The Bank of England (BoE) warned commercial banks and insurers that crypto assets are highly volatile and might be used in frauds. On Thursday, Sam Woods, the central bank’s deputy governor for Prudential (LON:PRU) Regulation, sent a letter addressed to CEOs of insurers and banks under his supervision. Woods, who is also head of the Prudential Regulation Authority, which monitors the UK’s banking and insurance markets, said that the cryptocurrency space has grown at a fast pace.
“In their short history, crypto-assets have exhibited high price volatility and relative illiquidity,” he said. “Crypto-assets also raise concerns related to misconduct and market integrity – many appear vulnerable to fraud and manipulation, as well as money-laundering and terrorist financing risks.”
The UK’s central bank expects companies to keep it informed about their exposure or operations related to cryptocurrencies. Companies have to assess the risks before even starting such activities.
“Firms should conduct extensive due diligence before taking on any crypto-exposure and maintain appropriate safeguards against all the related risks,” Woods noted.
His letter states that banks and insurers’ employees should not be encouraged with bonuses and remuneration practices to show greater interest in crypto assets. In fact, companies that choose to increase their exposure to crypto assets might hurt their reputation. The letter notes:
“Entering into activity related to crypto-assets may give also rise to reputational risks. These risks are relevant to both the Financial Conduct Authority’s (FCA) and the PRA’s statutory objectives.”
In March, the BoE’s Financial Policy Committee, the central bank’s body that analyses risk in the financial markets, concluded that cryptocurrencies do not present any danger to the UK’s financial stability.
Recently, the UK Financial Conduct Authority published a similar “Dear CEO” letter addressed to banks and financial service provides, calling them to be wary of risks related to cryptocurrencies.
This article appeared first on Cryptovest
