Article by Phil
It seems that news about crypto and cryptocurrencies won’t go away. On the authorities side the stories are usually at best precautionary and most likely outright hostile. On the customer side, the opposite is true. Stories abound of massive gains and the ability to make a quick buck. So, what’s the truth?
A recent article in FT Adviser, looked at the pros and cons. We’ve listed them here to see if it helps you to make up your mind.
Pro’s
- Provides an alternative to the established international money transmission services (i.e., Banks) which creates:
- Lower transmission, dealing costs for consumers.
- No exchange rate fluctuations and costs.
- Transactions can be anonymous.
Con’s
- Its value is extremely volatile.
- It facilitates the proceeds of crime.
- It’s susceptible to fraud and online theft.
- There is no consumer protection support from central government.
So, what is the answer?
Well currently no one knows. Cryptocurrencies would like to become mainstream, but China for example, has taken a draconian view and simply banned any trading in or transactions using cryptocurrencies. Whereas El Salvador has done the opposite and adopted crypto as recognised legal tender.
In other crypto news, Mortgage Brokers are said to be increasingly frustrated by mortgage lenders refusing to accept cryptocurrency gains as deposits. It seems that there are a growing number of requests coming through brokers, as more younger people “claim” to have made investment gains from cryptocurrency trading, which they now want to cash in.
There are two issues which concern mortgage lenders and Wealth Management Advisors like us. The first and most important is money laundering. All lenders are under strict requirements to comply with money laundering regulations which include struct checks on the source of funds. This has always been a key consideration as “layering” funds illegally through deposits is one of the most straight forward money laundering techniques. Without struct checks, criminals would easily be able to put cash into deposits for mortgage purposes and gain access to property market.
Unfortunately for cryptocurrency “investors” large sums of money coming into their possession through trading gains are treated as being suspicious. Even if the customer has documentation to prove the investments gains. Although they often don’t because of the anonymous nature of crypto investing.
The second concern for lenders is the tax position of the investment gains. We’ve looked at this previously and there are real concerns from the treasury that crypto gains are not being declared and capital gains tax is being avoided. Lenders are reluctant to be drawn into this grey area and stand to be accused of facilitating tax avoidance.
These issues are now becoming real life examples of the concerns about cryptocurrencies that have been expressed for a long time in the financial services industry, namely the inability to apply money laundering checks and therefore prevent criminal activity. This is a key issue which needs to be addressed before crypto can even think about becoming mainstream.
