The Bank of England is scrutinising the city’s exposure to crypto assets as it calls on firms today to voluntarily disclose their strategy and plans in the sector.
In a letter to top city bosses, The Bank’s deputy governor Sam Woods said that the industry had exploded in the past three years and it was now looking to reassess the financial industry’s exposure.
“While firms have taken limited exposure to cryptoassets to date, we are aware of increased interest from banks and designated investment firms in entering various crypto markets,” he said.
“Many of these markets are new and untested. They have limited history, different risk profiles, can be characterised by very high volatility, and have market participants and structures that can be significantly different from the other markets in which firms participate.”
Woods said that in light of the planned expansion from firms, Threadneedle was now undertaking a “survey of firms’ current and planned exposures over 2022”.
The global crypto market has ballooned to $1.7trillion as derivative products and decentralised financial services sectors have sprung up, but its size is now triggering concerns over global financial stability.
He warned firms will need to adapt existing risk management strategies and systems to suit the “relatively new and different risk profile of many crypto activities”.
The warnings come as policy makers grapple with how to clampdown on crypto assets and bring them within the realms of regulators.
The Bank of England’s Financial Policy Committee said in its minutes of its meeting on 9th and 18th March, released today, that regulatory frameworks globally should be beefed up to deal with the role of crypto.
“Enhanced regulatory and law enforcement frameworks are needed, both domestically and at a global level to address developments in these markets and activities,” the committee said.
City watchdog, The Financial Conduct Authority, has also been looking to tighten retail investors’ access to crypto assets and clampdown on misleading promotion of investment opportunities.
The regulator closed a consultation yesterday that looked to bring in more checks and balances to the “customer journey” of crypto investment, to prevent investors simply ‘clicking through’ and piling in to high risk investments.