Regulators seek to curb risk as crypto volatility continues to shake global financial systems
The Bank of England has signaled its intent to crack down on how much crypto British banks can hold by 2026. The move is designed to tighten oversight, protect the broader economy, and align the UK’s rules with global standards.
It’s not a ban, but it sure feels like the start of a colder climate for crypto on Threadneedle Street. At the same time, retail investors are getting the green light to return to crypto exchange-traded notes (ETNs), creating a push-pull regulatory moment that underscores the UK’s tricky balancing act.
Banking watchdogs set their sights on crypto’s footprint
David Bailey, a senior executive at the Bank of England’s Prudential Policy Division, laid it out plainly at the Risk Live Europe conference in London this week. By 2026, UK banks will be expected to sharply reduce how much of their capital is tied up in digital assets. Crypto’s a risky business, Bailey warned — and banks have too much on the line to bet heavily on assets that can lose half their value before lunch.
There’s a clear push to follow the Basel Committee’s guidance, which suggests banks should limit their crypto holdings to just 1% of their total capital. Anything above that? Too dangerous.
“We need to err on the side of caution,” Bailey said. “It makes more sense to start tough and ease up if the evidence supports it.”
And really, who can blame him? With memories of the Silicon Valley Bank and Silvergate collapses still fresh, it’s hard to fault the Bank of England for wanting to build a firewall around financial institutions that play too fast and loose with volatile assets.
Post-SVB panic still echoing in policy circles
The crypto world didn’t trigger the collapse of Silicon Valley Bank or Silvergate in 2023, but it certainly helped shake things up. Both banks were deeply entangled with crypto clients and suffered the consequences when the market went south.
The UK, like other nations, took note. Regulators began mapping out the fault lines between banks and digital assets, trying to figure out where the next tremor might come from.
So, this isn’t just about bitcoin or ether. It’s about exposure — how tied a bank is to an asset class that’s still, for the most part, speculative. Bailey said one of the central challenges is price volatility and the risk of sudden loss. That’s not something regulators want in institutions responsible for mortgages, pensions, or payroll loans.
This plan is a message to banks: if you want to dabble, do it small. Preferably very small.
How much can UK banks invest in crypto under proposed rules?
The Basel Committee’s framework suggests that crypto should be considered a high-risk investment requiring stringent capital buffers. In practical terms, this limits crypto exposure significantly.
The table paints a clear picture. Bitcoin and its crypto cousins will be treated like the financial equivalent of radioactive material — interesting to study, but best handled with tongs.
Retail investors to get crypto ETN access — again
In an interesting twist, while banks are being told to keep their distance, retail investors in the UK are being welcomed back into the crypto fold — at least through ETNs.
The Financial Conduct Authority (FCA) recently reversed its 2021 ban on retail access to crypto exchange-traded notes. It’s a striking policy U-turn. These ETNs, which track crypto prices without requiring direct asset ownership, are now considered less dangerous — or at least less likely to bring down the financial system.
What’s going on here? The FCA wants to give ordinary investors some breathing room, and maybe a chance to participate in the crypto economy — as long as it’s in a way the regulators can monitor.
• ETNs are seen as more transparent and manageable than direct crypto holdings
• They trade on regulated exchanges, like the London Stock Exchange
• Prices still fluctuate wildly, but the structure is better understood
The move could help grow capital markets and support innovation, all while keeping systemic risk at bay. It’s a tricky line to walk, but the FCA seems willing to try.
Why regulators are acting now, not later
Timing isn’t random here. The Bank of England is clearly trying to stay ahead of potential future blowups. The cryptocurrency sector may have shrunk after the 2022-23 crash, but it hasn’t gone away. Market caps are rising again. Institutions are inching back in. And central banks, burned once, don’t want to be caught off guard twice.
For UK regulators, 2026 offers a kind of breathing space. It’s not a crackdown happening tomorrow, but it gives banks — and the markets — time to adapt.
Bailey hinted that once the rules are in place, regulators will monitor how the sector behaves. If things stabilize, maybe the screws loosen. But until then? Expect caution to be the flavor of the year.
What this means for UK banks, fintechs, and policy watchers
There’s a bit of a chill heading for London’s financial district. While banks won’t be banned from touching crypto, they’ll have to do it with gloves on. That means:
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Lower investment in crypto-related services
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More pressure on fintechs to partner with unregulated players
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Potential for shadow banking activity in crypto to grow again
None of that is ideal, but regulators argue it’s the safer path — at least for now.
The UK wants to remain a hub for fintech and digital innovation, but it also doesn’t want another SVB-style fiasco. And for now, that means keeping crypto at arm’s length, especially for the banks with mortgages and pensions on their books.
As for the rest of the market — well, it’s watching, adjusting, and probably already lobbying for a softer version of whatever the final 2026 rulebook turns out to be.
