European Banking Regulator to Review Virtual Currency Risks

Virtual currencies such as Bitcoin may pose risks to consumers, investors and society, the European Banking Authority said.

The EBA, set up in 2011 to harmonize banking rules across the 28-member European Union, said that it would set up a task force in the first half of this year to review policy options.

“The question yet to be addressed is whether virtual currencies can and ought to be regulated,” the London-based EBA said in a statement published on its website today.

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 today amid claims it lost 850,000 Bitcoins. China’s central bank barred financial institutions from handling virtual currency transactions last year.

Investors may face risks trading derivatives based on Bitcoin, the EBA said. Regulators could also have their anti-money laundering initiatives undermined by virtual currencies, the agency said.

Trading in virtual currency derivatives is growing. George Samman, a former Wall Street investment adviser who in May helped start a platform for betting on Bitcoin’s price swings, saw trading on his BTC.sx website grow to more than $35 million by Jan. 21.

BTC.sx suspended trading after the shutdown at Mt. Gox because it had to find another exchange partner for its customers.

The digital currency was introduced in 2008 by a programmer or group of programmers under the name Satoshi Nakamoto and has since gained traction with merchants around the world. Bitcoin has no central issuing authority, and uses a public ledger to verify transactions while preserving users’ anonymity.

To contact the reporter on this story: Ben Moshinsky in Brussels at bmoshinsky@bloomberg.net

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