Seeing as how today is Bastille Day, BanfieldConsulting.ca has decided to revisit one of its favourite topics – virtual currency – with a French twist, bien sur.

In a July 11, 2014 communique, Michel Sapin, the French Minister of Finance outlined various regulatory measures to be enforced by the end of 2014 for financial institutions and users of virtual currencies.

The catalyst for action is due to a report by Tracfin (Traitement du renseignement et action contre les circuits financiers). Tracfin is the French financial intelligence unit that targets money laundering (ML) and illicit financial networks; it is akin to FINTRAC in Canada. Tracfin released the report as part of a digital currency working group in order to make recommendations to the Minister.

The findings of the report are not surprising. Despite the fact that the increasingly mainstream use of digital money, such as bitcoin, is unlikely to cause material instability in the current financial system, there are blatant risks when it comes to illicit use. This illicit use could take the form of money laundering, terrorist financing (TF), or fraudulent activities. In this sense, the urgency to create a regulatory regime for it is clear.

The focus of the regulations will revolve around the identification and verification of users. The goal of this is to increase transparency and decrease anonymity. From the perspective of the user, this is likely removing one of the most appealing factors of virtual currencies. However, from the perspective of financial regulators, this is all about knowing your customer (KYC).

To expand on this push for increased transparency, there will also be increased scrutiny of virtual currency exchanges, requiring them to report transaction details and to verify the identity of the parties concerned in transactions. This also goes to reinforce the principles of KYC and beneficial ownership.