The Bank of England requires businesses to disclose information about their exposure to cryptocurrencies before March 2025 to assess financial stability risks and shape policy.
The Prudential Regulation Authority (PRA) of the Bank of England requires businesses operating in the financial sector to disclose their current and expected exposure to cryptocurrencies before March 2025. This move aims to monitor financial stability and support the shaping of policies related to this type of digital asset.
The announcement made on December 12 requires companies to provide detailed information about their current and expected exposure to crypto assets as well as how they apply the Basel regulatory framework to cryptocurrencies.
The PRA stated that the information gathering will support PRA and the Bank of England's research on crypto assets, helping to adjust the cautious approach to this type of asset while analyzing the costs and benefits of different policy options. The PRA also requires businesses to forecast their plans related to crypto assets up until September 30, 2029.
The legal framework and concerns about risks
The Basel regulatory framework, issued by the Basel Committee on Banking Supervision (BCBS) in December 2022, sets capital and risk management requirements for banks with exposure to cryptocurrencies. The PRA hopes that the information gathered from current business activities and future plans related to cryptocurrencies will provide a basis for monitoring the impacts on the financial stability of these types of assets.
The Basel framework classifies crypto assets into three main categories based on their risk profiles. Source: BCBS
The PRA's questionnaire focuses on how businesses implement the Basel framework when holding crypto assets and how they use permissionless blockchains. The PRA expressed concerns about the potential risks of these distributed ledgers, including lack of certainty in payments, transaction failures, and the lack of assurance of the connection between the expected owner of the asset and the entity controlling the authentication and approval mechanisms.
While acknowledging the potential benefits of blockchain technology, the PRA believes that the risks associated with decentralized blockchain use cannot be fully mitigated at this time, and the agency is still reviewing the classification. This reflects the regulator's caution in approaching new technology, especially concerning the financial system.
The PRA's reporting requirements occur in the context of increasing global business interest in Bitcoin, with hopes of seizing opportunities from the cryptocurrency that surpassed the 100,000 USD mark earlier this month.
Recently, several large companies have announced significant investments in Bitcoin. The online gaming company Hong Kong Boyaa Interactive International converted nearly 50 million USD of Ether to Bitcoin on November 29. A day earlier, on November 28, the Japanese investment firm Metaplanet announced plans to raise over 62 million USD (9.5 billion yen) to purchase more Bitcoin, adding to its existing reserve of 1,142 Bitcoin, valued at over 114 million USD.
