Strengthening Crypto Oversight

The Bank of England has just required financial businesses to report in detail about their exposure to #crypto and future plans by March 24, 2025. This request aims to strengthen financial stability and build a clearer legal framework for crypto-related activities.

This move arises from the growing concern about the risks that digital assets may pose to the financial system. According to directives from the Prudential Regulation Authority (PRA), businesses must provide information on:

  • Existing crypto assets.

  • Plans to expand crypto-related activities.

  • The adoption of the Basel framework in crypto risk management.

Crypto Within the Basel Framework: Classification and Risks

The Basel framework, introduced by the Basel Committee on Banking #Basel in 2022, divides crypto assets into four groups:

  1. Group 1a: Traditional assets that have been tokenized, meeting regulatory standards.

  2. Group 1b: #stablecoin backed by reserves.

  3. Groups 2a and 2b: Assets that do not meet Basel standards, including unbacked crypto.

Assets belonging to Group 2 (including non-compliant stablecoins) will face higher capital requirements due to greater risks. The PRA also requires specific reporting on the use of unlicensed blockchain, which is considered a significant risk due to the lack of strict control mechanisms and transaction failure risks.

Future Policy Directions

The PRA stated that the collected data will form the basis for financial risk oversight and legal policy adjustments. Businesses must provide reasonable forecasts about the situation by 2029 when the Basel framework is fully implemented. However, companies with no crypto-related activities are not required to submit reports.

Industry Perspective

Mr. Michael Egorov, founder of Curve Finance, welcomed the PRA's move, stating that a deeper understanding of crypto is the first step towards building an effective legal framework. However, he also pointed out the PRA's lack of understanding of some issues that have already been addressed, such as finality in blockchain transactions.

The Financial Sector Faces a Shift

The Bank of England is not the only authority enhancing crypto oversight. Recently, the Australian Securities and Investments Commission (ASIC) and the Financial Conduct Authority (FCA) have also implemented similar measures. A report from #FCA indicates that 12% of adults in the UK own crypto, equivalent to about 7 million people, up from 10% in 2022.

With these moves, crypto is gaining more attention but also facing stricter legal requirements in the future.