July 4, 2014, 9:17 a.m. - EU warns banks against trading bitcoin
By Viktoria Dendrinou
BRUSSELS--The European Union's banking watchdog on Friday cautioned financial institutions against trading or holding virtual currencies until the 28-nation bloc comes up with new rules for the sector.
In a paper addressed to EU and national authorities, the European Banking Authority outlined the kind of issues that would need to be regulated for safer trading in virtual currencies, like bitcoin.
It cautioned lenders and other firms against buying, holding or selling these currencies while no regulation is in place.
"The EBA recommends that national supervisory authorities discourage credit institutions, payment institutions, and e-money institutions from buying, holding or selling VCs [Virtual Currencies], thereby 'shielding' regulated financial services from VCs," the paper said.
An EBA spokeswoman said it was up to EU authorities, including the EU's executive and the European Parliament, to draw up regulation for the sector.
The EBA's advise came after an in-depth assessment of trading in virtual currencies. It found that while they can enable faster and cheaper transactions, they can pose high risks for users and investors. The EBA said these currencies can provide a fertile ground for financial crimes such as money laundering.
Created in 2009, bitcoin is an electronic currency that is created on computers and traded between people who store it in digital wallets. A rising number of mainstream businesses accept bitcoin as payment for goods and services. But bitcoin also has carried a stigma that it is used for illicit activity, an issue that has raised concerns among lawmakers and regulators.
The EBA assessment was carried out with the help of the European Central Bank and the EU's markets watchdog, the European Securities and Markets Authority.
The EBA said its concerns about virtual currencies stem in part from the fact they can be created anonymously by anyone, with no proper oversight.
The people in charge of validating transactions--as well as those buying and selling can also stay anonymous. The EBA also noted that trading and payment systems security cannot be guaranteed, and "the financial viability of some market participants remains uncertain".
The proposed law on virtual currencies, the EBA said, would need to cover governance requirements including the segregation of client accounts, capital requirements and, most importantly, the creation of 'scheme governing authorities' accountable for the integrity of a particular currency scheme.
But, with no rules currently in place, the EBA said financial institutions should steer clear of trading virtual currency for now.
Write to Viktoria Dendrinou at viktoria.dendrinou@wsj.com
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By Viktoria Dendrinou
BRUSSELS--The European Union's banking watchdog on Friday cautioned financial institutions against trading or holding virtual currencies until the 28-nation bloc comes up with new rules for the sector.
In a paper addressed to EU and national authorities, the European Banking Authority outlined the kind of issues that would need to be regulated for safer trading in virtual currencies, like bitcoin.
It cautioned lenders and other firms against buying, holding or selling these currencies while no regulation is in place.
"The EBA recommends that national supervisory authorities discourage credit institutions, payment institutions, and e-money institutions from buying, holding or selling VCs [Virtual Currencies], thereby 'shielding' regulated financial services from VCs," the paper said.
An EBA spokeswoman said it was up to EU authorities, including the EU's executive and the European Parliament, to draw up regulation for the sector.
The EBA's advise came after an in-depth assessment of trading in virtual currencies. It found that while they can enable faster and cheaper transactions, they can pose high risks for users and investors. The EBA said these currencies can provide a fertile ground for financial crimes such as money laundering.
Created in 2009, bitcoin is an electronic currency that is created on computers and traded between people who store it in digital wallets. A rising number of mainstream businesses accept bitcoin as payment for goods and services. But bitcoin also has carried a stigma that it is used for illicit activity, an issue that has raised concerns among lawmakers and regulators.
The EBA assessment was carried out with the help of the European Central Bank and the EU's markets watchdog, the European Securities and Markets Authority.
The EBA said its concerns about virtual currencies stem in part from the fact they can be created anonymously by anyone, with no proper oversight.
The people in charge of validating transactions--as well as those buying and selling can also stay anonymous. The EBA also noted that trading and payment systems security cannot be guaranteed, and "the financial viability of some market participants remains uncertain".
The proposed law on virtual currencies, the EBA said, would need to cover governance requirements including the segregation of client accounts, capital requirements and, most importantly, the creation of 'scheme governing authorities' accountable for the integrity of a particular currency scheme.
But, with no rules currently in place, the EBA said financial institutions should steer clear of trading virtual currency for now.
Write to Viktoria Dendrinou at viktoria.dendrinou@wsj.com
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