The Prudential Regulation Authority (PRA), the regulatory arm of the Bank of England, has recently issued a directive mandating that businesses disclose their current and expected exposure to crypto assets by March 2025.
The PRA’s December 12 statement stated that the objective of this action is to enhance financial stability and influence the central bank’s regulatory strategy for the swiftly expanding sector.
The regulator has requested that firms disclose their “current and anticipated future cryptoasset exposures” and provide a detailed account of their implementation of the Basel framework. The Basel Committee on Banking Supervision (BCBS) established the regulatory standard in December 2022 to establish capital and risk management requirements for crypto exposure.
“This will inform the work of the PRA and the Bank of England on crypto assets by assisting in the calibration of our prudential treatment of crypto asset exposures and the consideration of the relative costs and benefits of various policy alternatives,” the statement emphasized.
It is important to note that the directive extends beyond current exposure, necessitating that firms evaluate any future plans to engage with crypto assets until September 30, 2029. The PRA’s questionnaire emphasizes numerous critical areas of interest, including the implementation of the Basel framework and the utilization of permissionless blockchains by firms.
The regulator expressed specific apprehensions regarding permissionless blockchains, including the potential for settlement failures, the absence of settlement finality, and the lack of a guaranteed connection between asset ownership and the control of authentication mechanisms.
Although the PRA acknowledged that the risks associated with permissionless blockchains “cannot be sufficiently mitigated” at this time, it also acknowledged that this classification is currently under review. The issuance of this directive coincides with the substantial increase in the exposure of global corporations to crypto assets, particularly Bitcoin.
For example, on November 29, Boyaa Interactive International, a Hong Kong-based company, converted nearly $50 million in Ether into Bitcoin. Metaplanet had previously disclosed its intention to raise more than $62 million in order to acquire additional Bitcoin for its treasury. The treasury currently contains 1,142 Bitcoin, collectively valued at more than $114 million.
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