February 5, 2018 / 2:35 PM / 20 days ago

Breakingviews - Banks' crypto caution reveals double standards

LONDON (Reuters Breakingviews) - Banks’ caution over bitcoin reveals a double standard in the treatment of crypto-currencies. Lloyds Banking Group has imposed restrictions on the unregulated electronic money, banning UK customers from using credit cards to buy bitcoin and other tokens. Protecting borrowers from potential losses is wise, as is the desire to avoid future fines from regulators. It makes financial markets’ rush to embrace bitcoin trading all the more jarring.  

The UK lender is not the first to proscribe credit cards for buying bitcoin, which is ‘mined’ by computers which solve complex numerical puzzles. Several US banks have similar bans in place, according to media reports. Lloyds couched its decision in terms of customer protection as the value of bitcoin – which rose more than tenfold last year – has more than halved from a peak of more than $19,000. Dud loans are a legitimate concern for a bank which increased its share of outstanding UK credit card balances from 15 percent to around 25 percent following the purchase of card lender MBNA last year. The UK’s Financial Conduct Authority has already issued warnings about the risks of investing in crypto-currencies, which remain unregulated and thus offer zero investor protection.

Yet Lloyds’ justification has also exposed the muddled thinking about crypto-currency speculation. Customers face no such restrictions when gambling on horseracing, soccer matches or election results in British betting shops. Concern for retail customers also contrasts with the eagerness with which Chicago-based exchanges last year launched trading in bitcoin futures.

Bitcoin’s magnetism is partly derived from its status as an alternative to fiat currencies. But it also lies in the personal anonymity it gives to holders. That’s a useful attraction for criminals seeking to launder ill-gotten gains, and a big concern for lenders which are responsible for policing the funds that flow through their systems. The banking industry has coughed up around $320 billion in bad-conduct fines since the 2008 financial crisis, according to the Bank of England, and spent tens of billions of dollars more improving compliance and ‘know your customer’ rules. As investor interest in crypto-currencies deepens, all the better reason for banks to be on their best behaviour.

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