The Bank of England’s Prudential Regulation Authority (PRA) is ramping up its efforts to manage the risks tied to cryptocurrencies, asking businesses to report their involvement with crypto by March 24, 2025.
The PRA explained in a statement on December 12 that companies need to share details about their current crypto holdings, plans, and how they apply the Basel framework for managing risks.
Launched in 2022, the Basel framework sets global guidelines for how banks should manage risks properly when dealing with digital assets.
Did you know?
Subscribe - We publish new crypto explainer videos every week!
How to Store NFTs in 2023 (3 Most Secure Ways Explained)
One major area of focus is permissionless blockchains, the technology behind many cryptocurrencies. While these systems offer various opportunities, they also carry risks, such as settlement problems or unclear asset ownership.
The PRA has also raised concerns about stablecoins and unbacked tokens that do not meet regulatory standards. These may face stricter rules under the Basel framework, particularly if deemed too risky.
Companies are being asked to outline not just their current crypto-related activities but also their plans up until September 2029. The PRA has flagged these as priority issues, noting that the risks associated with permissionless blockchains are still challenging.
As part of the process, the PRA has divided crypto assets into four categories under the Basel framework.
The first two groups cover tokenized traditional assets and reserve-backed stablecoins, which are considered relatively lower-risk. The other two groups deal with riskier assets, like unbacked cryptocurrencies, which require companies to hold more capital as a safety net.
By collecting this information, the PRA and the Bank of England hope to fine-tune their approach to regulating cryptocurrencies.
As the Bank of England tightens its grip on crypto regulation, other authorities worldwide are taking action, too. In Hong Kong, a warning highlights the risks crypto firms face when they misuse banking services. What legal trouble could they be stepping into? Read the full story.
