The European Banking Authority (EBA) has published an opinion on virtual currencies (VC).

The opinion is addressed to the Council of the EU, the European Commission, the European Parliament, and national supervisory authorities (NSAs).

Following an assessment of VCs carried out jointly with the European Central Bank (ECB) and the European Securities and Markets Authority (ESMA), the EBA has concluded:

  • there are some potential benefits from VCs, such as faster and cheaper transactions, as well as increased financial inclusion;
  • the risks of VCs outweigh potential benefits and are described as manifold. More than 70 risks have been identified, including risks to users, risks to non-user market participants, risks to financial integrity (such as money laundering and other financial crime), risks to existing payment systems in conventional currencies, and risks to regulatory authorities. The causes for these risks have also been investigated. These include that a VC scheme can be created, and its function subsequently changed, by anyone. For example with Bitcoins, changes can be made anonymously by anyone with a sufficient share of computational power;
  • an all-encompassing regulatory approach with a substantial body of regulation will be required to deal with VC. Consideration will need to be given on governance requirements for several market participants, the segregation of client accounts, capital requirements, and the creation of scheme governing authorities;
  • as an immediate response, the EBA recommends that national supervisory authorities discourage credit institutions, payment institutions and e-money institutions from buying, holding or selling VCs; and
  • the EBA also recommends that EU legislators consider declaring market participants at the direct interface between conventional and virtual currencies, such as virtual currency exchanges, to become ‘obliged entities’ under the Third Money Laundering Directive and thus become subject to its anti-money laundering and counter terrorist financing requirements.

View EBA opinion on ‘virtual currencies’, 4 July 2014