UK prudential regulator updates policy on crypto exposures and stablecoin issuance

The Prudential Regulation Authority has written to banks and PRA-supervised investment firms about how they should manage cryptoasset exposures. The PRA’s letter generally reaffirms its position as previously set out but with some important updates and clarifications that are favourable to the industry. Its policy applies on an interim basis until at least 2028. The PRA has also written to deposit-takers about other innovations, retaining its restriction on how banks can issue stablecoins.

Prudential treatment of cryptoasset exposures

The UK’s prudential framework requires banks and investment firms (referred to here as firms) to manage financial risks by holding appropriate regulatory capital. The current framework is not specifically tailored for cryptoassets. However, when calculating their capital requirements, firms must factor in their exposures to cryptoassets. These may arise from, for example, holding cryptoassets as principal or agent on behalf of customers or providing services to cryptoasset firms. The capital treatment depends on how the cryptoasset is held or dealt with.

Setting expectations: The 2022 letter

In 2022 the PRA wrote to firms remind them of their responsibilities in relation to existing or planned exposures to cryptoassets and to communicate the PRA's expectations. At that time, the BCBS had not yet published its standard on crypto asset exposure (BCBS SCO60, referred to here as the BCBS standard).

Most significantly, the 2022 Dear CEO letter provided that:

• direct holdings of cryptoassets may in many cases be classified as intangible assets under applicable accounting frameworks and therefore be deducted from CET1;

• for market risk, where there is no treatment specified for a financial instrument in the CRR a firm must: (i) if the cryptoasset resembles a traditional asset, if doing so is prudent and appropriate and if the position is sufficiently similar to those covered by the relevant rules, calculate the own funds requirement using those applicable to the comparable asset; or (ii) if there is no comparable traditional asset, calculate an own funds requirement of an appropriate percentage of the current value of the position, which will be either 100% or a percentage that takes into account the characteristics of the position. At the time, the PRA noted that it expected firms to hold capital covering 100% of the current value of their crypto positions in the vast majority of cases and especially for unbacked cryptoassets (like Bitcoin and Ether); and

• for counterparty credit risk, the PRA noted it expected most cryptoassets would be
  mapped by firms to the “other risks” category, and the PRA noted that it would not
  typically expect firms to apply hedging or diversification benefits under SA-CCR where the exposures are to different crypto underlyings.

Reaffirming policy: The 2026 letter

The 2026 Dear CEO letter now updates these expectations. On the one hand, it reiterates that (i) the deduction treatment will continue to remain appropriate where cryptoassets are recognised as intangible assets under applicable accounting frameworks, and (ii) the 100% capital requirement remains appropriate for unbacked cryptoassets under the market risk framework.

On the other hand, it clarifies that there are some forms of cryptoasset exposures that pose less significant risks and tells firms to exercise their judgement having regard to the specific characteristics of the cryptoasset and the classification and treatment that would apply under the BCBS standard. This suggests some more flexibility, but firms should discuss their prudential treatment of cryptoasset exposures with the PRA, particularly where their approach differs materially from the standard.

Another update to the previous policy is a clarification on the treatment of tokenisation structures. The PRA has confirmed its view that tokenised assets should generally receive the same prudential treatment as their traditional equivalents where the legal rights conferred are identical and the underlying risks are comparable. This statement will no doubt be favourably received by the industry but raises familiar questions around when it can be concluded that legal rights will in fact be identical.

The PRA’s expectations articulated in the 2026 letter apply on an interim basis. The BCBS is currently undertaking an expedited review of targeted elements of the BCBS standard and the PRA intends to consult on implementing the BCBS standard once this review is complete. It therefore does not expect to open its consultation before 2028. Firms should apply the PRA’s approach while monitoring international developments closely.

Innovations by deposit-takers

The PRA has issued a separate Dear CEO letter on innovation in the use of deposits, e-money and stablecoins. This updates the PRA’s policy as set out in a letter to the industry in 2023 which flagged concerns about the risk of confusion among customers if banks offer e-money or stablecoins under the same branding as their deposits.

In its latest letter, the PRA reaffirms that it expects banks and other deposit-takers not to issue stablecoins or e-money unless they do so from an insolvency-remote entity with distinct branding. The PRA recognises that its concerns primarily relate to retail use cases. Firms interested in issuing stablecoins or e-money only for wholesale customers should engage with their supervisors and prepare to explain, among other things, how they plan to restrict access.

In another update, the PRA uses the letter to say it expects tokenised deposits only to be offered to retail customers in a way that meets the PRA’s depositor protection rules. In these arrangements, the token representing the deposit claim is a transferable liability of the issuing deposit-taker. The PRA says that it remains open to exploring any regulatory barriers that may exist to these models.

Next steps

In response to these letters, firms should assess their existing cryptoasset exposures and tokenisation projects against the PRA’s updated expectations and engage with their supervisors where appropriate.

The PRA’s policy on digital assets is particularly important in the context of the UK’s cryptoasset regulatory regime. Before this regime starts to apply on 25 October 2027, banks and other firms must determine whether they need to apply for a variation of permission to provide cryptoasset services. Demonstrating ongoing compliance with the prudential regulatory framework will be a key part of firms’ applications.

In other related developments:

• The Bank of England is due to publish draft rules under its regime for systemic stablecoins in June 2026. The Bank expects to finalise the regime by the end of the year.

• The Bank and Financial Conduct Authority are seeking feedback on their vision for the tokenisation of wholesale financial markets. The call for input closes on 3 July 2026.