LONDON Aug 6 Britain on Wednesday took its
first steps toward regulating the rapidly expanding use of
virtual currencies, launching a study to look at the
opportunities and risks presented by digital currency Bitcoin
and its rivals.
The announcement came in a package of measures unveiled by
finance minister George Osborne aimed at boosting financial
innovation in London to help fend off challengers to the city's
status as the world's leading financial centre.
Unlike conventional money, virtual currencies are not backed
by a central bank or government, but have become increasingly
used as a means of online exchange with some bricks-and-mortar
vendors also accepting them as payment for goods and services.
"The government will look at the potential virtual and
digital currencies have for achieving positive change and for
encouraging innovation in our world leading financial sector, as
well as the potential risks," said a finance ministry statement.
The government said it would begin researching how such
currencies could, or should, be regulated in Britain. So far
there has been no co-ordinated global approach to regulating
virtual currencies and no country has given them legal status.
Bitcoin, the best known of the 200 or so computer-generated
currencies, has come under particular scrutiny since Tokyo-based
exchange Mt. Gox went bankrupt in February after losing an
estimated $650 million worth of customer bitcoins.
Last month the European Banking Authority published a study
advising banks to steer clear of virtual currencies until rules
are in place. The European Commission said it was imperative to
look at regulating the sector to address the potential for
"money laundering and terrorist financing."
Osborne also said the government was enlisting the help of
industry and academic experts to look at the increasingly key
role of technology in finance and its likely policy implications
over the next decade.
Financial services makes up around 8 percent of the British
economy, and Osborne said it was vital to harness new technology
to ensure Britain remained a global leader and to sustain its
He confirmed plans to improve the growth generated by small
and medium-sized enterprises (SMEs) by encouraging them to tap
the burgeoning alternative finance sector.
The finance ministry said that banks that reject SMEs for
finance will be required to ask firms whether they want to be
referred to third parties who would then try to match them up
with challenger banks and alternative lenders.
This would funnel demand for cash toward new sources of
funding like peer-to-peer lenders, which allow individuals to
lend money directly to small companies or other individuals,
cutting out the banks and lowering the cost for businesses.
"It's good that more SMEs are making use of alternative
finance but the big banks still dominate and small businesses
often give up if they're turned down for finance by their bank,"
said Business Secretary Vince Cable.
Britain's fledgling alternative funding market almost
doubled in size in 2013, rising to around 1 billion pounds
($1.69 billion). Brokerage Liberum Capital has forecast
peer-to-peer lending in Britain could be worth 45 billion pounds
within a decade.
($1 = 0.5924 British Pounds)
(Editing by Lisa Shumaker)