Yesterday Chase UK, owned by JPMorgan, banned cryptocurrency transactions after an increase in fraudulent activity. The move follows in the footsteps of NatWest, HSBC, and Nationwide, which have all banned crypto transactions altogether. This development has come as a surprise to many, given that JPMorgan also owns Onyx, the first global bank to offer a blockchain-based platform for wholesale payments transactions.
Onyx was established by JP Morgan in 2020, as a new business unit dedicated to blockchain and digital currency work. Takis Georgakopoulos, the head of global wholesale payments at JP Morgan, told CNBC that JPMorgan “are launching Onyx because we believe we are shifting to a period of commercialization of those technologies, moving from research and development to something that can become a real business”.
JPM Coin, launched a year earlier by the bank, is a system that serves as a payment rail and deposit account ledger, facilitating the movement of liquidity funding and payments. Those behind Onyx have said they have built the company through harnessing their “understanding of institutional banking and technology to create reliable infrastructure and services for the world’s most pressing problems – starting with digital assets.” This raises a number of questions. Surely the potential of fraudulent activity will have been assessed long before the launch of Onyx? Why is scamming now driving its sister company, Chase UK, banning crypto transactions?
A spokesperson for Chase explained why the ban has come about: “We’ve seen an increase in the number of crypto scams targeting UK consumers, so we have taken the decision to prevent the purchase of crypto assets on a Chase debit card or by transferring money to a crypto site from a Chase account.”
The spokesperson added: “if you’d still like to invest in crypto assets, you can try using a different bank or provider instead – but please be cautious, as you may not be able to get the money back if the payment ends up being related to fraud or a scam.” Data by Action Fraud revealed UK consumer losses surpassed £300 million in 2022, an increase of over 40% compared to the year before.
Traditional banks are not the only ones restricting crypto transactions. Challenger bank Starling no longer supports the buying and selling of cryptocurrencies by debit card or bank transfers, again in a bid to protect customers from fraud. Following the FTX debacle last year – the exchange collapsed after the company misused $8.9 billion in customer assets – there have been calls for harsher regulation on cryptocurrency and more protection of customers.
JP Morgan has long sought to play a pioneering role in the development of cryptocurrencies and the potential of digital assets. Alongside Apollo Black and Goldman Sachs, who set up digital asset platform GS DAP, JP Morgan have been vocal in their support of tokenisation.
This is the process whereby ownership rights of an asset are represented as digital tokens and stored on a blockchain. In such cases, tokens can act like digital certificates of ownership that can represent almost any object of value, including physical, digital, fungible, and non-fungible assets. Tokenisation can make traditionally illiquid assets more accessible and tradeable as it enables fractional ownership. Another project the bank completed was Liink – a network to enable participants to build applications that leverage shared information, in a bid to solve common industry challenges through access to a blockchain network.
Tyrone Lobban, head of Onyx Digital Assets at JPMorgan, explained JPMorgan’s private blockchain application, the Tokenised Collateral Network (TCN) was used by BlackRock to turn shares in one of its money market funds into digital tokens, which were then transferred to Barclays as collateral for an over-the-counter derivatives trade between the two institutions.
Rather than taking a day to transfer the money, as would usually be the case, it was done instantly. This shows how using this technology can free up locked capital so it can be used as collateral in ongoing transactions. Head of Trading Ed Bond told Bloomberg that the goal of TCN is eventually to let clients use other assets as collateral, including equities and fixed income. If successful, banks and other financial institutions would be able to use their shares as collateral and would not have to redeem them for cash, as is currently the process. This would make transactions faster and potentially reduce risks in big market trading.
JP Morgan has clearly invested time and money into developing Onyx and blockchain technology. There is strong evidence to show the benefits digital assets offer in terms of enhanced efficiency. The sudden banning of crypto transactions in the UK therefore comes as a surprise. Only time will tell what this means for the investment bank’s wider strategy when it comes to digital assets.
Author: Bronwen Latham
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