A Bank of England deputy governor has written a letter of warning Thursday, June 28, to CEOs of financial institutions about the risks of exposure to crypto assets.
Sam Woods, the Deputy Governor and CEO of Prudential Regulation Authority (PRA), began the letter by reminding the institutions of their obligations to PRA rules, including acting in a prudent manner, having effective risk management systems and strategies, and cooperating with regulators.
Wood notes that crypto-asset market products have “grown quickly” and “exhibited high price volatility and relative illiquidity” in their “short history,” leading to concerns about their vulnerability to fraud, manipulation, use in money laundering and terrorism financing, and reputational risks to firms involved with them.
The provides guidelines for dealing with crypto-assets, highlighting the need for the “highest levels of executive management” to assess involvement with the crypto asset class. Firms must ensure that they are not engaging in “excessive risk taking” and should “conduct extensive due diligence before taking on any crypto-exposure and maintain appropriate safeguards against all the related risks.”
Wood does note the “significant potential” of distributed ledger technologies, like blockchain, to improve the efficiency of the traditional financial system in the future.
Last week, the Bank of England had announced plans to rebuild its Real Time Gross Settlement (RTGS) system so that it can interface with private business and platforms using distributed ledger tech.