Main Points:
- Bank of England’s plan to propose restrictive limits on banks’ crypto exposures by 2026
- Basel Committee on Banking Supervision’s 1% Tier 1 capital threshold for Group 2 cryptoassets
- FCA’s concurrent review of crypto exchange-traded products (ETPs) and new regulated activities under FSMA
- EU MiCA’s unified crypto-asset framework and its influence on UK policy
- Growing institutional adoption: banks enabling crypto purchases and custody partnerships
- Practical considerations for VASPs, fintechs, and crypto investors seeking new revenue streams
Bank of England Proposes Crypto Exposure Restrictions
In June 2025, David Bailey, Executive Director for Prudential Policy at the Bank of England (BoE), announced that the BoE will publish a formal proposal on banks’ exposure to cryptoassets by 2026. He emphasized that cryptoassets—characterized by extreme price volatility and the potential for total loss—pose unique risks to financial stability if banks’ holdings are not carefully controlled. Bailey suggested starting with a conservative, “more restrictive” baseline before any gradual relaxation, underpinned by empirical evidence on how banks manage such exposures in practice. His comments, delivered at the Risk Live Europe conference, signal a departure from the BoE’s previous neutrality on digital assets and reflect a broader shift toward proactive oversight.
The proposed BoE framework aims to dovetail with international standards, ensuring UK banks adhere to a consistent global approach. By 2026, the BoE expects to align its rules with the Basel Committee on Banking Supervision (BCBS) disclosure and exposure requirements, thereby enhancing transparency on crypto holdings within major financial institutions. This convergence is intended to facilitate risk assessment by supervisors and market participants, supporting the BoE’s mandate to safeguard systemic resilience amid growing institutional crypto participation.
The Basel Committee’s 1% Crypto Exposure Threshold
The BCBS finalized its “prudential treatment of cryptoasset exposures” framework in December 2022, categorizing cryptoassets into Group 1 and Group 2 based on risk profiles. Group 2 assets—such as Bitcoin (BTC) and Ether (ETH)—are high-risk due to their price volatility. Under the finalized standard, banks must limit aggregate Group 2 exposures to no more than 1% of Tier 1 capital. Exposures exceeding this threshold must be subject to additional risk-weighted capital requirements or be excluded from disclosure columns to deter excessive concentration.
This 1% cap aims to prevent balance-sheet vulnerabilities that could propagate stress throughout the financial system. By measuring exposures at the higher of gross asset value or replacement cost, the BCBS ensures banks cannot underreport their true risk. Indeed, the BoE’s proposed rulebook is expected to mirror these BCBS standards, reinforcing a unified international posture on crypto risk and minimizing regulatory arbitrage.
FCA’s Complementary Regulatory Moves
While the BoE targets prudential limits, the UK’s Financial Conduct Authority (FCA) is advancing reforms on the conduct and retail side. On 6 June 2025, the FCA published a discussion paper proposing to lift its 2021 ban on retail investment in crypto exchange-traded products (ETPs), such as exchange-traded notes (ETNs). The FCA’s goal is to bolster market competitiveness and align with jurisdictions like Germany and Switzerland, where retail ETP access has bolstered investor choice.
Simultaneously, HM Treasury and the FCA are collaborating on new statutory provisions under the Financial Services and Markets Act 2000 (FSMA) to create regulated activities for cryptoassets. Consultation Paper CP25/14, released in late April 2025, outlines proposed rules on stablecoin issuance and cryptoasset custody, requiring firms to meet conduct, governance, and capital standards akin to those for traditional financial services. These dual tracks—prudential exposure limits by the BoE and conduct-focused regulation by the FCA—form a comprehensive UK regime designed to foster innovation while protecting consumers and preserving financial stability.
Global Regulatory Landscape: EU MiCA and US Trends
The EU’s Markets in Crypto-Assets Regulation (MiCA), fully enacted in 2024, established a harmonized framework across 27 member states covering transparency, disclosure, authorizations, and supervision for cryptoasset issuers and service providers. MiCA requires e-money token issuers to maintain 1:1 reserves and subjects asset-referencing tokens to stringent governance rules, setting a high bar for market integrity and consumer protection.
Across the Atlantic, major US banks are tentatively expanding crypto services amid evolving regulatory signals. Under the Trump administration’s pro-crypto stance, the Office of the Comptroller of the Currency (OCC) and Securities and Exchange Commission (SEC) have provided guidance enabling limited pilot projects in trading, custody partnerships, and stablecoin issuance. As of late May 2025, JPMorgan Chase, Bank of America, Morgan Stanley, and Charles Schwab are exploring digital asset offerings, though full custody remains constrained by legacy rules such as SAB 121.
Institutional Adoption: Banks Embracing Crypto Services
Institutional players are actively bridging traditional finance and digital assets. In mid-June 2025, JPMorgan Chase announced that clients could purchase Bitcoin (BTC) through their accounts—though the bank will not custody the tokens itself, instead partnering with third-party custodians and reflecting holdings in client statements. CEO Jamie Dimon framed this as a response to clear customer demand, despite his own skepticism about digital assets.
Goldman Sachs and Morgan Stanley have similarly broadened their offerings: Goldman Sachs relaunched its crypto trading desk in early 2025, while Morgan Stanley expanded its wealth-management platform to provide access to Bitcoin trusts for high-net-worth clients. These moves illustrate a delicate balance: banks seek to monetize digital asset appetites without exposing their balance sheets to unquantifiable risks, deferring custody to specialized providers such as Coinbase Custody, Anchorage Digital, or institutional ventures like Zodia Custody and Komainu.
Practical Implications for Crypto Investors and VASPs
For crypto investors and Virtual Asset Service Providers (VASPs), the UK’s evolving regime presents both challenges and opportunities. Prudential limits will likely constrain the extent to which banks can offer lending, securities financing, or collateral services using cryptoassets, potentially dampening liquidity and institutional market-making activities. However, clearer rules may boost institutional confidence, fostering deeper market participation and product innovation, such as tokenized securities and on-chain derivatives.
VASPs should prepare for tighter integration with banks: custody and settlement partnerships will require robust compliance frameworks to satisfy FSMA conduct rules and BCBS capital requirements. Firms offering blockchain-based payment rails or decentralized finance (DeFi) interfaces may find receptive counterparties among banks seeking regulated exposure channels. Moreover, the UK’s coordinated approach—combining the BoE’s prudential guardrails, FCA’s conduct standards, and HM Treasury’s statutory backing—establishes a transparent legal foundation for institutional collaborations, underpinning the next wave of blockchain applications.
Conclusion
The UK’s imminent proposal to cap bank crypto exposures by 2026 marks a pivotal moment in the maturation of digital asset markets. By aligning with BCBS standards and concurrently advancing FCA-led retail reforms, the UK aims to strike a balance between safeguarding financial stability and nurturing innovation. Against the backdrop of EU MiCA’s comprehensive framework and nascent US regulatory shifts, the UK’s integrated approach could position it as a competitive yet cautious hub for institutional crypto engagement. For investors, VASPs, and fintech firms, these developments underscore the importance of regulatory-savvy strategies and deep technical integration with traditional banking partners. As the global crypto ecosystem continues to evolve, stakeholders who anticipate and adapt to these policies will be best placed to seize the revenue opportunities and practical blockchain applications on the horizon.
