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Today, Business Insider reported that the Deputy Governor of the Bank of England’s Prudential Regulation Authority (PRA), Sam Woods, has given a cautious endorsement to cryptocurrencies. Woods did so by sending a letter called “Existing or planned exposure to crypto-assets” to the CEOs of British banks, insurance companies, and designated investment firms.
In this letter Woods acknowledged the potential advantages of blockchain and cryptocurrencies by writing:
“We also recognize that the underlying distributed ledger or cryptographic technologies, on which many crypto-assets rely, have significant potential to benefit the efficiency and resilience of the financial system over time.”
But he also went on to warn the CEOs that cryptocurrencies are risky and they need to take precautions by writing:
“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. Entering into activity related to crypto-assets may give also rise to reputation risks… I remind you of your firm’s responsibilities … to: (i) act in a prudent manner; (ii) have effective risk strategies and risk management systems”
The PRA letter also laid out three risk management strategies that should be followed:
- Recognize that crypto-assets are new and evolving. The risks of these assets should be fully considered and analyzed by the highest levels of management before entering into any significant cryptocurrency activities. Part of the analysis phase should be to include consultations with the PRA.
- The financial firms should realistically balance their expected and desired gains from cryptocurrency exposure against the potentially significant risks. They should not take excessive risks.
- Firms should be sure to have appropriate high-level experts in cryptocurrency technology involved in their risk assessment analysis and conduct extensive due diligence before taking on any (further) cryptocurrency exposure.
The full PRA letter can be read here
This is very significant since the Bank of England which was founded more than 300 years ago is one of the most important and stable banks in the United Kingdom. This bank is the one that prints bank notes for the U.K. as well as stores gold bullion. Their endorsement, even limited as it is, is a hugely positive development in the road to mass adoption of cryptocurrencies.
Read the full Business Insider article here
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