initially hoped. The company previously aimed to launch in 2019, but it is one of several would-be banks that have run into delays over the past year as regulators have increased scrutiny of challenger banks’ business models.
The FCA and PRA said they did not comment on individual companies. Both regulators have previously warned about the risks associated with cryptocurrency businesses, but neither has actively discouraged banks from providing services to them.
The PRA in 2018 reminded banks to maintain “effective risk strategies” and “act in a prudent manner” with regards to cryptoassets, raising concerns about their volatility and the risk that they could be used for money laundering and financing terrorism.
The FCA, which last month took over responsibility for supervising anti-money laundering and counter-terrorist financing risks in crypto asset businesses, has also highlighted the need for strong measures to avoid cryptocurrency-related criminality.
However, its guidance says that “there should be relatively few cases where it is necessary to decline business relationships solely because of anti-money laundering requirements”.
Even established businesses like Coinbase, which operates one of the largest cryptocurrency exchanges and is backed by well-known investors such as Andreessen Horowitz, have struggled to establish banking relationships in the UK.
Coinbase opened a bank account with Barclays in 2018 after a long process to reassure the bank about its anti-money laundering systems, but Barclays stopped serving the company last year.
British cryptocurrency businesses have instead turned to foreign banks such as California-based Silvergate Bank, which was founded in 1988. Silvergate, which used to focus on small businesses in San Diego, has grown rapidly since switching to serve cryptocurrency businesses and listed on the New York Stock Exchange with a $300m valuation late last year.
Stephanie Ramezan, chief commercial officer at DAG, said: “We’re being approached on a daily basis by corporates in the space because people are fed up with what they’re faced with to meet basic business banking needs at the moment.”