The Bank of England’s regulatory arm, Prudential Regulation Authority(PRA), issued a directive that requires businesses to disclose current and expected exposure to cryptoassets by March 2025.
In a announcement dated 12 December, the PRA stated that the move was intended to enhance financial stability and to shape the central banks approach to regulation of the growing sector.
The regulator asked firms for their “current and anticipated future cryptoassets exposures” as well as their application of Basel Framework, a regulatory standard that will be introduced by the Basel Committee on Banking Supervision in December 2022 to set capital requirements and risk management requirements.
Central Bank Monitors Crypto’s Impact on Financial Security
This information will be used by the central bank to monitor financial stability implications of the increasing role of crypto assets in the financial system.
This will help us to calibrate our prudential treatments of cryptoassets exposures [and] analyze relative costs and benefits of various policy options.
The directive goes beyond the current exposure. Firms are required to report any future plans they may have to deal with crypto assets up to September 30th 2029.
The PRA questionnaire highlights a number of critical areas, such as how firms implement the Basel framework or their use of permissionless Blockchains.
The regulator raised specific concerns regarding permissionless blockchains. They cited risks such as settlement failures and lack of finality in settlements. There was also no guarantee that there would be a link between asset ownership, control of authentication mechanisms, and ownership of assets.
The PRA stated that the risks of permissionless blockchains are “not sufficiently mitigated” at this time, though it acknowledged that classification is still under review.
The directive is a response to the increasing exposure of global firms, particularly Bitcoin, to crypto assets.
On November 29, Hong Kong’s Boyaa Interactive International transferred nearly $50,000,000 worth of Ether to Bitcoin.
The Japanese investment company Metaplanet had announced plans a day before to raise more than $62 million for the purchase of additional Bitcoins to add to its existing treasury which holds 1,142 Bitcoins valued at $114 million.
Stablecoin regulations to be implemented in the U.K.
Dante Disparte is the global head for policy at Circle. He said that expects to see the United Kingdom implement standards for stablecoins in a few months.
Tulip Siddiq, the Economic Secretary of the Treasury, revealed last month that the nation plans to introduce an extensive regulatory framework for cryptocurrency early next year.
The proposed framework will consolidate the regulations for stablecoins, staking services and other related issues into a single unified regime.
The stablecoin market in the United States, which is currently worth over $200 billion dollars, is unregulated.
Singapore, meanwhile, has formalized its laws governing the stablecoin sector.
The United Arab Emirates recently approved a new stablecoin pegged to the UAE Dirham.
The cryptocurrency, dubbed ‘AE coin’, is positioning itself to be a stablecoin backed up by UAE reserves.
