Out-Law News | 16 Dec 2013 | 2:39 pm | 1 min. read
The regulator said that because virtual currency is not regulated, consumers risk losing their money by "buying, holding or trading" them.
"Currently, no specific regulatory protections exist in the EU that would protect consumers from financial losses if a platform that exchanges or holds virtual currencies fails or goes out of business," the EBA said in a statement.
Consumers do not have refund rights when they use virtual currencies in transactions, and they may also have to pay tax on the assets, the EBA said.
"Holding virtual currencies may have tax implications, and [consumers] should make sure that they give due consideration to whether tax liabilities apply in their country when using virtual currencies," it said.
In addition, the regulator said that there is a risk that virtual currency can be stolen by hackers, or that platforms consumers use to store the digital assets are closed down as a result of illegal activity.
"Transactions in virtual currency provide a high degree of anonymity, they may be misused for criminal activities, including money laundering," the EBA said. "This misuse could lead law enforcement agencies to close exchange platforms at short notice and prevent consumers from accessing or retrieving any funds that the platforms may be holding for them."
Bitcoin is a digital asset with a monetary value but which is currently not recognised as an official currency anywhere in the world. Some retailers accept payment by Bitcoin for goods and services, but most traders, especially in the EU, have not yet put systems in place to accept Bitcoin transactions.
A recent report by Bank of America Merrill Lynch (BAML) in the US said that Bitcoin has the potential to "become a major means of payment for e-commerce" but said that the "high volatility" of its value "is hindering its general acceptance as a means of payments for online commerce".
BAML's report said that the openness of transactions made using Bitcoin could, despite the fact they can be made anonymously, "ultimately limit its use in the black market/underworld".
"Not only is each transaction recorded on each Bitcoin, but all transactions are recorded in an online public ledger, offering a level of transparency that is not available with cash," the report said. "Such transparency offers regulators means to track potentially illicit activity."
The People's Bank of China, the country's central bank, recently banned financial and payment institutions from providing or accepting Bitcoin.
The trading of Bitcoin is not regulated within the UK or broadly across the EU currently, but technology and payments law specialist Angus McFadyen of Pinsent Masons, the law firm behind Out-Law.com, said recently that proposed new EU laws on payment services leave open the possibility of Bitcoin being regulated in future.