Banks and other financial institutions are under increasing pressure to check all sources of funds. They risk losing their licenses for allowing transactions with cryptocurrency exchanges for not being compliant or even being given huge fines if they.
Its far to say banks just have to play by the rules. In their defence, the people who make these rules are official regulators deployed by governments. The FCA (Financial conduct authority) in the UK and the SEC (Securities and exchange commission) in the USA are the most notorious.
Most reasoning for deposits into cryptocurrency exchanges have, at best, questionable and the source of funds, although easy to define and track to a degree, have dark use cases. The rise of “silk road” the dark web platform for users to and buy and sell mostly illegal goods and services was a flag bearer for the reputation as all exchanges made of the platform used cryptocurrency. More incognito payments allow a much wider range of fraudulent or even criminal actions.
With this in mind, to minimize unlawful activity, banks, brokerages and other money related institutions verify their customer identity and monitor their financial transactions’ history. Banks have to comply with international legislation that has been developed for maximum financial transparency and security. To prevent money launderers, scammers, and other criminals from using financial institutions to their benefit. This can range from drug money transfer, funds from arms or people tracking to simply not paying taxes. There are two main policies:
– AMLD (Anti-Money Laundering directive). The client or account holder must provide the source of the funds if requested.
– KYC (Know your customer) requires proof of identity and proof of address before you can start depositing, withdrawing or trading. This is usually demanded over a fairly minimal amount -you would be restricted to move much money if this isn’t presented.
Back 2018 VISA severed ties with one of the largest cryptocurrency card providers – WaveCrest. At the time, its clients included companies such as TenX, Wirex, Bitwala, and Cryptopay. All fairly big players in the game at the time
The statement by VISA read: “It recently terminated a single prepaid card issuer in Europe from our network for violating Visa’s operating regulations. That issuer, WaveCrest, was required to close its Visa card products, some of which were linked to cryptocurrency wallets.”
At the same time, Mastercard had been researching and building insight in to Blockchain in order to improve payment processes which will result in faster and cheaper transactions. Mastercard’s main dominance is in fiat and credit cards, payments and tractions but has stated numerous times (so far) it will not entertain its own token or cryptocurrency as a tradable commodity.
The bank system offers a possibility to cancel or return a payment because the system is centralized and trackable. The exact opposite of what the blockchain and certain cryptocurrencies are trying to achieve. The blockchain is fundamentally decentralized and once the payment is confirmed, it’s impossible to cancel or reverse it A pro and a con. The main USP for many is there is no institution controlling it. Yet, still and understandably, as a society, we want (and need) security. Nobody wants to be hacked, robbed or deceived. That’s why there are regulations, laws and compliance checks in place. If you want to see what the future could hold for crypto see our cryptocurrency series.
Banks such as HSBC have been surprisingly open to accepting crypto funds in small parts. Some banks will allow you to operate with small amounts of money under a certain threshold, usually £10,000 – £25,000 (or $). Exceeding this threshold will make you liable to follow through the KYC and AMLD process. With challenger banks such as Monzo and Starling amongst a growing amount of many others, this process could be quicker thanks to the Ripple technology and reduced checks. A set up for a joint account on Monzo takes 2 minutes and no additional documentation is required. This could be seen as a potential “loop hole.”
In reality, it will become harder to cash out from cryptocurrency exchanges. Despite the ease to create accounts, big online players like Monese, Revolut, and Monzo have intermittently blocked incoming payments from exchanges like Bitstamp or Coinbase. Each bank has its own limit and criteria and there isn’t one consistent precedent across banks on this threshold.
The smart play would be await the major, dominant companies like Mastercard and VISA to make a precedent. There are new regulatory mechanisms and adjustments for how centralized institutions work with cryptocurrencies across the board coming in the next 2-5 years. Any policy and law change takes time and cryptocurrency is, at 10 years old, relatively infant. It takes a lot of time and resources to adjust the laws, systems and processes across the scale such as the financial system.
Depending where in the world you live and its technological advancement, at this point withdrawing Bitcoin for an ATM is your best bet or using a credit card connected to a Bitcoin wallet. Your last option is depositing your Bitcoin in a crypto exchange you’re your Bitcoin (or other cryptocurrency) into fiat and then wire transfer that fiat out to your bank account in small amounts.