In a letter dated June 28, Sam Woods, deputy governor at the Bank of England who is also the CEO of the Prudential Regulation Authority (PRA), the UK’s financial watchdog, provided a reminder to financial firms of their “relevant obligations under PRA rules, and to communicate the PRA’s expectations regarding firms’ exposure to crypto-assets.”

The letter first notes the trend of financial firms beginning to take exposure to crypto assets as the crypto market expands in both product range and market participants. Noting the “high price volatility and relative illiquidity” of the crypto market, the letter goes on to also acknowledge the risks of money laundering, fraud, manipulation, financial misconduct, and reputation.

The letter then outlines three risk management strategies the PRA is considering “most appropriate.” The first is ensuring that the firms’ highest management is aware of such crypto exposure and for a PRA-approved individual to be appointed as a risk management contact point. The second is for appropriate remuneration policies to discourage excessive risk-taking. And the third is to ensure that risk management policies match the high risks of crypto assets.

The letter ends with a note stating that global financial authorities are discussing the appropriate treatment of crypto assets, including that of capital requirements.

Thomson Reuters Survey Reveals 20% of Financial Firms Are Considering Crypto Trading

The PRA’s letter comes on the wake of financial firms increasingly jumping into the crypto space. Back in April, Thomson Reuters reported that according to its survey, one in five among over 400 surveyed is considering trading cryptocurrency within the next year. The majority of those who answered positively also said that they intended to do so within six months. While this survey does not exclusively cover the UK, it is indicative of the broader trend of mainstream financial participation in the cryptocurrency market.

Bank of England Continues to Be Positive About Blockchain Technology

The letter also reflects the tone undertaken by most central banks where they are wary or negative about cryptocurrencies yet positive about the underlying blockchain technology. In the second paragraph of the letter, Woods states:

“We also recognise 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.”

The Bank of England’s governor has also previously said that the bank is still open to the idea of a central bank digital currency. On the whole, however, this recent letter can be taken as a positive about the financial regulator’s role toward cryptocurrencies. Far from the alarmist warnings of the past, the letter appears to acknowledge that cryptocurrencies are here to stay and that the best way forward is proper regulation.

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