UK BoE official warns banks against crypto investing risks, specifically addressing the tokens themselves. Financial institutions are also advised to avoid taking excessive risks while investing in crypto.
29 June, AtoZ Markets – The deputy governor for the prudential regulation with the Bank of England (BoE) has cautioned banks about exposure to cryptocurrencies. Sam Woods has published a letter this Thursday, where he has stated that banks, investment, and insurance companies should take steps to be secure against the market volatility and potentially risky investments in the cryptocurrency market.
UK BoE Official Warns Banks Against Crypto Investing Risks
Chief executive of the Prudential Regulation Authority (PRA), which is a financial services regulator in the UK, has warned UK banks against potential cryptocurrency risks. He has addressed the tokens themselves, reiterating that financial institutions need to follow the fiduciary responsibility under the PRA regulations.
Mr. Woods has written in his letter:
“In their short history, crypto-assets have exhibited high price volatility and relative illiquidity. Crypto-assets also raise concerns related to misconduct and market integrity – many appear vulnerable to fraud and manipulation, as well as money-laundering and terrorist financing risks. Entering into activity related to crypto-assets may give also rise to reputational risks.”
The letter also stated that financial institutions should take steps to reduce any possible risk that can be caused by trading in cryptocurrency. The PRA-approved Senior Management Function auditor has reviewed and authorized the risk evaluation guidelines for dealing with crypto assets.
Cryptocurrencies are not money
Financial institutions are also advised to avoid taking excessive risks. The letter reads:
“Classification of crypto-asset exposures for prudential purposes should reflect firms’ comprehensive assessment of the risks involved.”
Mr. Woods has further added that these classifications should refer to potential risks when investing in crypto assets. The official has also denied the idea that cryptocurrencies are a form of money. He has explained:
“Crypto-assets should not be considered as a currency for prudential purposes.”
Furthermore, Mr. Woods has acknowledged that distributed ledgers and Blockchain technology are operating separately from cryptocurrencies. He has noted:
“We also recognize that the underlying distributed ledger or cryptographic technologies, on which many crypto-assets rely, have significant potential to benefit the efficiency and resilience of the financial system over time.”
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