British regulator wants local UK firms to provide information about their current and expected future crypto asset exposures as well as the application of the Basel framework for the prudential treatment of crypto assets.
On December 12, the Prudential Regulation Authority (PRA) which is a part of the Bank of England published a crypto exposure data request to inform its policy-making.
Firstly, the regulator wants local firms to reveal their crypto asset exposure (whether current or planned in the near future). In addition, they have to report on the application of the Basel framework for the prudential treatment of such assets.
The Basel framework for the prudential treatment of crypto assets is a regulatory standard developed by the Basel Committee on Banking Supervision (BCBS) to guide firms in managing risks associated with banks’ exposure to crypto assets. The framework categorizes crypto assets into distinct groups and sets capital requirements and risk management practices for each category. While certain digital assets, including tokenized traditional assets and stablecoins, are treated similarly to traditional financial instruments under existing rules, all other unbacked cryptocurrencies are considered higher risk and are subject to more stringent capital requirements.
As a BCBS member, the Bank of England collaborates with other global central banks and regulators to establish internationally consistent regulatory standards, including those for cryptoassets. The PRA plays a critical role in implementing BCBS frameworks, including the one for the prudential treatment of crypto assets, within the UK, working to adapt these guidelines into the UK’s financial regulatory system. And vice versa, the Bank of England also contributes to the development of Basel frameworks, offering insights from the UK financial system to shape international standards.
As the Basel framework for the prudential treatment of crypto assets is set to be implemented in early 2025, UK firms are asked to complete the new data request by March 24, 2025. A response is not required from firms with no relevant crypto asset exposures or activities.
This initiative aims to enhance regulatory oversight of the rapidly growing crypto asset sector, focusing on entities under PRA supervision engaging with crypto assets, such as banks and investment firms. The provided data will guide the PRA and the Bank of England in refining their prudential approach to crypto assets, evaluating policy options, and monitoring the financial stability implications of these activities.
According to the FCA’s latest research on consumer attitudes and behaviours towards crypto, 12% of adults in the UK now own crypto, up from 10% in previous findings. Awareness of crypto as well as the average value of crypto held by individual investors in the country also increased.
As the public demand and interest in crypto grows, Brits still remain sceptical about the volatility of the industry. Last year, 4 in 5 respondents in the UK stated they would only trust a financial product from a regulated financial provider. Therefore, it is essential for local regulators and providers to bring much-requested clarity and security to the realm of crypto asset ownership, custody and use.
