The head of the Prudential Regulatory Authority (PRA) Sam Woods wrote to chief executive officers (CEOs) of financial institutions today to warn of the risks of cryptocurrencies.
The regulator, which is part of the Bank of England, warned that cryptocurrencies showed high price volatility and also raised concerns about vulnerability to fraud and manipulation as well as money laundering and terrorist financing risks.
He said that cryptocurrencies may give rise to reputational risks and reminded CEOs of their obligations to act in a prudent manner and have effective risk strategies.
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Woods said that the PRA recommended that firms recognise that crypto-assets “represent a new, evolving asset class with risks which should be considered fully by the board and highest levels of executive management”.
He recommended that remuneration policies around crypt-assets do not encourage excessive risk taking and said that due to the complexity of cryptocurrencies firms should ensure they fully understood what they were dealing with and carry out sufficient due diligence and risk assessments.
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Woods said firms should inform their usual supervisory contact of any planned crypto-asset exposure.
He said that “discussions are ongoing” including among regulators internationally, on the best way to deal with crypto-assets.
At the time of writing one Bitcoin was worth $6,120 (£4,680), on Sunday it had slipped to $5,786, whereas in December one Bitcoin was worth $17,900.
