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Welcome to EQUITY ISSUES, a short note on a relevant issue in the private equity and venture capital industry.

If you would like to discuss any of the points we raise below, please contact me or one of our other lawyers.


Claire Cummings

020 7585 1406


PRA “Dear CEO” letter on exposure to crypto assets

On 28 June 2018, the PRA published a "Dear CEO" letter to banks, insurance companies and designated investment firms to remind them of the relevant obligations under the PRA rules, and to communicate the PRA’s expectations regarding firms' exposure to crypto-assets.

The letter acknowledges that firms may have already taken limited exposure to crypto-assets and the letter is intended to help firms when considering any existing exposures or plans for future exposure to crypto-assets. The letter further notes the potential significant benefit that distributed ledger and cryptographic technologies may have on the efficiency and resilience of the financial system over time.

The letter discusses the significant growth of the range of products and market participants related to crypto-assets in a short time frame and notes that in their short history, crypto-assets have exhibited high price volatility and relative illiquidity. The letter also mentions that crypto-assets raise concerns related to misconduct and market integrity as many appear vulnerable to fraud and manipulation, as well as money-laundering and terrorist financing risks. The letter also notes that entering into activity related to crypto-assets may also give rise to reputational risks. As a result of these concerns and risks regarding crypto-assets, the PRA published this “Dear CEO” letter to remind firms of their responsibilities under the PRA’s Fundamental Rules.

In particular, the letter describes a firm’s responsibilities under the following PRA’s Fundamental Rules: (i) Rule 3 (act in a prudent manner); (ii) Rule 5 (have effective risk strategies and risk management systems); and (iii) Rule 7 (deal with regulators in an open and co-operative way, and disclose appropriately anything relating to your firm of which the PRA would reasonably expect notice).

The letter outlines the risk strategies and risk management systems that the PRA considers most appropriate to crypto-assets, which include that:

  • The risks of this new and evolving assets class should be fully considered by the board and highest levels of executive management and an individual appointed to an appropriate Senior (Insurance) Management Function (S(I)MF) who should be involved in reviewing and signing off on the risk assessment framework for any planned exposure to crypto-assets.

  • Firms' remuneration policies and practices should ensure that the incentives provided for engaging in this activity do not encourage excessive risk-taking.

  • Firms must ensure that their risk management approach (financial, operation and reputational) is commensurate to the risks of crypto-assets. This includes access to appropriate, relevant expertise to assess any risks stemming from any exposure, and the carrying out of extensive due diligence before taking on any exposure.

The PRA also outlines its expectation regarding classification of crypto-assets for prudential purposes. Firms should set out their consideration of risks relating to crypto-asset exposures in their internal capital adequacy assessment process (ICAAP) or own risk and solvency assessment (ORSA).
Firms should also keep their PRA supervisory contact informed of planned exposure or activity, together with an assessment of the associated risks.

The PRA will communicate in due course, if necessary, any supervisory or policy updates on the prudential treatment of crypto-assets.

This document is for general guidance only. It does not contain definitive advice.


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Tel: + 44 20 7585 1406
Mob: + 44 7734 057 327

Cummings Law
42 Brook Street
London Greater London W1K 5DB
United Kingdom

25 05 2019

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