Study on Virtual Currencies.

Numbers show that crypto-assets, including foremost virtual currencies, peaked at a market capitalisation of 650 billion EUR early 2018, drastically decreasing to about 96 billion EUR by early 2019 (source: ECB). These numbers indicate that, for now, virtual currencies are a marginal phenomenon from a financial stability and monetary policy perspective. They are not a marginal phenomenon, however, from the perspective of combating financial crime (tax fraud, money laundering, terrorist financing) or investor protection. For example, money laundering through virtual currencies is a real threat and fraudulent crypto investor schemes are also a reality, directly impacting domestic and European crime fighters, financial supervisors, investors, etc.. Moreover, realities can develop: it is not unlikely that larger projects, in particular the introduction of the Libra coin, a stable coin designed to facilitate payments, can take on monstrous proportions and truly compete with traditional fiat money – and thus impact financial stability and/or monetary policy in the future. In addition, it is reported that some states, including very large ones, are considering issuing central bank virtual currencies, in addition to traditional fiat money. These developments can have huge impact, also taking into account the digital nature of virtual currencies, making them susceptible to cybercrime, bringing cybersecurity to the table.The study addresses virtual currencies from a financial regulatory and compliance (with money laundering rules especially) perspective. It sets out the current European regulatory framework and how robust it is in view of the (potential) risks that crypto assets cause now, and are likely to cause in the future, taking into account recent developments such as Libra and government backed virtual currencies. It scrutinizes how the regulatory framework can be improved to tackle the identified risks/threats from a financial regulatory and compliance perspective, insofar the current framework would prove insufficient.

Keywords:LAW

Disciplines:Economic, commercial and financial law, European law