Xapo Bank to offer interest-bearing bitcoin accounts in UK after 'passporting' its license

Xapo Bank says it has become the first UK bank to enable interest-bearing bitcoin and fiat accounts after successfully passporting its banking license into the country.

The passporting scheme is a framework that allows firms based in Gibraltar to extend their banking license to the UK, facilitated by the Financial Conduct Authority (FCA), the Prudential Regulation Authority (PRA), the Bank of England and Gibraltar authorities.

Xapo’s platform claims to offer 1% interest yields on bitcoin without the need to stake, lend or lock up the assets, according to a statement shared with The Block. The firm did not provide details on where the interest yield would come from.

Its users can spend their bitcoin via Xapo’s debit card, send direct GBP payments to UK bank accounts, invest in S&P 500 stock, acquire select cryptocurrencies, and access stablecoin payment rails with USD bank accounts.

Fintech companies have largely struggled to secure UK banking licenses in recent years. However, the crypto-friendly finance app Revolut recently received a new banking license from UK regulators. Xapo Bank has been regulated by the Gibraltar Financial Services Commission since 2021 and could offer certain services in the UK but was not a regulated UK bank until now.

“This means we are allowed to offer our banking services directly to the UK market. Achieving this is no easy feat and shows we meet the UK’s high regulatory standards,” Xapo Bank Seamus Rocca said. “We are eager to expand our membership in the UK, assisting valuable members in diversifying their wealth through bitcoin and secure banking.” 

Founded in 2013, Xapo Bank transitioned from a Bitcoin wallet to an e-money wallet and then to a “digital-first” retail bank and virtual asset service provider (VASP) custodian. Xapo combines a physical bunker with MPC technology and guarantees USD deposits up to the equivalent of €100,000. MPC, or multi-party computation, is a cryptographic technology that can improve existing multi-sig techniques, effectively allowing wallet keys to be split between multiple parties.

In May, Xapo Bank enabled users to make bitcoin deposits via the Lightning Network in collaboration with Lightspark, co-founded by former PayPal President, David Marcus.

Regulatory landscape in the UK

In June 2023, former Conservative UK Prime Minister Rishi Sunak said he was keen on providing regulatory clarity regarding how crypto firms should register and operate in the country — as part of ambitions for the UK to become a global hub for web3.

Some progress has been made on the regulatory front, with the UK Treasury publishing its final proposals for future regulation of crypto, outlining the government's intention to bring crypto asset activities into the regulatory perimeter of financial services for the first time last October.

However, crypto policy under the new Labour government and Prime Minister Keir Starmer remains unclear.

"The UK is swiftly emerging as a global hub for cryptocurrency innovation, boasting a promising regulatory framework, a dynamic financial ecosystem and a talent-rich environment, “Xapo Bank Director and Head of Regulatory and Public Affairs Joey Garcia said. “Our passporting underscores Gibraltar-regulated firms' unique market access per the Bank of England’s engagement. Xapo Bank is excited to focus on the region for membership growth as we extend our banking license into the UK."

The UK’s financial regulator, the Financial Conduct Authority, estimates around 10% of the country’s population held crypto as of June 2023, but has taken a cautious stance toward the industry in an attempt to ensure investor protection while trying to foster innovation.

In 2021, the FCA banned the sale of derivatives and exchange-traded products to retail investors. The UK’s new crypto advertising rules, regulated by the FCA, also came into effect last October — causing complications for some crypto firms and others deciding to exit the market altogether. 

However, the UK's stance on cryptocurrency regulation has subsequently been evolving, with crypto ETNs for professional investors launching on the London Stock Exchange in May.