How the EU 5th AML Directive will impact the world of digital currencies

On the 26th of April 2018, the European Parliament announced the Fifth Anti-Money Laundering Directive (5AMLD) which would provide significant amendments and updates to the 4AMLD as well as tackling the growing virtual currency sector. Member States of the European Union have until 2020 to transpose the directive into national law and to make sure that all businesses operating within their jurisdictions are in full compliance.

Providing much-needed clarity

As well as bringing European AML regulations in line with developments in the cryptocurrency sector, the Directive seeks to provide clarity to virtual currency businesses on the AML and CTF obligations that they are required to adhere to.

Bolstering the industry’s reputation

There is no doubt that these regulations are much needed. Many cryptocurrency cynics state the fact that crypto can be and is used for illicit activities as a reason why they do not wish to get involved with them. Many investors and companies are cautious to associate their brand with something that has ties to drugs, money laundering and financing terrorism. Whilst in a reality, the actual number of illicit transactions is much lower and less than people think, regulations like 5AMLD provide a much-needed confidence boost.

The 5AMLD fills a regulatory void that has previously allowed certain rogue entities allow users to exchange crypto for fiat without undertaking any, or little KYC or due diligence. These platforms then became a paradise for virtual currencies gained from dark market places, fraud, ransomware, and other illegal activities.

Two types of crypto-business

The new Directive pertains to two types of cryptocurrency business; providers that are engaged in exchange services between virtual currencies and virtual currencies (exchanges) and those that provide custodian wallet services where clients private keys are stored as a part of the service.

Under the new rules, both of these entities become ‘obliged entities’ and are therefore obliged to comply with the AML/CTF legislation, much in the same way that banks and other financial institutions are. They will also be required to implement stringent issues to counter money laundering and terrorist financing included KYC and strict due diligence as well as transaction monitoring. All entities will also be obliged to keep and maintain extensive records and to report all suspicious transactions immediately to the competent authority.

Pan-European standardisation

Most cryptocurrency businesses that operate within the EU have already implemented such procedures but the 5AMLD seeks to standardise it and ensure that it becomes law within each jurisdiction so that bad actors are prevented from continuing their operations. It is also hoped that the introduction of the 5AMLD will seek to create a European ecosystem that other states can use as a guide when it comes to implementing their own AML procedures.

If you operate or are planning to operate a cryptocurrency business then E&S Group can assist you in being compliant with all current, and imminent regulations. We can provide legal, fiscal, and compliance related advice to help you ensure that you are in adherence to all applicable regulations both locally, and at EU level. For enquires call on +356 2010 3020 or by email on [email protected]