Last week, the New York State Department of Financial Services published draft regulations relating to the conduct of business involving virtual currency - the first substantive detailed virtual currency regulations to be issued by any jurisdiction.

The man behind the proposals is 44 year old Superintendent of Financial Services, Benjamin Lawsky, who was described by Business Insider as “The Wall Street Regulator Who Pissed Off The Fed, The Treasury, And The Entire City Of London”. He regulates around 4,400 financial services business with total assets of around $6.2 trillion.

The 40-page draft BitLicence regulations focus heavily on consumer protection, anti-money laundering and cyber security. In a supporting press release, Lawsky said “We have sought to strike an appropriate balance that helps protect consumers and root out illegal activity – without stifling beneficial innovation.”...

My daughter asked what sort of world she might be entering when her Bitcoin business becomes regulated under the European Banking Authority’s vision for virtual currencies. I didn’t have further to look than the last two week’s news:

• BNP Paribas fined $8.9bn for sanctions violations
• US Court blocks Argentina from making $539m interest repayments
• Portugal confidence wobbles over financial health of Banco Espirito Santo
• Austria winds-up Hypo Alpe-Adria Bank after unsuccessful rescue attempts
• UK’s FCA & PRA broaden review of HBOS bank failings.

So, that’s what the EBA has in mind for us when it says it wants virtual currencies brought into the stable, high-integrity regulated sector. A brave new world to look forward to!

Last Friday, the European Banking Authority published its long-awaited Opinion on virtual currencies. There is a brief summary in my last
post and I will be posting more in the coming days.

The EBA’s Opinion proposes profound changes to the virtual currency world. In the long term, there will be a two-tier system of regulated and unregulated virtual currencies with only regulated virtual currencies being permitted to interact with other regulated financial services in Europe.

In the short to medium-term, virtual currency gateways such as exchanges will be required to operate compliant anti money laundering and counter terrorist financing systems and restrictions will be imposed on banking, payment and e-money institutions buying, holding or selling virtual currencies. The EBA’s stated intention is to ‘shield’ the existing financial system from virtual currencies until a new regulatory...

In a 46-page Opinion published on Friday, Europe’s banking super-regulator, the European Banking Authority, called for the regulation of virtual currencies in the European Union.

In December 2013, the EBA issued a public warning to consumers about the risks of virtual currencies that triggered a raft of similar warnings from banking regulators around the the world. In its new Opinion, issued after a joint assessment carried out with other European authorities, the EBA proposes a two-pronged approach: a whole new body of European Union regulation governing virtual currencies that it acknowledges will take considerable time and, in the meantime, calls for immediate action by national regulators in the 28 EU member states to ‘discourage’ banks, payment and e-money institutions from buying, holding or selling virtual currencies. In effect, the EBA is advising national regulators to ban...

In a marked shift, the UK regulator, the Financial Conduct Authority, said it wants to ensure positive developments such as Bitcoin are supported by the regulatory environment.

Speaking last week at Bloomberg London, FCA Chief Executive, Martin Wheatley, announced Project Innovate, the FCA’s fast track initiative to help support finance industry innovation, setting the goal for “an FCA that creates room for the brightest and most innovative companies to enter the sector”.

Wheatley reflected on three questions: (1) How does the FCA encourage innovation in the financial service market? (2) Does it do enough to promote competition and create room for new entrants into the market, particularly those with novel business models? (3) Does FCA regulation more broadly serve the needs of innovative businesses? Quite rightly, he recognised several developments as having “transformed finance in...