The move comes after US regulators have expressed concerns over the safety and stability of business models which focus heavily on crypto clients. In addition, US regulators have warned banks to watch for liquidity risks from crypto-related deposits.

In March, Signature and Silvergate tech banks announced their voluntary liquidations, sending jitters across the banking sector and prompting some crypto firms to look for different banking partners. In November last year, the crypto-trading platform FTX collapsed, with authorities later arresting its founder, Sam Bankman-Fried.

“Crypto and Web3 start-ups are telling us they simply cannot get a business bank account”, Marcus Foster, head of crypto policy at Coadec, a body representing UK start-ups, told Reuters.

Why are banks reluctant to onboard crypto clients?

Over the last year, central banks have been raising their interest rates to stave off ramping inflation. As economic and financial conditions have worsened, crypto firms have struggled to access external funding.

As a result, income has plateaued for many firms, which could no longer invest in digital technologies and cryptocurrencies. Warry crypto customers rushed to withdraw their deposits, causing bank runs which only exacerbated the solvency crisis.

Several banks have recently reported an uptick in inquiries from potential crypto customers. A spokesperson for Lichtenstein-based Bank Frick said the institution he represents has seen a “significant increase in account opening requests” coming from firms in Europe, Singapore and Australia.

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Switzerland-based Arab Bank said in March that it had seen a similar increase in US crypto funds seeking to open accounts; However, the bank is unlikely to accommodate all of them.

In the UK, the government published a consultation paper on regulating the crypto industry. Among the proposed changes, the authorities aim to bring crypto assets activities within the scope of financial services regulations.

However, experts consulted by RBI said the changes suggested in the consultation paper would improve consumer understanding, reduce misleading promotions from crypto firms and generally extend the geographic scope of regulation.

“There is currently little protection for consumers from market abuse in crypto, and manipulation is harder to detect than in traditional securities markets, which have a clearer picture of the “issuer” and control of inside information. However, as noted by the Treasury effective regulation in this area will require international standards and cooperation”, experts told RBI.