European Banking Authority Issues Opinion Report on Virtual Currencies

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The European Banking Authority on Friday released an “opinion” report on virtual currencies, which has just started to make its rounds across the crypto-community.

The 46-page report (which we have embedded below for your review) takes many different elements into account here, but also makes some statements that community members may find controversial.

From the report’s executive summary:

While there are some potential benefits of VCs [virtual currency], for example, reduced transaction costs, faster transaction speed and financial inclusion, these benefits are less relevant in the European Union, due to the existing and pending EU regulations and directives that are explicitly aimed at faster transactions speeds and costs and at increasing financial inclusion.

It’s not long before the Authority takes the opportunity to stomp on digital currencies, however:

The risks, by contrast, are manifold. More than 70 risks were identified across several categories, 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 FCs [conventional currency], and risks to regulatory authorities

So what does bitcoin need? Well, according to the EBA, regulation:

A regulatory approach that addresses these drivers comprehensively would require a substantial body of regulation, some components of which are untested. It would need to comprise, amongst other elements, governance requirements for several market participants, the segregation of client accounts, capital requirements and, crucially, the creation of ‘scheme governing authorities’ that are accountable for the integrity of a VC scheme and its key components, including its protocol and transaction ledge.

Perhaps the most interesting quote is the next, in which the European Banking Authority actually makes the recommendation that financial institutions in the European Union keep from getting involved in virtual currencies — at least for now:

However, whilst such a ‘long-term’ regime is not in place, some of the more pressing risks identified will need to be mitigated in other ways. 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.

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 EU Anti Money Laundering Directive and thus subject to its anti-money laundering and counter terrorist financing requirements.

What do you make of it?

EBA-Op-2014-08 Opinion on Virtual Currencies