Committee urges EU to act on digital-currency regulation
The growing popularity of digital currencies such as Bitcoin has led to a new call for regulation by the Financial Markets Law Committee, which argues that they should be treated in the same way as cash, securities and commodities. It's a question of regulatory policy rather than a legal matter with the aim of achieving a consistent approach regarding tax treatment, anti-money laundering and consumer protection with these currencies.

The Financial Markets Law Committee, which was established by but is independent from the Bank of England, said there is a case for regulating virtual currencies in the same way as commodities or securities or even cash (34-page / 386KB PDF).

It said "the question is best addressed as one of regulatory policy rather than legal categorisation". Clearly defining virtual currencies from a legal stand-point should not necessarily be "conclusive as to their regulatory treatment", it said, but it "may assist regulators in predicting the outcomes of proposed regulatory approaches".

In its paper the FMLC considered whether virtual currencies could be classed as money, property or goods, among other things.

"In the European context, regulatory questions … cannot be postponed indefinitely (or, indeed, for very long at all)," the FMLC said. "As virtual currencies play an increasingly significant role in the financial markets, the question of how the regulatory acquis should apply to them will become a pressing one."

The Committee said that where virtual currencies have "achieved status as a medium of exchange within a significant user community" then they "have a good claim to be regarded as money", and be considered as "negotiable".

Viewing virtual currencies in this way might require the extension of "traditional legal categories", however, it said.

The FMLC said that at the moment it is possible, under English law, to either class something as being 'choses in possession', which is property capable of being physically possessed or 'choses in action', a thing people cannot possess but which they have legal rights to. Only tangible items can be considered as property capable of being possessed.

"There may be an argument for recognising the new reality of the digital world and extending the traditional legal categories so as to recognise virtual choses in possession as a new form of property," the FMLC said.

In 2014 the Court of Appeal in London ruled that information stored electronically does not constitute property which someone can exercise possession of.

Financial services and technology law expert Luke Scanlon of Pinsent Masons, the law firm behind Out-Law.com, said: "While the legal academic discussion around how to define virtual currencies using existing legal concepts is interesting and relevant to the overall regulatory, monetary policy and financial integrity picture, what is more relevant in the short term is the need to achieve a level of consistency among regulators around the anti money laundering, tax treatment and consumer protection questions which arise in relation to virtual currencies."

"It is paramount that regulators begin to answer these questions in the short term particularly from the standpoint of enabling innovators who want to move forward with virtual currency propositions," he said.

"The UK government for instance has for some time now stated its intention to regulate virtual currency exchanges but while this is still simply a statement of intention the lack of certainty created is making it difficult both for global businesses and emerging fintech businesses to assess the worth of investing in virtual currency-based solutions," Scanlon said.