2020 is already a big year regulation in the European cryptocurrency space. The Fifth Anti-Money Laundering Directive (AMLD5) came into effect on 10 January, bringing in sweeping new measures across the European Union to close loopholes in criminal activity and other forms of illegal financing.
For the first time, AMLD5 defined crypto-exchanges and similar bodies as “obliged entities”, with requirements to register with a regulator, report suspicious transactions, and show compliance with know-your-customer (KYC) protocols.
As a result, we have seen national governments taking action already. On 22 January, the Dutch National Bank announced in their annual outlook report that regulation of digital currencies was top of their agenda in the fight against financial crime: “Integrity is a crucial precondition for trust in the financial sector”. They also stressed that AMLD5 would be rigorously enforced in the Netherlands.
Indeed, regulatory ambition extends beyond AMLD5. The Financial Action Task Force (FATF) brought in guidelines last year calling for strict payment data sharing rules for crypto-crypto transactions (AMLD5 only covers cash-crypto). This so-called ‘travel rule’ is a further significant regulatory step, pushing crypto businesses to hold information about customers and to share that data with financial institutions when they receive a transfer of digital assets.
The road to compliance is difficult for the crypto sector. Thorough implementation of KYC requires compiling detailed identifying data about users such as crypto wallet information and bank account details. This creates new costs for businesses that want to remain compliant, so it is no surprise that the predicted trend in smaller companies shutting down, or moving services overseas, has already begun. UK-based Bitcoin payment app Bottle Pay shut in December, followed by crypto gaming service Chopcoin, and crypto mining pool Simplecoin. All cited the difficulty of putting in place KYC and AML protocols on their platforms.
However, it is not all doom and gloom. We spoke with other businesses at events and conferences last year and many already had an eye on AMLD5 and the impact it was going to have on the crypto industry. As a result, many crypto exchanges and providers have been prepared for AMLD5 and have swept in compliant solutions to their platforms, recognising perhaps the direction of travel for the regulation of cryptocurrencies. UK-based Cashaa Technologies, for example, offers banking services and financial management across fiat and crypto transactions – all fully compliant with anti-money laundering regulations.
Ultimately, AMLD5 is a welcome, further recognition from EU authorities that virtual currencies are an important part of the global economy. If we are to overcome lingering trust issues in crypto and push towards mainstream acceptance, cooperation with financial institutions and law enforcement is essential. Governments and businesses worldwide need to work towards a consensus on cryptocurrencies, cooperating to produce one common set of standards and governance for ethical and profitable use of blockchain technology.
Transparency is a defining feature of blockchain and there is nothing to stop virtual currencies being a reliable asset in a well-regulated financial system.
We here at PARSIQ are keen to help facilitate that journey, with our blockchain analytics solutions providing the in-depth intelligence ideally suited for law enforcement and monitoring across digital currencies.