Bank of England’s Deputy Governor Warns Financial Firms of Crypto Risks

Chirayu Choubisa

June 29, 2018 11:35 am

Cryptocurrency News

Bank of England's Deputy Governor Warns Financial Firms of Crypto... | Coindelite News
43819 Total Views

 

The Bank of England’s deputy governor for prudential regulation has cautioned banks about exposure to digital currencies-related assets in a new letter.

Mr. Sam Woods, chief executive of the Prudential Regulation Authority (PRA) a financial service regulator in the U.K. wrote on Thursday that banks, investment firms, and insurance company should take steps to defend themselves against market volatility and potentially risky investments in the crypto space.

The deputy governor’s warning centered strictly on the tokens themselves, telling financial firms that they have a fiduciary responsibility under PRA regulations.

Sam Woods wrote:

“In their short history, crypto-assets have shown high price volatility and relative illiquidity. Crypto-assets further raise concerns related to misconduct and market integrity many seem vulnerable to fraud and manipulation, as well as terrorist financing and money-laundering risks. Entering into activity related to crypto-assets may give also rise to reputational risks.”

The letter also asserted that financial institutions should take measures to minimize any possible risk caused by trading in crypto -assets including having a PRA-approved Senior (Insurance) Management Function auditor review and approve risk assessment framework for dealing with the new class.

Firms must likewise avoid unnecessary risk-taking, ensure access to an expert in crypto assets and conduct due diligence on any assets they may want to trade in.

Mr. Sam Woods, “Classification of crypto-asset exposures for prudential purposes should reflect firms’ comprehensive assessment of the risks involved,” adding that these classifications should mention potential risk when investing in digital currencies.

The deputy governor further pushed back against the idea that digital currencies are a form of money, stating “crypto-assets should not be considered as a currency for prudential purposes.”

In the letter, Mr. Sam Woods further took the time to accept that distributed ledger and blockchain technology exist separately from digital currencies.

He said:

“We further acknowledge that the underlying distributed ledger or cryptographic technologies, on which many crypto-assets depend, have significant potential to benefit the efficiency and resilience of the financial system over time.”

No Comments