In a recent statement, the Prudential Regulation Authority (PRA), the regulatory arm of the Bank of England, has requested that businesses disclose any current or future exposure to cryptoassets by next March. This move aims to enable the PRA to monitor stability and shape policy regarding these digital assets.
Understanding the Basel Framework
The Basel framework outlines capital and risk management requirements for banks’ exposure to crypto. Introduced in December 2022 by the international banking regulator, the Basel Committee on Banking Supervision (BCBS), it classifies cryptoassets into three broad categories based on their risk profiles.
| Risk Profile | Description |
| — | — |
| High Risk | Cryptoassets that are considered unbacked and lack regulatory oversight. |
| Medium-Low Risk | Cryptoassets that have some level of backing or regulatory oversight, but still pose significant risks due to market volatility and other factors. |
| Low Risk | Cryptoassets that are backed by a central authority, have robust regulatory frameworks in place, and offer stable value. |
Gathering Information on Crypto Business Activities
The PRA hopes to gather current and intended crypto business activities from firms to use as a base for monitoring the financial stability implications of these assets. The regulator is asking firms to take into account any future plans regarding cryptoassets up to September 30, 2029.
Key Areas of Focus in the Questionnaire
The PRA has outlined several key areas that it wants firms to address in their responses:
- Use of the Basel Framework: Firms are asked to explain how they use the Basel framework for holding cryptoassets and using permissionless blockchains.
- Permissionless Blockchains: The questionnaire highlights the risks associated with permissionless blockchains, including:
- Lack of settlement finality
- Settlement failure
- No guaranteed link between the intended owner of the asset and the entity that may have control of the authentication mechanism
The Growing Interest in Cryptoassets
A growing number of firms globally are considering or taking the plunge to buy Bitcoin (BTC) and other cryptoassets, hoping to capitalize on their increasing value. For example:
- In November 2022, Hong Kong-based online card and board game company Boyaa Interactive International adjusted its treasury assets by swapping nearly $50 million worth of Ether (ETH) into Bitcoin.
- The same month, Japanese investment firm Metaplanet announced plans to raise over $62 million (9.5 billion Japanese yen) to purchase more Bitcoin for its treasury, which currently holds 1,142 Bitcoin worth over $114 million.
The Importance of Disclosure and Regulation
The PRA’s request for disclosure is an important step in regulating the crypto market and ensuring financial stability. By monitoring the exposure of businesses to cryptoassets, regulators can better understand the risks and benefits associated with these digital assets and shape policy accordingly.
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