July 4, 2014 - Europe's financial institutions should steer clear of virtual currencies such as bitcoin until a regulatory regime is in place, the European Banking Authority (EBA) has warned.

In an opinion document for the EU Council, EC and European Parliament, the EBA argues that virtual currencies could bring some important benefits, such as faster and cheaper transactions and greater financial inclusion.

However, it also identifies more than 70 risks that, taken together, "outweigh the benefits". To address these risks would require a "substantial body of regulation".

New rules would be needed to cover governance requirements for several market participants, the segregation of client accounts, capital requirements and, most importantly, the creation of 'scheme governing authorities' accountable for the integrity of a particular virtual currency scheme and its key components, including its protocol and transaction ledger.

Until this regulation is put in place, national watchdogs should "discourage credit institutions, payment institutions and e-money institutions from buying, holding, or selling virtual currencies," advises the EBA.