The 5th Anti-Money Laundering Directive (AMLD5), which amends the 4th Anti-Money Laundering Directive, extends the EU’s anti-money laundering and counter-terrorism financial rules to virtual currencies. The amendment was published in the Official Journal of the European Union on June 19, 2018, and mandates member states to transpose this directive by Jan. 10, 2020. The EU currently has 28 member countries.
The European Union’s 5th Anti-Money Laundering Directive mandates that member states start regulating crypto assets by Jan. 10. Crypto exchanges and custodial wallet providers are now covered by the same regulatory requirements as banks and other financial institutions.
EU’s Regulatory Deadline: Jan. 10
The European Commission explained that “In the EU, credit institutions and other financial institutions are subject to obligations to apply CDD customer due diligence measures in accordance with Directive (EU) 2015/849 (AMLD4)”, elaborating:
Directive (EU) 2018/843 (AMLD5), once transposed into member state legislation, will extend the list of obliged entities to virtual currency exchanges and custodian wallet providers.
As “obliged entities”, crypto service providers are now covered by the same regulatory requirements as banks and other financial institutions, including registering with financial authorities. “The rules will now apply to entities which provide services that are in charge of holding, storing and transferring virtual currencies”, the European Commission clarified. “These new actors will have to identify their customers and report any suspicious activity to the Financial Intelligence Units.”
The amendment also proposes that member states create central databases comprised of crypto users’ identities and wallet addresses and authorize national FIUs to access the information stored in them. “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.
EU Member States Complying
A number of EU member states have been preparing for this deadline for some time, transposing the AMLD5 into national laws. Some countries wait until the last minute to make announcements. As Brexit talks continue, the U.K. Financial Conduct Authority (FCA) announced Friday that it has become the AML and CFT supervisor of the country’s crypto-asset activities, stating:
From 10 January 2020, we are the anti-money laundering and counter-terrorist financing (AML/CTF) supervisor of UK cryptoasset businesses.
The FCA detailed that crypto exchanges, ATMs, peer-to-peer platforms, custodian wallet providers and token issuers, including initial coin offerings (ICOs) and initial exchange offerings (IEOs), must comply with its rules starting from Jan. 10.
The Austrian Financial Market Authority (FMA) announced Thursday that it is now the regulator of virtual currencies in Austria. Effective Jan. 10, companies that issue, sell, transfer, trade, and exchange cryptocurrencies must register with the FMA. They include in-kind crypto service and custodian wallet providers. Registrants will comply with the due diligence and reporting obligations for the prevention of money laundering and terrorist financing. Noting that it began accepting registration applications from Oct. 1, 2019, the regulator elaborated:
Unregistered providers may no longer offer their service in Austria from this date onwards … A fine of up to €200,000 is prescribed in the event that a provider fails to make the registration.
France is ahead of many other countries, as it adopted a regulatory framework for crypto assets in April last year. The French financial markets regulator, the Autorité des Marchés Financiers (AMF), published its new rules for digital asset service providers on Dec. 20. The AMF also recently approved the country’s first initial coin offering.
Finland started regulating the country’s crypto industry in May, and the Financial Supervisory Authority (Fin-FSA) approved the country’s first five crypto service providers, including Localbitcoins, in November.
In the Netherlands, the Dutch central bank, De Nederlandsche Bank, has been preparing to regulate crypto businesses, requesting their information in September last year. “Firms offering services for the exchange between cryptos and regular money, and crypto wallet providers must register with De Nederlandsche Bank”, the bank noted. However, the regulator said on Jan. 10 that the legislation has not entered into force.
Germany is another country that has been active in transposing the AMLD5 into its laws, which allow financial institutions to sell and store cryptocurrencies for customers alongside traditional investments such as stocks and bonds. Authorization from the Federal Financial Supervisory Authority (BaFin) is required.
Strict Regulations Crowding Out Crypto Companies
As EU member states start transposing the new EU directive into their national laws, a number of crypto service providers have been feeling the effect of increased oversight. Some have chosen to relocate their businesses. Some EU member countries are adopting even tougher crypto rules than the new AML directive requires, such as Lithuania.
Crypto derivatives trading platform Deribit, for example, announced on Thursday that from Feb. 10 its platform will no longer be operated by Dutch company Deribit B.V. due to increased oversight. Instead, it will be operated by DRB Panama Inc., a 100% subsidiary of the Dutch entity. The company explained that complying with the new regulations would be costly and it will also have to “demand an extensive amount of information from our current and future customers.” Noting that “crypto markets should be freely available to most”, the company concluded:
The implementation of these changes would greatly affect the exchange and its customers. Therefore, we have decided to operate the platform from Panama.
Several other crypto service providers have already shut down in anticipation of the AMLD5 implementation in their countries. U.K.-based custodial bitcoin wallet provider Bottle Pay shut down on Dec. 31. The company explained that it would have to comply with the AMLD5 to remain in operation, emphasizing that “The amount and type of extra personal information we would be required to collect from our users would alter the current user experience so radically, and so negatively, that we are not willing to force this onto our community.” Crypto mining pool Simplecoin and bitcoin gaming platform Chopcoin also shut down ahead of the AMLD5 coming into effect.
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