In Gov we trust

Everyone keeps saying that the core of banking is trust. It’s not ROI, ROE, CI or other acronyms. It’s trust.

But what is trust, and how is it created and maintained? That’s a core of where we should focus. In banking, trust is not in the brand or the name; it is in the belief that you will not lose the customer’s money. How is that created? Through government issued bank licenses and strict regulations enforced by governments. Do we have that in other worlds? No. In cryptocurrencies, there have been more people defrauded than anywhere else through scams, schemes, fraudsters and criminals. If anyone wants to fight me on that, I’m ready. Cryptocurrencies are currently the Wild West of money. Do not bet the farm on crypto.

But then there’s also banking scams, schemes and fraudsters. Just look at the reason why the UK has introduced a new payments law to protect customers from romance scams, push payment frauds and similar activities. The thing is that, in the latter example, you can be confident that you are protected (up to $100,000+) whilst, in the crypto world, there is no protection. It’s your choice.

By way of example and, as mentioned, we have new regulations around APP (Authorised Push Payment) fraud. Here’s the deets:

In 2023, [The Payment Systems Regulator (UK)] published policy statements (PS23/3 Fighting authorised push payment fraud: a new reimbursement requirement and PS23/4 Fighting authorised push payment scams: final decision) setting out the details of our Faster Payments APP scams reimbursement requirement.

This requirement aims to incentivise all payment firms to prevent these scams from happening in the first place, and make sure consumers are protected if they do fall victim.

What does this document contain?

This consultation sets out our proposal to change the maximum level of reimbursement for the reimbursement requirement, for the 7 October 2024 policy start date. We are proposing to implement the policy with an initial maximum level of reimbursement set at the Financial Services Compensation Scheme (FSCS) reimbursement limit, which is currently £85,000 per Faster Payments APP scam claim. The previous maximum reimbursement value had been set at £415,000, in line with the Financial Ombudsman maximum reimbursement limit at that time. 

We are not proposing any other changes to the policy or to the implementation date itself – the start date for the policy remains 7 October 2024.

It is this that creates trust. It is not brand or usage – it is regulation and governance. This brings me back to a point I state often: who is the government?

With crypto, the claim is that the government is the network of the people. Some of us may be comfortable with that. Others may say it raises more questions than answers. What happens if you lose your cold wallet? What happens if your crypto key does not work? What happens if you cannot work out how to unlock the value in your key? And what happens when you move from crypto to fiat currency?

This last point is probably the most critical as the majority of humans trust fiat currencies, whether they are physical or digital (CBDCs). How can the crypto community create the same level of trust in their currencies?