Originally published on: December 13, 2024
The regulatory arm of the Bank of England is making a bold move by asking businesses to disclose their current and future exposure to cryptocurrencies by next March. This request aims to not only monitor stability in the financial sector but also to help shape policy regarding these emerging digital assets.
In a recent statement released on Dec. 12, the Prudential Regulation Authority (PRA) urged firms to share details about their “current and expected future cryptoasset exposures” while explaining how they are utilizing the crypto-regulating Basel framework.
The PRA stated, “This will inform work across the PRA and the Bank of England on cryptoassets by helping us calibrate our prudential treatment of cryptoasset exposures, analyze the relative costs and benefits of different policy options.”
The Basel framework, introduced in December 2022 by the Basel Committee on Banking Supervision (BCBS), sets out capital and risk management requirements for banks’ exposure to cryptocurrencies. It classifies crypto assets into three categories based on their risk profiles.
By gathering information on current and projected crypto activities, the PRA aims to use this data as a foundation to monitor the financial stability implications of these assets. The information requested from firms includes details on their use of the Basel framework for holding crypto assets and utilizing permissionless blockchains.
While acknowledging the benefits of new ledger technologies, the PRA also highlights risks such as lack of settlement finality, settlement failure, and uncertainty in linking the asset owner to the validating entity.
Despite the challenges, more firms globally are exploring opportunities in the crypto space. Recent reports reveal companies like Boyaa Interactive International and Metaplanet making substantial investments in Bitcoin. These moves underscore the growing interest and potential windfalls associated with cryptocurrency investments.
As the crypto landscape continues to evolve, regulatory bodies like the PRA play a crucial role in ensuring transparency and stability in the financial sector. By proactively engaging with businesses and monitoring their crypto exposure, the Bank of England aims to navigate this emerging asset class responsibly.
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