The U.K. government plans to impose anti-money laundering (AML) regulations on bitcoin exchanges, beef up law-enforcement capabilities for spotting criminal use of digital currencies, and work with the digital currency industry on consumer protection standards, according to a British Treasury report issued this month.

The digital currencies report also said the U.K. government will spend £10 million ($15 million) to launch a new research initiative into the opportunities and challenges for using bitcoin-style technologies.

But the major focus of the report, which was based on a call for feedback on digital currencies that the Treasury issued in November, was bitcoin regulation, especially to block criminal activity. "The government intends to apply anti-money laundering regulation to digital currency exchanges in the U.K., to support innovation and prevent criminal use," the report said. Specific regulatory proposals will go to Parliament later this year.

The U.K. government will also "look at how to ensure that law enforcement bodies have effective skills, tools and legislation to identify and prosecute criminal activity relating to digital currencies, including the ability to seize and confiscate digital currency funds where transactions are for criminal purposes," the report said, adding that it will work with the multinational Financial Action Task Force on identifying legitimate bitcoin uses as well as characteristics "that present potential anti-money laundering and counter-terrorist financing risks."

The British Standards Institution and the digital currency industry will also be tasked with developing voluntary standards for consumer protection.

The £10 million research project will bring together the U.K. Research Councils, the Alan Turing Institute (which is focused on "big data" issues) and Digital Catapult (a non-profit group focused on data-sharing to help small businesses) along with industry players. That will be separate from the Bank of England's research announced in February on the possibility of issuing its own digital currency.

While the Treasury's official plans for digital-currency regulation appear to propose a light touch, it still may not be light enough to make bitcoin purists happy -- especially when it comes to the cryptocurrency's anonymity. "Three-quarters of those who answered this question favoured regulation to address the issue of anonymous use, and most focused on the need for ‘know your customer’ requirements be applied to digital currency intermediaries," the report said.

It added, "Most banks and payment scheme companies also recommended regulation, and highlighted the need for clear guidance on their obligations under anti-money laundering and counter terrorist financing rules."