Virtual currencies such as bitcoin present a wide range of issues for financial authorities in areas such as taxation, consumer protection, and money laundering, a leading Central Bank official has said.
Gareth Murphy, director of markets supervision at the Central Bank, said developments in mobile and information technology are likely to change the landscape of financial services in the coming years.
He told the BitFin 2014 conference in Dublin there were seven main areas of concern to financial authorities. These include the impact of virtual currencies on data gathering for the economic statistics used in the stewardship of economies.
Such currencies also raise issues relating to central banks’ control of monetary and exchange rate policy, as well as the threat of tax leakage to the virtual economy.
Consumer protection and payment systems and settlement infrastructure would also be affected by widespread adoption of virtual currencies, which would test current anti-money laundering regulations.
Finally, if virtual currencies start to permeate economic activity, it would have an impact on regulated financial service providers such as banks and insurance companies which would have to adapt to the new environment to maintain market share.
“This is likely to have a profound operational impact on these firms and their regulatory risk profile,” Mr Murphy said.
He said most of the issues raised were unique and would most likely require bespoke regulatory responses.
“Unlike the previous financial crisis when a culture of indifference by parts of the financial services industry towards regulation prevailed, I would urge this industry to work actively to address the concerns of financial authorities rather than playing cat and mouse and eventually, and inevitably, being drawn into the regulatory net,” Mr Murphy said.
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