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 Insights

BCBS Finds Liquidity Risk Management Principles Remain Fit for Purpose

BCBS completed a review of its 2008 Principles for sound liquidity risk management and supervision. The review confirmed that the principles remain fit for purpose.

January 17, 2019 WebPage Regulatory News

HKMA Urges Local Banks to Start Working on FRTB Implementation

HKMA announced that it plans to issue a consultation paper on the new market risk standard in the second quarter of 2019.

January 17, 2019 WebPage Regulatory News

EBA Finalizes Guidelines for High-Risk Exposures Under CRR

EBA published the final guidelines on the specification of types of exposures to be associated with high risk under the Capital Requirements Regulation (CRR). The guidelines are intended to facilitate a higher degree of comparability in terms of the current practices in identifying high-risk exposures.

January 17, 2019 WebPage Regulatory News

MAS Guidelines on Risk Mitigation Requirements for OTC Derivatives

MAS published guidelines on risk mitigation requirements for non-centrally cleared over-the-counter (OTC) derivatives contracts.

January 17, 2019 WebPage Regulatory News

BoE Publishes the Schedule for Statistical Reporting for 2019

BoE published the updated schedule for statistical reporting for 2019. The reporting institutions use the online statistical data application (OSCA) to submit statistical data to BoE.

January 16, 2019 WebPage Regulatory News

PRA Delays Final Direction on Reporting of Private Securitizations

PRA and FCA have delayed the issuance of final direction, including the final template, on reporting of private securitizations, from January 15, 2019 to the end of January 2019.

January 15, 2019 WebPage Regulatory News

SNB Updates Forms on Supervisory Reporting for Banks

SNB published Version 1.7 of reporting forms (AUR_U, AUR_UEA, AUR_UES, AURH_U, AUR_K, AUR_KEA, and AURH_K) and the related documentation for supervisory reporting on an individual and consolidated basis.

January 15, 2019 WebPage Regulatory News

BCBS Finalizes Market Risk Capital Framework and Work Program for 2019

BCBS published the final framework for market risk capital requirements and its work program for 2019. Also published was an explanatory note to provide a non-technical description of the overall market risk framework, the changes that have been incorporated into in this version of the framework and impact of the framework.

January 14, 2019 WebPage Regulatory News

EBA Single Rulebook Q&A: First Update for January 2019

EBA published answers to 13 questions under the Single Rulebook question and answer (Q&A) updates for this week.

January 11, 2019 WebPage Regulatory News

PRA Proposes to Amend Supervisory Statement on Credit Risk Mitigation

PRA published the consultation paper CP1/19 that is proposing changes to the supervisory statement (SS17/13) on credit risk mitigation.

January 10, 2019 WebPage Regulatory News
RESULTS 1 - 10 OF 2473