Cryptocurrency businesses and the EU 5AMLD

As of 10 January 2020, the European Union’s 5th Anti Money Laundering Directive (5AMLD) was enforced into law across the bloc, bringing with it sweeping changes in the way businesses of all types must function.

The new set of rules gives greater powers to the EU, national authorities and regulatory and compliance organisations. From tracking dirty money to cracking down on offshore paradises, the law enacts a number of, what some would consider, restrictive demands on cryptocurrency companies and businesses.

These new laws have put an end to the way that some of the world’s richest people can divert money across borders through a financial network that operates in a legal grey area. Now, in a post-Panama Papers environment and with the 5AMLDin force, the shroud of secrecy that so many once benefitted from is no more

The 5AMLD was initially drafted following the Panama Papers leak and it is the fifth such draft that scrutinises money laundering and terrorist financing in Europe. 

While its new provisions are there to mainly increase security within the EU borders, it is also expected to have a big impact on cryptocurrency. For example, the 5AMLD is the first time that cryptocurrency providers including exchanges, wallet providers and the like, will fall under regulatory scrutiny. 

Many investors in cryptocurrency see one of its key attractions is its anonymity, something that will be reduced following the introduction of the 5AMLD. Following a number of devastating terrorist attacks across Europe and the Middle East, regulators and lawmakers want to be sure that they have a good chance of figuring out who is behind each and every cryptocurrency transaction. The idea is to be sure that it is not being used for deadly and illegal purposes.

Also under the new law, greater transparency over company ownership will be required and European regulators will have access to centralised bank account registers and the information stored within them.

Companies will also have to carry out increase due diligence and KYC when registering new clients and a law has been put in place that will enhance the exchange of information between AML supervisors and the European Central Bank.

But it is not just EU Member States that can expect to be impacted by the new laws. The sheer power of the EU and its 500 million plus citizens, it is expected that we will see many other countries falling into line with their standards and regulations.

In terms of cryptocurrency, Europol has also welcomed the 5AMLD. After a busy year of cracking down on rogue actors in the sector, the tightened regulations and improved definitions for custodian wallet providers and virtual currencies are expected to force providers to report suspicious transactions.

Prior to the 5AMLD, cryptocurrency transactions on the blockchain were not immediately attributable to individuals. Now, authorities will have new power to obtain the identity information of those behind cryptocurrency addresses suspected of illegalities.

There is no doubt that the effects of the 5AMLD will be felt by all crypto providers, especially exchanges but it is unlikely that it will completely stop growth in the sector. Exchanges will now have to implement stringent KYC processes that will help bring crypto out of the underworld and make it easier for banks and investors to get involved, without fearing regulatory backlash.

While the 5AMLD proves that EU lawmakers recognise the power of the crypto market, it also brings with it a number of compromises for users- mainly that of anonymity. Many businesses are prepared for the challenges that implementation will bring and have been proactive in taking steps to ensure compliance, those that have not will find themselves in hot water.

Yes, KYC may be off-putting for some users, the increase in compliance demands placed upon cryptocurrency businesses reflects a balance between an industry that is now being taken more seriously and what made it popular in the first place. 

To find out how 5AMLD will impact your cryptocurrency business, or if you are looking to incorporate a crypto company and want advice on how to proceed, contact Fast Offshore today.