General Information & Client Service
  • Americas: +1.212.553.1653
  • Asia: +852.3551.3077
  • China: +86.10.6319.6580
  • EMEA: +44.20.7772.5454
  • Japan: +81.3.5408.4100
Media Relations
  • New York: +1.212.553.0376
  • London: +44.20.7772.5456
  • Hong Kong: +852.3758.1350
  • Tokyo: +813.5408.4110
  • Sydney: +61.2.9270.8141
  • Mexico City: +001.888.779.5833
  • Buenos Aires: +0800.666.3506
  • São Paulo: +0800.891.2518
May 14, 2018

Yves Mersch of ECB spoke at the 39th meeting of the Governor’s Club Bodrum in Turkey. He discussed the appropriateness of virtual currencies as money, outlined the potential impact of virtual currencies, and talked about regulating the use of virtual currencies in the context of banks, financial market infrastructures (FMIs), and anti-money laundering and combating the financing of terrorism (AML/CFT).

He said he is "very skeptical" toward the use of blockchain and Distributed Ledger Technologies to create currency, while highlighting that virtual currencies are still not legitimized by any authority. Virtual currencies rely on financial intermediation via exchanges and wallet providers to re-enter the real economy, he added. He mentioned that money is a medium of exchange, acts as a unit of account, and is a store of value. However, it is clear that virtual currencies currently do not fulfill these three basic functions of money: they are inefficient media of exchange, poor stores of value, and are not used as units of account. These failures make the label “currency” a misnomer. He highlighted that virtual currencies cannot be directly regulated or overseen in the absence of a centralized governance and legal framework. "We ultimately need global answers in the absence of a defined jurisdiction for VC [virtual currency] issuance."

At a meeting this year in Buenos Aires, the G20 finance ministers and central bank governors acknowledged that technological innovation, including DLT and blockchain, had the potential to improve the efficiency and inclusiveness of the financial system. They warned, however, of the risks stemming from virtual currencies regarding consumer and investor protection, market integrity, tax evasion, money laundering, and terrorist financing. Ministers and governors, therefore, committed to extending global standards for combating money laundering and terrorist financing to virtual currencies; they called on international standard-setters to monitor virtual currencies closely and assess multilateral responses where needed. He added that virtual currency exchanges need to be held to the same rigorous standards as the rest of the financial system. For this purpose, the fifth Anti-Money Laundering Directive will bring virtual currency exchanges and wallet-providers within the scope of AML/CFT. However, a broader perspective on regulation in needed. Possible regulatory action to extend licensing and supervision rules to virtual currency facilitators could be explored.

He also examined whether virtual currencies could become a settlement asset in payment and settlement services or be used in the clearing domain. Existing standards for FMIs refer to the use of “a settlement asset with little or no credit and liquidity risk." While this appears to exclude settlement involving virtual currencies, such standards do not systematically apply to all FMIs. The situation is similar in the field of securities settlement. Use of a virtual currency as an asset for settling securities transactions or as a security depends on whether such currency could be legally characterized as a “financial instrument” under the applicable regulation. This depends on whether crypto-assets allow the identification of an issuer that can be held liable. The use of virtual currencies at central counterparties (CCPs) should also be monitored. The standards require CCPs to accept highly liquid collateral with minimal credit and market risk. While it is doubtful that a virtual currency would meet such a requirement, clear guidelines ex ante would be helpful. There is a need to examine whether any virtual currency activity by FMIs should have to be ring-fenced. Finally, in the banking sector, due to the high volatility of virtual currencies, it might seem appropriate to require any virtual currency trading to be backed by adequate levels of capital and segregated from other trading and investment activities. Given the risks posed by leverage, banks should not accept virtual currencies as collateral, or should only accept them with haircuts that appropriately reflect past volatility and liquidity, as well as market and operational risks. 

 

Related Link: Speech

Keywords: Europe, EU, Banking, Securities, PMI, Regtech, Virtual Currencies, Fintech, AML/CFT, ECB

Related Articles
News

EBA Single Rulebook Q&A: Third Update for March 2019

EBA published answers to seven questions under the Single Rulebook question and answer (Q&A) updates for this week.

March 15, 2019 WebPage Regulatory News
News

EBA Publishes Report on Convergence of Supervisory Practices Across EU

EBA published annual report on the convergence of supervisory practices in EU.

March 14, 2019 WebPage Regulatory News
News

CPMI-IOSCO Publish Update to Level 1 Assessment of PFMI Implementation

CPMI and IOSCO jointly updated the Level 1 Assessment Online Tracker on monitoring of the implementation of the Principles for financial market infrastructures (PFMI).

March 14, 2019 WebPage Regulatory News
News

Agustín Carstens of BIS Speaks About New Role of Central Banks

While speaking at the 20th anniversary conference of the Financial Stability Institute (FSI), Agustín Carstens, the General Manager of BIS, highlighted the need for regulatory actions in light of the continued evolution of financial technology.

March 14, 2019 WebPage Regulatory News
News

PRA Publishes Policy Statement on Group Supervision Under Solvency II

PRA published a policy statement (PS9/19) that provides feedback on responses to the consultation paper CP15/18 and the final supervisory statement SS9/15 (Appendix) on group supervision under Solvency II.

March 14, 2019 WebPage Regulatory News
News

PRA Proposes to Update the Pillar 2 Capital Framework for Banks

PRA is proposing (CP5/19) to update the Pillar 2 capital framework to reflect continued refinements and developments in setting the PRA buffer (Pillar 2B).

March 13, 2019 WebPage Regulatory News
News

PRA Publishes Policy Statement Related to Credit Risk Mitigation

PRA published a policy statement (PS8/19) that contains the final policy in the updated supervisory statement SS17/13 on credit risk mitigation (Appendix 1) as well as the statement SS31/15 on Internal Capital Adequacy Assessment Process (ICAAP) and the Supervisory Review and Evaluation Process or SREP (Appendix 2).

March 13, 2019 WebPage Regulatory News
News

FED Updates Supplemental Information and Q&A for Form FR Y-14

FED updated the supplemental instructions and the questions and answers (Q&A) document for the information collection on capital assessments and stress testing, which is covered by the reporting form FR Y-14A.

March 13, 2019 WebPage Regulatory News
News

EC Amends Regulations on Clearing Obligation for Derivative Contracts

EC published the Delegated Regulation (EU) 2019/396 that supplements the European Market Infrastructure Regulation (EMIR) regarding the date at which the clearing obligation takes effect for certain types of contracts.

March 13, 2019 WebPage Regulatory News
News

BCBS Sets Prudential Expectations for Crypto-Asset Exposures of Banks

BCBS issued a statement setting out its prudential expectations for bank exposures to crypto-assets and related services, for the jurisdictions that do not prohibit such exposures and services.

March 13, 2019 WebPage Regulatory News
RESULTS 1 - 10 OF 2739