European Union banks should shun virtual currencies such as bitcoin until a system of rules to prevent abuses are put in place, according to the bloc’s top banking regulator.
The European Banking Authority called on the EU to develop safeguards for trading platforms and start groups to oversee each internet currency to ensure that no individuals can manipulate “the integrity of a particular virtual currency scheme and its key components,” according to a statement today. In the meantime, banks shouldn’t buy, hold or sell virtual currencies.
Virtual currencies have come under increased scrutiny from regulators and prosecutors around the globe.
Mt. Gox, once the world’s biggest bitcoin exchange, filed for bankruptcy in Japan earlier this year amid claims it lost 850,000 Bitcoins.
China’s central bank barred financial firms from handling virtual currency transactions last year. The European watchdog identified more than 70 risks linked to the currencies, including their vulnerability to crime and money laundering.
“Based on this assessment, the EBA is of the view that a regulatory approach to address these risks would require a substantial body of regulation, some components of which would need to be developed in more detail,” the regulator said.
Bitcoin emerged in 2009 out of a paper authored under the pseudonym Satoshi Nakamoto.
Since then, retailers selling items from sweets to luxury homes have started accepting bitcoins, and new companies have begun offering ways to ease its use as a payment system.
The EBA said it was concerned that “anyone with a sufficient share of computational power” can anonymously exploit flaws in virtual currencies, without detailing them.
Bitcoin gained credibility after law enforcement and securities agencies said in US Senate hearings that it could be a legitimate means of exchange.
The price of bitcoin topped $1,000 as speculators anticipated broader use of digital money. The price has since dropped to about $640 on Bitstamp, an online exchange based in Slovenia. It would cost around $8.4 billion to buy all the bitcoin in existence, according to Bitstamp.
In the US, bitcoin and other digital currencies will receive more attention from the Consumer Financial Protection Bureau after prodding from a congressional watchdog.
Bloomberg
