The Bank of England is increasing its focus on the risks posed by cryptocurrencies, requiring firms to report their crypto asset exposure by March 24, 2025.
This initiative seeks to enhance financial stability and inform the development of a regulatory framework for crypto activities.
The Bank’s Prudential Regulation Authority (PRA) issued the directive on December 12, mandating firms to disclose their current crypto asset holdings, future plans, and application of the Basel framework for managing crypto-related risks.
The Basel framework, introduced in 2022 by the Basel Committee on Banking Supervision, establishes global standards for banks’ exposure to digital assets.
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“This will inform work across the PRA and the Bank of England on crypto assets by helping us calibrate our prudential treatment of crypto asset exposures [and] analyze the relative costs and benefits of different policy options,” the PRA stated.
Firms are also required to detail their use of permissionless blockchains, which the PRA flagged as a significant concern due to risks such as settlement failure and the lack of a guaranteed link between asset ownership and control mechanisms.
While the potential benefits of such technologies are acknowledged, the PRA points that existing risks remain difficult to mitigate.
The questionnaire breaks crypto asset exposure into four Basel-defined groups. Group 1a covers tokenized traditional assets that meet classification standards, while Group 1b includes stablecoins backed by reserves.
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Group 2a and Group 2b involve assets that fail to meet Basel conditions, including unbacked cryptos—and therefore face higher capital requirements.
The PRA noted that stablecoins pegged to traditional assets and unbacked tokens could face stricter capital requirements under the Basel rules, particularly if they fail to meet specific regulatory standards.
“If cryptocurrencies are to become the basis of the future global economy, we need regulators worldwide to make efforts to understand them better,” Michael Egorov, founder of decentralized exchange Curve Finance, told Decrypt. “But, naturally, this can't happen out of nowhere—there has to be a learning curve in order to get there.
“In this sense, the PRA is taking a step in the right direction, clearly demonstrating its intent to better understand the crypto asset space so as to create well-informed regulations,” he added.
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The businesses must provide data on exposures, business activities, and how they manage crypto-asset risks. The PRA also asks businesses to consider future scenarios under the assumption that the Basel standards will be fully implemented by 2029.
This data collection will serve as a baseline for monitoring financial stability risks associated with crypto assets and guide regulatory adjustments. “We ask that firms take reasonable steps to ensure forecasts are fairly and properly based,” the PRA noted.
The PRA clarified that only firms with non-negligible crypto-asset exposure or related activities are required to submit responses. Businesses without such exposure are not expected to file “nil returns.”
Egorov noted how PRA’s concerns about permissionless blockchains may indicate a gap in understanding.
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“Settlement finality is largely a solved issue within established blockchain networks, so if the PRA is worried about it, this suggests that there may be a gap in understanding on their part. Something to improve upon in the future.,” he said.
Responses to the PRA’s request must be submitted by the March deadline, with findings expected to frame UK policy on crypto regulation in the coming years.
The Bank of England joins global regulators worldwide to take action to address the expanding challenges of the crypto industry.
Earlier this month, the Australian Securities and Investments Commission (ASIC) released a consultation paper proposing updates to its regulatory guidance on digital assets under the Corporations Act.
The updates to Information Sheet 225 (INFO 225) seek to clarify compliance requirements for digital assets, including stablecoins, wrapped tokens, and staking services.
Domestically, the Financial Conduct Authority (FCA) revealed last month that 12% of UK adults—around 7 million people—now own crypto, up from 10% in 2022.
FCA Director of Payments & Digital Assets Matthew Long called for clear regulation, noting that 26% of non-crypto users would be more likely to invest if the sector were regulated.
Edited by Stacy Elliott.
