HSBC chiefs ditch Bitcoin fund
Bank winds up support of pioneering investment body – but other efforts to mainstream Bitcoin are still in progress
Bosses at HSBC have pulled out of plans to back the world’s first regulated Bitcoin investment fund, citing money-laundering concerns.
Bitcoin is not controlled by a central bank, and is typically self-regulated by a blockchain system that records circulation and transaction history. However, frequent associations between the leading cryptocurrency and avenues for illegal goods and services – such as online marketplace Silk Road – have led traditional financial organisations to worry about the lack of formal regulation, and the potential for unlawful activity.
Those concerns have clearly begun to troubled HSBC, which has curtailed its partnership with the Global Advisers Bitcoin Investment Fund (GABI) – a body that aimed to establish a more controlled market for the currency.
In a statement, the bank said: “In reviewing our portfolio, we have identified a number of relationships that don’t meet our strategic criteria. We don’t take the commercial decision to end a customer relationship lightly, and when we do so it follows careful consideration of that relationship in light of our strategic focus or global risk management standards.”
By ending its support of GABI, HSBC has taken a dramatic step to tighten up its investment protocol, eliminating projects that may leave it open to scrutiny following its £1.2bn fine in 2012 for allegedly laundering money for South American drug cartels.
Based in Jersey – a territory that is striving to become a global hub for the exchange of Bitcoin – GABI responded by saying that HSBC’s move was a “step in the wrong direction” that threatened to derail the island’s long-term ambitions. Chief executive Daniel Masters said that losing HSBC was particularly hard, as no other bank on the island of Jersey was willing to back a Bitcoin investment fund in previous talks. While Masters argued that Bitcoin investors would be protected in Jersey – undergoing the same security and compliance examinations as apply to mainstream financial products – gaining the trust of traditional banks and lenders is sure to be a perennial obstacle for Bitcoin traders on the coming years.
Earlier this year, for example, Bitcoin exchange CampBX lost its banking partner through growing uncertainty over how the digital currency would be regulated. As a result, CampBX was forced to temporarily halt its automated clearing house and wire transfers.
Robbie Andrews – co-founder of Jersey-based Bitcoin portal bit.coin.je – told Inside Bitcoins that something must be done to remove the currency’s fear factor, if it is to be made more attractive for corporations. “If you take the word Bitcoin out of the equation,” he said, “then what you have is a tech company that is doing reasonably well, making some money, getting some press and so on, and these kinds of enterprises are usually like a red flag to a bull as far as banks are concerned.” However, he stressed: “Add the word Bitcoin and they slam the brakes on, hard.”
One solution may be for separate banks to be established especially for Bitcoin – an idea that could soon come to fruition. On 31 October, Fidor bank announced plans to cooperate with its San Francisco-based bitcoin exchange partner Kraken to set up the world’s first bank for digital currency. While specific details, such as its name, are currently unclear, the primary aim of the proposed bank would be to financially help Bitcoin startups that have struggled to secure and maintain accounts.
In an interview with Coin Desk last month, Kraken CEO Jesse Powell said: “For Kraken to be a viable business long term, for most players to be viable, we need to see the pie grow. That’s what we want to do with Fidor, is create a bank with the specific mandate to bank Bitcoin companies and provide reliable banking to end-users of Bitcoin.”
Evidently, there’s a lot of mileage in this debate yet.