Recently, the Prudential Regulatory Authority (PRA) of the Bank of England issued a warning to financial institutions about possible hidden dangers in the process of participating in cryptocurrency transactions, saying that encrypted asset activities may lead to “reputation risk”.
On June 28th, Deputy Director of PRA Sam Woods said in a letter to the CEOs of banks, insurance companies and some investment companies that company leaders should act in accordance with regulatory requirements and cooperate with PRA to disclose any financial regulators that are considered important. information.
Woods wrote in the letter that the cryptocurrency industry has experienced rapid growth, but is full of “high price volatility and relative liquidity.” He said that the cryptocurrency industry is vulnerable to illegal activities such as money laundering and terrorist financing. According to the letter, “encrypted assets should not be considered a prudent currency,” and the cautious approach to encrypting assets is still under discussion.
Woods mentioned the measures taken by some companies to mitigate the risks posed by cryptographic assets. At the same time, he hopes that this letter can become a document that can be clearly used for reference by any company that wants to enter the field of cryptocurrency.
The letter outlines several risk strategies and management systems that PRA considers to be suitable for virtual currency, and requires board members and senior leadership to consider all risks associated with cryptocurrencies when making decisions.
In addition, PRA said companies should conduct due diligence before contacting cryptographic assets and direct company leadership to use expert experience to assess risk.
The regulator expects that the company will continue to maintain close contact with the regulatory agency to understand any risks related to cryptocurrency-related activities or plans, and to predict and assess the degree of risk.
The PRA notice was issued a few weeks after the Financial Conduct Authority’s (FCA) letter on cryptocurrency.
On June 11, the agency asked financial entities to pay more attention to customers who “have significant business or significant revenue from cryptocurrency-related activities”.
In the letter, the FCA explains how cryptocurrencies are abused by financial criminals seeking anonymity. For example, the purpose of using a state-backed digital currency is to circumvent international sanctions.
FCA also requires banks to train topics related to cryptocurrencies so that they can identify high-risk customers who may be engaged in criminal activities and ensure that any financial crime framework adequately covers cryptocurrency-related transactions.
However, the FCA did not say that banks should give equal review to all clients involved in virtual currency activities. In addition, the agency issued a warning to public consumers about ICO-related risks in September last year, which they believe is a “high-risk speculative investment”.