Members of the European Parliament (MEPs) have called for the creation of a cryptocurrency watchdog to combat money laundering and terrorism.

The EU Commission should set up a taskforce to monitor virtual currencies, such as bitcoin, to prevent their use in money laundering or terrorist financing, the European parliament said in a non-binding resolution today.

The proposal, set out in a resolution drafted by German social democrat MEP Jakob von Weizsacker, suggests that the taskforce, which would be overseen by the Commission, should build expertise in the underlying technology of virtual currencies.

The watchdog would also be tasked with recommending any further necessary legislation, the proposal outlined.

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However, the text warned against taking a heavy-handed approach to this new technology which, it says, can offer significant opportunities for both consumers and wider economic development.

The parliament's proposal was passed by 542 votes to 51, with 11 abstentions, and will now be sent to the European Commission for consideration.

Weizsacker said:

To avoid stifling innovation, we favour precautionary monitoring rather than pre-emptive regulation. But IT innovations can spread very rapidly and become systemic. That's why we call on the Commission to establish a taskforce to actively monitor how the technology evolves and to make timely proposals for specific regulation if, and when, the need arises.

The Commission is currently considering proposals to bring virtual currency exchange platforms within the scope of the existing EU Anti-Money Laundering Directive.

These proposals include a measure that would require the platforms to undertake due diligence when customers exchange virtual currencies for real ones.

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This would reduce the anonymity associated with such exchanges, as regulators worry that the current system is helping money laundering and terrorist organisations.

Bitcoin and blockchain in the UK

In the UK, ministers at the Treasury announced in mid-April that they were planning a shake-up in the world of cryptocurrency regulation that would crackdown on bitcoin anonymity.

Cabinet office minister Matt Hancock has also said the government is exploring how it could use blockchain technology in the tracking and distribution of taxpayers' money, such as grants.

Blockchain, the technology that underpins cryptocurrencies such as bitcoin, has gained momentum as a public services technology in recent months.

In late April Credits, a blockchain infrastructure provider, has partnered with Skyscape Cloud Services, a UK cloud services provider, to deliver "Blockchain-as-a-Service" to UK public sector organisations.

Blockchain works as a decentralised, secure public ledger of transactions shared by a network of users. As such, it can also be used to store data in other contexts, such as healthcare and other public services.