The announcement last week by the local Estonian bank LHV about the opportunity offered to customers to trade cryptocurrencies pleasantly surprised the lovers of these investments.
It is clear that the temptation of cryptocurrencies is great, and if there was free money, young people would prefer to invest in cryptocurrencies – almost a quarter or 23% of Latvians under the age of 30 would like to invest in them, according to a recent Citadele survey.
Although the example of LHV and Revolut shows that a bank can also be a full-fledged player in this niche, it is necessary to further explain how the bank currently perceives cryptocurrency transactions and investments.
Undeniably, cryptocurrencies have gained a lot of popularity in recent years, the opportunities to buy them are growing, and the opportunities to make big profits without doing anything are tempting. This is also confirmed by the results of the above-mentioned survey of Baltic residents conducted by Citadele Bank on investment choices. Cryptocurrencies are currently used both for payments for goods and services and for financial investments, and certain categories of cryptocurrencies are also used to attract investment for various projects.
The risks are high
However, it should be noted that this is a very risky type of investment. Their price tends to fluctuate significantly, and an even more dramatic downturn may follow a very sharp rise in the value of a cryptocurrency. In addition, fluctuations do not really follow the usual laws and algorithms of investment instruments, such as stock trading. One tweet, such as Elona Mask, can cause both a fantastic rise and fall in the price of a fallen currency. As well as statements by various central governments restricting or regulating cryptocurrency transactions.
Of course, everyone has the right to choose how and where to invest their finances. At the same time, the bank is obliged to check transactions, including cryptocurrencies, within the framework of law and risk management.
Payment in cryptocurrency for dark transactions
It should be emphasized that cryptocurrency transactions are much less regulated and supervised by financial regulators. Also, despite the use of a “distributed ledger” for transactions, cryptocurrencies provide relatively high secrecy and anonymity for cryptocurrency owners. That is why cryptocurrency is also widely used to receive payments for data stolen or encrypted by hackers, to pay for drugs, weapons, child pornography, etc. purchased on the dark internet. Bribery and takers are also increasingly using cryptocurrencies in their settlements.
Must be able to justify origin and purpose
In order to understand and make sure that these cryptocurrency transactions are not related to the above-mentioned crimes, banks pay special attention to their customers’ cryptocurrency transactions. Banks regularly monitor current events and risks related to cryptocurrencies by taking targeted actions to manage them. For example, if a customer buys a certain number of cryptocurrencies from their bank account, which they will later sell and receive money in the same bank account after the price has risen, the bank may not ask the customer any questions. But if the customer regularly receives money, for example, from a cryptocurrency exchange, or vice versa, will make regular payments to the cryptocurrency exchange, then there will be certain questions – for what services or goods the money is received or for what purposes this cryptocurrency is purchased.
For several years now, banks have been using a risk-based approach, and it is unrealistic to assume that banks will not notice anything as long as the volume of transactions does not exceed a certain amount. Understandably, banks have a different “risk appetite” and, for example, there are banks that will not cooperate (open accounts) with cryptocurrencies, as the risks associated with servicing such clients are currently much higher than with the “offshore” client accounts we know. , which must be admitted, is almost no longer relevant in Latvia.
Although, thanks to LHV and Revolut, the opportunities for customers in the Baltic States to transact with cryptocurrencies in a controlled and traceable environment are increasing, Estonia is a clear example of the above-mentioned risk materialization process – a few years ago our neighboring country actively attracted and licensed such companies. Some time ago, the Estonian financial regulator found that several thousand licenses of this type had been issued, and the overwhelming majority of licensees were not operating in Estonia, and the owners of these cryptocurrencies were unknown. All these features are ‘red flags’ in the area of financial crime prevention. And right now, the Estonian regulator is reviewing the procedure for issuing these licenses, considering the possibility of mass revocation.