European Banking Authority tells banks to wait for cryptocurrency regulation

The European Banking Authority (EBA) released a report today strongly recommending that banks and other financial institutions hold off on any direct investment in bitcoin or other cryptocurrency until regulators develop stronger protections for their use. The EBA identified a list of 70 risks associated with digital currency, including well-known concerns such as fraud, money laundering, terrorist financing, hacking and price manipulation.

As the EBA report noted:

Until a comprehensive regulatory regime is developed, (if it is developed at all), only those risks can be mitigated that arise in the interaction between VC [virtual currency] schemes and the regulated financial services sector … This would include risks of money laundering and financial crime, the risks to conventional payment systems, and some risks to individual users. To that end, the EBA recommends that national supervisory authorities discourage credit institutions, payment institutions, and e-money institutions from buying, holding or selling VCs, thereby ‘shielding’ regulated financial services from VCs.”

Acting on this advice, the European Commission’s Financial Services office said it would “move quickly” to create new rules for bitcoin and similar digital currencies. Speaking with Bloomberg, Chantal Hughes, a spokeswoman for E.C. Financial Services Commissioner Michel Barnier, said that the dangers of inaction are “too serious to ignore.”

Although the EBA report was extremely skeptical of the value of bitcoin and similar currency systems, particularly in practical application in the E.U.’s SEPA banking system, it did note that cryptocurrency offers several advantages for global users. The report explained that an “increase in competition for transaction services” with credit card and banking systems “may also have a cost-reducing effect,” and that cryptocurrencies offer a “particularly attractive way to effect micropayments.”