The European Parliament’s Internal Market & Consumer Protection Committee has published an Opinion about virtual currencies. In the Opinion, which was prepared by rapporteur Ulrike Trebesius, the Committee calls on the Parliament’s Economic & Monetary Affairs Committee, as the Committee responsible for virtual currencies, to include a number of suggestions in its motion for a resolution. These suggestions:

  • Stress “the importance of developing a level European playing field to allow the valuable potential of [digital ledger technology] to be unleashed and fully developed…
  • Acknowledge that virtual currencies (VCs) “could present risks … such as the financing of terrorism, money laundering, tax evasion and tax fraud [although] there is little evidence that VCs have been widely used as a payment vehicle for criminal activity”;
  • Point out “that VC holders are vulnerable to … scams, [theft], cybercrime, hacking, [and] fraud”; 
  • Ask “the Commission to ensure that an adequate level of safeguards and effective remedies are in place for consumers who might face [these] risks“;
  • Acknowledge “that VCs … if used as an alternative to fiat currencies, could pose potential risks to the financial system“;
  • Stress that “no specific regulatory protection exists in the EU to protect consumers from financial losses if a platform that exchanges or holds [VCs] fails”;
  • Highlight “the need for consumer protection when using VCs, notably in terms of cybersecurity, algorithms used, contact persons and contact details in case of queries or problems, easily understood terms and conditions, including a clear statement of the risks, and the fact that VCs and their value are not necessarily guaranteed by any bank or country“;
  • Recognise “the difficulties and uncertainties in predicting how VCs might develop and in identifying any potential specific longer-term policy responses while not stifling innovation“;
  • Ask the Commission “to develop a coherent and comprehensive strategy at EU level, with the aim of identifying the benefits and risks of VCs and VC technologies and potential longer-term policy responses, while taking into account the need to avoid fragmentation and distortion of the Single Market … the need to promote … innovation and to work with relevant stakeholders and VC companies … to keep the EU attractive as a location for R&D and the operation of these technologies“;
  • Note “that a great deal of work remains to be done to put in place effective frameworks to regulate VCs in a manner that guards against the risks while not stifling … innovation“; and
  • Stress “the importance of consumer awareness, transparency and trust when using VCs”;
  • Call on:
    • “the Commission to develop, in cooperation with the Member States and the VC industry, guidelines with the aim of guaranteeing that correct, clear and complete information is provided for … VC users, to allow them to make a fully informed choice and thus enhance the transparency of VC schemes in terms of how they are organised and operated and how they distinguish themselves from regulated and supervised payment systems in terms of consumer protection“; 
    • the VC industry in cooperation with the Commission and the Member States to consider applying the relevant … anti-money laundering / countering the financing of terrorism … requirements specified by international standards to convertible VC exchangers and any other types of institution that act as nodes where convertible VC activities intersect with the regulated fiat currency financial system“;
    • the Commission to evaluate and consider extending the scope of the Anti-Money Laundering Directive to include virtual currency exchange platforms“.

Commentary and next steps

Some of this is a little curious. For example:

  • since the Paris attacks of November 2015, the European Council and Commission have been arguing that VCs are already being used for cross-border terrorist financing purposes, and that fiat currency / VC exchanges should be brought within the scope of an amended 4th Anti-Money Laundering Directive to make that harder – although, as the Opinion acknowledges, “there is little evidence that VCs have been widely used as a payment vehicle for criminal activity”;
  • the Opinion calls on the European Commission “to evaluate and consider extending the scope of the Anti-Money Laundering Directive to include virtual currency exchange platforms, although it’s already agreed to this and its work is well advanced.

Notwithstanding these minor points, the Opinion is likely to be broadly welcomed by the VC and digital ledger community as a welcome attempt to begin to regulate, and therefore to endorse and legitimise, their activities – something which should pull them closer to the main stream, and encourage consumers and others to use them.

The European Parliament is currently expected to consider virtual currencies at its meeting on 25 May 2016.

Our recent blog posts on these issues are available here and here.  Our blog post, “… regulation is on its way [Part 1]” is available here.

Posted by Cooley