BoE orders City bosses to crack down on crypto-assets

The Bank of England has ordered the bosses of banks and other financial companies to strengthen checks on crypto-assets such as Bitcoin and not to link pay to risky dealing in those instruments.

In a “Dear CEO” letter, the BoE’s chief regulator, Sam Woods, said crypto-assets were volatile, illiquid and vulnerable to fraud, manipulation and money laundering.

Woods, a BoE deputy governor who heads its Prudential Regulatory Authority (PRA) division, told CEOs to remember their obligations to act prudently, check for risk and be open and honest with regulators.

A company’s board and top management should weigh up the risks of crypt-assets and a PRA-approved person should sign off how the company checks for risks from direct exposure to crypto-assets, Woods said.

Pay policies should make sure incentives for dealing with crypto-assets do not encourage reckless behaviour and companies should make sure they have the right advice and can protect themselves against financial risks and potential cyber attacks, Woods said.

The letter from Woods marks a further hardening of the BoE’s position on Bitcoin and other crypto-assets along with other regulators as the number of Bitcoin imitators expands and trading takes place on unregulated exchanges.

In November deputy governor Jon Cunliffe said investors should “do their homework” but that cryptocurrencies were not a threat to the financial system. But in March Governor Mark Carney said a regulatory crackdown was needed to bring order to chaotic markets and “combat illicit activities”

Woods told CEOs to set out crypto-asset risks when assessing their capital, risk and solvency.

“We also expect firms to inform their usual supervisory contact of any planned crypto-asset exposure or activity on an ad hoc basis, together with an assessment of the risks associated with the intended exposure,” Woods wrote.

He said the BoE was discussing with authorities in other countries how crypto-assets should be dealt with and that the BoE would update companies on any decisions. He acknowledged that many companies had limited exposure to the assets and that underlying ledger technology the assets are built on could be good for the financial system.