European Union Begins Looking at Comprehensive Regulation of Virtual Currencies

A View from Constantine Cannon’s London Office

By Yulia Tosheva, Richard Pike and James Ashe-Taylor

The European Parliament’s Committee on Economic and Monetary Affairs (“ECON”) took a tentative first step toward the regulation of virtual currencies regulation of virtual currencies last week with the issuance of a draft report on virtual currencies.

The regulation of virtual currencies is already underway to a greater or lesser extent in a number of jurisdictions including the UK and Japan.

The EU Initiative

The ECON report stresses that while virtual currencies are associated with various risks, they do have the potential to contribute positively to consumer welfare and economic development by means of:

Dramatically lowering transaction costs for payments and transfers of funds, possibly well below 1%, compared to 2 to 4% for traditional online payment systems, and to more than 7% on average for the cross-border transfer of remittances, hence potentially reducing global total costs for remittances by up to 20 billion euros;

Reducing the cost of access to finance even without a traditional bank account;

Enhancing the speed and resilience of payment systems thanks to the inherently decentralised architecture of distributed ledger technology (“DLT”);

Using such systems to develop online micropayment systems that could replace some of the present data-hungry online business models that significantly challenge individual privacy; and

Allowing different types of traditional and innovative payment mechanisms, from credit cards to mobile solutions, to merge into one secure and user-friendly application.

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