Revolut is facing a crackdown on cryptocurrency investing as ministers prepare to take action over on an unregulated trading strategy offered by the banking app.
Treasury documents suggest that “staking”, in which investors deposit their holdings of crypto in the hope of earning double-digit returns, could face new controls from the City watchdog.
Revolut which was valued at $33bn (£27bn) in 2021, making it Britain’s biggest private company last week began offering crypto staking to customers, joining exchanges such as Coinbase and eToro in allowing users to lock up their holdings for rewards. It offers returns of up to 11.65pc, depending on the cryptocurrency. The business said it was supportive of new regulation.
US regulators recently shut down a staking service from Kraken, a major exchange, fining the company $30m and criticizing it for offering “outsized returns untethered to any economic realities”, which were advertised to be as high as 21pc. The intervention raised fears in the industry that staking could be banned altogether.
A Treasury consultation reveals that ministers are considering closely regulating staking in the UK.
It says: “There may be an argument for capturing staking activities within the regulatory perimeter” and that “some models depending on their specific characteristics may already fall within the perimeter”.
Any restrictions would come as part of new laws to more closely control cryptocurrency investments and transactions, much of which currently sits outside the Financial Conduct Authority’s (FCA) powers.
The Treasury’s consultation asks respondents whether staking should be considered similar to cryptocurrency lending, which is likely to be regulated as a priority with rules that bring it closer to traditional loans.
Revolut already lets customers invest in more than 100 different crypto nine times as many as it offered a year ago. It launched its crypto staking service last week, offering returns of between 2.99pc and 11.65pc with users locking their cryptocurrency holdings up for a month.
Revolut’s foreign exchange and wealth business, which include revenues from cryptocurrency trading, rose from 19pc of its total sales in 2019 to 31pc in 2020. The company is months overdue in filing its accounts for 2021, although it has said they are finalized.
Staking involves cryptocurrencies being pledged to help maintain the blockchain that powers the technology. Online exchanges often pool multiple users’ holdings together when staking on their behalf, and US regulators have said this makes the service similar to lending and thus regulated.
Revolut finally received approval to run its cryptocurrency business in the UK in September, earning a place on the FCA register of crypto asset businesses, but is yet to secure a UK banking license.
An FCA spokesman said: “Cryptocurrency are high-risk and anyone who purchases them should be prepared to lose all their money.”
Rishi Sunak has said he wants to make the UK a cryptocurrency hub, but his ambitions have come up against skeptical regulators and banks, and cryptocurrency companies have warned that lenders are blocking them.
In a letter to the City watchdog and the Treasury, seen by The Telegraph, Crypto UK attacked British banks for issuing “blanket bans” on customers transferring or receiving payments from crypto-related companies.
The trade body, which represents the digital assets industry, claimed that the bans breach payment regulations, are anti-competitive and run counter to the Government’s stated plans.
It said: “Intervention is needed to ensure that banks and other financial services firms work with the crypto sector to mitigate any risks and deliver on consumer protection.
“Without this the UK will not be able to capitalize on the potential of crypto assets to deliver innovation, job and revenue creation, and better and more transparent financial services.”
A Revolut spokesman said its crypto staking product, which is not live in the US, was not affected by the Kraken issue.
The company said: “Revolut welcomes clear crypto regulation and our products are always offered in compliance with all applicable regulations.
“We want to be the most responsible provider of crypto services. To ensure our customers understand the opportunities and the risks of staking with crypto assets, we are creating a new Learn & Earn course to give our users the opportunity to learn, earn and stake, all in our super app.
“We welcome the recently launched consultation by HM Treasury regarding this matter and we look forward to working with policymakers and regulators in order to progress this.”
