Financial authorities globally have put more attention to virtual currencies recently due to their potential widespread use. European Union is also no exception as the 5th Anti-Money Laundering Directive (AMLD5) extends the EU’s anti-money laundering and counter-terrorism financial rules to digital currencies. The new directive amends the 4th Anti-Money Laundering Directive and was released on June 19, 2018, in the Official Journal of the European Union. It requires the 28 member states to transpose the directive by January 10, 2020.
In an explanation, the European Commission reminded that financial institutions in the EU are supposed to apply CDD (customer due diligence) measures in accordance with Directive (EU) 2015/849 (AMLD4). Now once the AMLD5 is transposed into the legislation of member countries, the list of obliged entities will include virtual currency exchanges and custodian wallet providers. So these institutions will have to abide by the same regulations as banks and other institutions of the previous list. The European Commission made it clear that any entity which is involved with holding, storing and transferring cryptocurrencies will now follow the rules.
According to such rules, the new entities will need to identify their clients and report any suspicious activity to the Financial Intelligence Units (FIUs).
The directive proposes that the member countries create central databases where information of crypto users will be stored. Respective FIUs can access the database during any investigation. “To combat the risks related to the anonymity, national Financial Intelligence Units (FIUs) should be able to obtain information allowing them to associate virtual currency addresses to the identity of the owner of virtual currency,” the directive states.
Response has started
A number of EU member nations have been working to transpose the AMLD5 into their legislations. The U.K. Financial Conduct Authority (FCA) announced during the Brexit turmoil that it has become the anti-money laundering and counter-terrorist supervisor of the country’s cryptocurrency-related activities. Effective from Jan 10, the crypto exchanges, ATMs, crypto issuers, custodian providers, including initial coin offerings and initial exchange offerings will have to comply with the FCA rules.
The Austrian Financial Market Authority (FMA) has become the regulator of crypto assets in Austria. Institutions involved in trading crypto assets must register with the FMA from Jan 10. These institutions include in-crypto services and custodian wallet providers. Registered companies will have to comply with the due diligence and reporting commitment to avoid illegal financial activities and terrorist financing. FMA started accepting registration application on Oct 1, 2019, and has received a noticeable response thereafter.
France started working on crypto-assets quite a while ago and was able to finalize a regulatory policy in April last year. Autorité des Marchés Financiers (AMF), the French monetary authority, released the new rules for cryptocurrency-related entities in December 2019. An initial coin offering also has been approved complying with the new rules. Finland’s Financial Supervisory Authority (Fin-FSA) took control of the local crypto market in May 2019.
Five digital asset service providers have registered with the Fin-FSA in November last year. Dutch central bank, De Nederlandsche Bank, could not finalize a regulatory approach for crypto assets yet but requested information of crypto-related companies in September 2019.
In a press release, the bank urged, “Firms offering services for the exchange between cryptos and regular money, and crypto wallet providers must register with De Nederlandsche Bank.” Germany has also been actively working on cryptocurrency regulation complying with AMLD5. They have extended rules for traditional currencies to digital coins so that crypto traders can legally conduct their business in the country. However, registering with and reporting to the Federal Financial Supervisory Authority (BaFin) will be needed for any crypto business to operate in the country.
Some negative impacts of strict regulations
As more and more EU member states implement the new EU directive, some digital coin traders have been experiencing the effect of increased scrutiny. Even a couple of them have decided to shift their stations. Lithuania and some EU member states have crafted tighter regulation than the AMLD5, making crypto business quite difficult in those areas.
Deribit, a crypto trading company, has handed its operation to DRB Panama Inc. showing the excuse of the anticipated high cost. It also blamed the new regulation for demanding an extensive amount of information that customers might be uncomfortable to provide.