Bank of England’s PRA Cautions Cryptocurrency Risks to Financial Institutions

United Kingdom’s Central Bank Warns Financial Institutions On The Risks of Cryptocurrencies

In a letter to CEOs of banks in the United Kingdom, the Bank of England’s Prudential Regulation Authority (PRA) has reminded them about the risks and the pitfalls of investing in cryptocurrencies and opening the bank to this kind of financial asset.

PRA Deputy Governor Sam Woods instructed the leaders of the companies to follow the regulatory policies of the country and to disclose all information that could be considered important. He also states that the volatility of the cryptocurrency prices is very dangerous and can lead to illiquidity over time.

Also, Woods seems to be concerned about how cryptos could be used as a way to launder money and to finance terrorism and other illegal activities. The letter also states that the cryptos should not be considered currency for prudential purposes. Woods stated that there are many risks in exposing a company to cryptocurrencies and companies that intend to do so should be properly warned.

The Strategies To Reduce the Main Cryptocurrency Risks

While the letter stated that the CEOs should not use cryptos, it also assumes that many of them will ignore this part, so it has advice on how to reduce the risks of using it.

It says that the leaders of the company should look for trustworthy advisors to learn everything about this market before being exposed to it and make real assessments about it before investing in it because this is a really highly dangerous market if your company is not prepared.

PRA’s Letter Was Not The First One In The UK

A couple of weeks before the PRA sent this letter to the CEOs of banks, the UK’s Financial Conduct Authority (FCA) had already sent its letter to them. This authority is also concerned about the growing cryptos and it told the banks to pay attention to clients whose main activities were from cryptocurrency related activities.

The letter from the FCA asks the banks to train their staff to find criminals and to make sure that people are not using cryptocurrencies to launder money. During 2017, the FCA also deemed ICOs to be “high risky and speculative investments.

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