Cryptocurrencies are subject to extreme volatility and a high risk of fraud, and may also pose reputational risks for companies that will invest in this segment, the Bank of England said in a letter to investors and executives of banks and insurance companies.

The document was written by Deputy Governor of the Central Bank Sam Woods, who is responsible for prudential regulation and chairs the relevant committee of the Bank of England.

“The list of products and market participants related to crypto assets has grown at a rapid pace. Over their short history, crypto assets have demonstrated high price volatility and comparative illiquidity”, the letter says.

Mr Woods also reminded banks and other market participants of their responsibilities to act prudently, plan effective risk mitigation strategies and cooperate with regulators.

He also recommended that companies conduct “thorough due diligence before taking any positions in crypto assets”.