There are not many independent nations in the world today which can claim to have such a strong influence on the world’s traditional banking sector as Switzerland.
Well known for its bureaucratic and regulation-orientated governmental structure which provides rules and procedures for almost every daily activity, the small but extremely powerful central European country has always maintained its own sovereignty through its cast iron financial sector, neutrality and strong military.
Bearing this in mind, along with Switzerland’s lack of need for ingenuity as its traditional industries are so well established and secure that it succeeds generation after generation with little need for change, it raised more than a few eyebrows recently when Switzerland embraced the volatile and unpredictable Bitcoin by providing regulatory supervision to the country’s first Bitcoin exchange, SBEX and allowing the proposed installation of a network of Bitcoin ATMs via which virtual currency transactions can be performed.
As last week drew to a close, small c conservative Switzerland has proven that its independence from the ‘anything goes’ liberal European Union can actually portray Switzerland as the avantgarde innovator in the region.
The European Commission has taken the opposite view to Switzerland, having indicated that far from supporting a free market approach to Bitcoin, it will attempt to impose stringent rulings on the flow of virtual currencies such as Bitcoin after the bloc’s banking regulator ordered lending institutions to avoid them altogether.
Citing potential use in money laundering or terrorist activities, Chantal Hughes, a spokeswoman for the European Commission’s Financial Services Commissioner Michel Bariner explained to Bloomberg “It’s imperative to move quickly on this issue.”
“The potential for money laundering and terrorist financing is too serious to ignore.”
Mr. Barnier has been vocal in the past on issues such as high frequency trading and the use of algorithms in electronic trading, wishing to cull such activities in Europe, with the potential effect of an exodus of order flow from the continent to the advanced proprietary trading houses and highly technological exchanges if Chicago and New York, as well as to the Asia Pacific region in which Singapore hosts various venues which permit the use of such technology.
In denouncing the use of Bitcoin within financial institutions in Europe, The European Commission saw fit to take action following the European Banking Authority’s statement that banks should not buy, hold or sell virtual currencies until regulators develop safeguards to protect their integrity. The watchdog identified more than 70 risks linked to the currencies ranging from identity theft to the possibility hackers could target a trading platform.
A point of interest in this matter is that Germany’s Fidor Bank, which falls under the jurisdiction of the European Banking Authority as well as its own national regulatory authority BaFIN, was among the first of all international financial institutions to offer traditional banking facilities for Bitcoin, with online current accounts and the ability to exchange the virtual currency.
“Regulators have become alert to the potential for fraud and disruption,” Richard Reid, a research fellow for finance and regulation at the University of Dundee, Scotland, said in a statement to Bloomberg last week. “Such attention from regulators is bound to curb the growth of markets such as Bitcoin.”
The EBA’s announcement is “not very helpful” and may only deter individual users of virtual currencies, according to Simon Dixon, a director of the U.K. Digital Currency Association, a group representing the country’s virtual currency industry.
“Banks are not engaging with digital currencies yet as it is a person-to-person network that operates outside of banking,” he said by e-mail. “The more likely result of the announcement is to scare people from using digital currencies rather than banks.”
Indeed, with such an impending draconian stance taken by the European Commission, Switzerland’s position is likely to be favorable among virtual currency proponents globally.