The European Central Bank wants banks to separate crypto business

On the 11th May, the ECB stated that any banks doing business with cryptocurrencies should ring-fence it and ensure that there are adequate amounts of capital against. Yves Mersch said that cryptocurrencies and virtual currencies that are issued by private companies with the help of users, do not qualify as money and therefore need more stringent regulations from any entity that deals with them.

“Due to the high volatility of VCs it might seem appropriate to require any VC trading to be backed by adequate levels of capital, and segregated from other trading and investment activities,” Mersch told a conference in Turkey.

EU banks that are overseen by the ECB have so far stayed away from cryptocurrencies but with Goldman Sachs announcing its new Bitcoin trading desk, this could soon change. Mersch said the market was too small at present to endanger financial stability but he advised that this could change and VCs could post a risk especially if they are used as collateral for bank loans or settling trades at a clearing house.

“There’s a need to examine whether any VC activity carried out by FMIs (financial market infrastructures) should have to be ring-fenced,” Mersch said.

 

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