A recently released document from the European Parliament highlights the opinion of the Committee on the Internal Market and Consumer Protection on virtual currencies for the Committee on Economic and Monetary Affairs. 

The Committee on the Internal Market and Consumer Protection recognizes that the virtual currency (VC) industry and VC technology are in a nascent state and are innovative technologies which are not being developed on the basis of existing infrastructure.

It also points out the potential benefits associated with VCs and VC technologies for various entities which include greater speed and efficiency and reduced costs in making payments and transfers, in particular across borders, and potentially promoting financial inclusion and facilitating access to funding and financial resources for the business sector and SMEs. The committee highlighted that VCs are the only means of payment other than cash which can facilitate real-time settlement.

It recommends developing a level European playing field to explore and fully develop distributed ledger technologies (DLTs), as they can be used in several innovative fields and in a wide range of industries and services.

Although the committee acknowledged that VCs could present risks in relation to criminal activities such as terrorism financing, money laundering, tax fraud, it noted that there is little evidence that VCs have been widely used as a payment vehicle for illicit activity, adding that “the level of traceability of cash transactions tends to be much lower than that of VCs”.

“Points out that VC holders are vulnerable to illegal activities and challenges…asks the Commission to ensure that an adequate level of safeguards and effective remedies are in place for consumers who might face some of the aforementioned risks linked to the use of VCs”, the document read.

The committee also recommends setting up of a Task Force, under the leadership of the Commission, to support the relevant public and private actors while evaluating and analysing all the potential avenues of evolution of VC technologies and DLT application.

It goes on to say that VC could pose potential risks to the financial system in terms of both regulation and market surveillance and security. However, the committee noted that effective regulatory responses to the development of VCs are still at an early and delicate stage, and emphasized that effective frameworks to regulate VCs should be developed in a manner that guards against the risks while not stifling financial and technological innovation.

“[The Committee] calls 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 existing and future VC users, to allow them to make a fully informed choice…calls, moreover, on the VC industry in cooperation with the Commission and the Member States to consider applying the relevant AML/CFT (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, and asks the Commission to evaluate and consider extending the scope of the Anti-Money Laundering Directive to include virtual currency exchange platforms”, it added.