CryptoUK Responds to the BoE’s Remarks on Cryptocurrencies Being a ‘Reputational Risk’

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CryptoUK Responds to the BoE’s Remarks on Cryptocurrencies Being a ‘Reputational Risk’

By Rebecca Campbell - min read
Updated 22 May 2020

The Bank of England (BoE) has issued a letter to the CEOs of banks, insurance companies, and designated investment firms warning them of the ‘reputational risks’ of getting involved with cryptocurrencies.

The letter, titled ‘Existing or planned exposure to crypto-assets,’ was written by Sam Woods, deputy governor and CEO of the BoE’s Prudential Regulation Authority (PRA). Even though Woods notes that crypto assets have the ‘significant potential to benefit the efficiency and resilience of the financial system over time,’ he goes on with a cautionary tone.

“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. Entering into activity related to crypto-assets may give also rise to reputational risks.”

He adds that it is the organisation’s responsibility under PRA’s Fundamental Rules 3, 5, and 7 to: ‘act in a prudent manner; have effective risk strategies and risk management systems; and deal with regulators in an open and co-operative way, and disclose appropriately anything relating to your firm of which we would reasonably expect notice.’ These remarks follow those made in March when the BoE said that the crypto industry should be held to the same standards as the financial system.

CryptoUK, the first self-regulatory trade association for the U.K. cryptocurrency industry, swiftly responded to the BoE’s comments. Iqbal V. Gandham, chair of CryptoUK, stated that the ‘majority of firms within the cryptocurrency sector operate to a high standard, replicating existing models of compliance and best practice for financial services firms.’

He added, though, that the deputy governor’s statement highlights the need for regulation in the industry that enables companies within the sector to grow and flourish.

“Currently, the risks from cryptocurrencies largely stem from low levels of consumer knowledge and a lack of an appropriate regulatory framework surrounding them,” he said. “The U.K. has the potential to become a world leader within the crypto economy. We urge governments and regulators to ensure that the U.K. is well-positioned to seize the opportunities that this sector could bring.”

Back in May, CryptoUK, which is made up of eight members, urged the U.K.’s Treasury to regulate the industry in the country. More recently, and in light of the hack at South Korean crypto exchange Bithumb, CryptoUK assured British MPs that customers’ crypto assets were secure after concerns were raised.

CryptoUK said its members, who include Coinbase, Coinfloor, Coinshares, and eToro to name a few, have committed to storing at least 90 percent of customers’ holdings offline.