Bank of England watchdog asks firms to disclose crypto exposure

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As a seasoned financial analyst with a decade of experience navigating the ever-evolving landscape of global finance, I find the Bank of England’s move to gather crypto exposure data from businesses a prudent and proactive step towards maintaining financial stability and shaping policy.

By the beginning of next year, the regulatory division of the Bank of England is asking businesses to reveal any existing or forthcoming involvement in cryptocurrencies. This information will aid them in assessing market stability and assist in formulating future policies related to this sector.

On December 12th, the Prudential Regulation Authority (PRA) requested that companies disclose their current and projected future investments in cryptocurrencies, as well as the methods they employ when adhering to the regulatory framework for cryptocurrencies, which is known as Basel.

The statement made by the PRA indicates that this action will assist in coordinating work regarding cryptoassets between the PRA and the Bank of England. It will aid us in determining the appropriate prudential handling of cryptoasset risks, as well as evaluating the pros and cons of various policy choices.

In simple terms, the Basel framework lays down guidelines concerning a bank’s investment in cryptocurrencies, regarding both capital and risk management. This framework was established by the global banking authority, the Basel Committee on Banking Supervision (BCBS), in December 2022.

The PRA aims to collect information about ongoing and planned cryptocurrency business operations, using this data as a foundation for tracking the potential impact on financial stability that these digital assets may have.

The regulator is asking for firms to take into account any future plans of crypto assets up to Sept. 30, 2029. 

The questionnaire details several key areas the PRA wants firms to address, including how they are using the Basel framework for exposure, holding crypto assets and any usage of permissionless blockchains.

Although these innovative ledger systems offer advantages, they also present challenges like potential issues with final settlement, failed transactions, and uncertainty about who actually owns the asset versus the one controlling the authentication and validation process.

According to the PRA, “currently, the risks associated with using permissionless blockchains can’t be adequately controlled.” However, they have classified this category as still being evaluated for future changes.

An increasing amount of global businesses are thinking about or actually investing in Bitcoin (BTC), with the expectation of reaping profits as the cryptocurrency recently surpassed the six-figure mark.

On November 29th, Boyaa Interactive International, a digital card and board game company based in Hong Kong, announced that they had restructured their financial holdings and exchanged approximately $50 million worth of Ether (ETH) into Bitcoin.

Yesterday, on the 28th of November, the Japanese investment firm Metaplanet disclosed their intention to gather approximately $62 million (equivalent to 9.5 billion Japanese yen) to buy additional Bitcoin for their existing holdings. At present, their treasury contains 1,142 Bitcoins, which are valued at over $114 million.

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2024-12-13 08:56