The European Banking Authority has issued a warning about the unregulated nature of virtual currencies such as Bitcoin, and the risk to consumers of buying, holding or trading these currencies.

The EBA, a regulatory agency of the European Union, said it is assessing virtual currencies to determine whether they can and should be regulated and supervised.

The EBA warning starts by examining the status of online exchange platforms, where virtual currencies are held or exchanged. These are not banks that hold their virtual currency as a deposit, the EBA warns. There are currently no specific regulatory protections in the EU that would protect consumers from financial losses if an exchange platform failed or went out of business, the regulator said.

The EBA reminds users that, as transactions in virtual currencies provide a high degree of anonymity, they may be misused for criminal activities, including money laundering. This misuse could lead law enforcement agencies to close exchange platforms on short notice and prevent consumers from accessing or retrieving any funds that the platforms might be holding for them, the EBA said.

The EBA also warned that digital wallets used to store virtual currencies on laptops or smartphones are not impervious to hackers. It cited reports of consumers losing significant amounts of virtual currency, with little prospect of recovery, as a result of hacking.

Other warnings cover the tax implications of holding virtual currencies and the lack of refund rights under EU law for purchases made with these currencies.

If consumers buy virtual currencies, they should fully understand their specific characteristics and not use "real" money such as Euros that they cannot afford to lose, the EBA recommended.

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