EU Аdopts Anti-Money Laundering Rules for Crypto Exchanges

EU aims to tackle anonymity in cryptocurrencies.

by Marin Marinov
20 April • 5 min
In Regulation

The European Parliament (EP) has tightened regulations on cryptocurrencies voting new anti-money laundering rules for crypto-to-fiat exchanges and for all types of custodian wallets on Thursday.

The provisions include registration regime and customer verification checks in a bid to end the anonymity associated with cryptocurrencies.

The new rules, backed by 574 yes to 13 no votes, with 60 abstentions, are part of an amendment package to the EU Anti-Money Laundering Directive. The adopted measures oblige crypto-to-fiat-exchanges and all custodian wallet providers to register within the national agencies where they operate. A move that puts these crypto platforms on the same level as traditional fiat-to-fiat exchanges and cheque cashing offices.

big room with lots of people, flags and desks
The European Parliament/Image`s source: © European Union, 2018

 In terms of client verification provisions, the crypto platforms become subject to the same rules as the banks because crypto-to-fiat exchanges and wallet providers have to apply due diligence procedures. Crypto-to-crypto exchanges are out of the scope of the approved regulations in the so-called 5th Revision of the Anti-Money Laundering Directive (5AMLD).

Customer verification

The new EU legal framework sets the requirement for customer verification without specifying the different due diligence procedures, including monitoring of the financial transactions.Member countries could widen the measures when transposing the amendment package into the national laws. Due diligence procedures, and enquiry into companies or individuals for confirmation of facts before signing a contract, are some of the main anti-money laundering (AML) and counter-terrorist financing (CTF) measures.

Cryptocurrency-related companies, operating in the EU, are also subject to further AML/CFT provisions of the Anti-Money Laundering Directive, mainly related to ownership transparency. The amendments enable EU citizens to access beneficial ownership registers without having a “legitimate interest” in the information.

Beneficial owner is a person(s) who ultimately owns or controls a legal entity and/or the person on whose behalf a transaction is being conducted, including those persons who exercise ultimate effective control over a legal person or arrangement, as defined by the Financial Action Task Force (FATF) , an internal government body for setting AML/CFT rules. The EU uses FATF`s definition of beneficial owner.

Member states must be compliant with the requirements within 18 months of the 5AMLD implementation. The new provisions are a result of the EU efforts to combat money-laundering and terrorist financing after terror attacks in the union and the Panama Papers leaks.

one man in official suit, speaking in front of group
Frans Timmermans, Vice-President of the European Commission, speaking at the European Union/Image`s source: © European Union, 2018

“We welcome the adoption by the European Parliament of the 5th Anti-Money Laundering Directive. These new rules will bring more transparency to improve the fight against money laundering and terrorist financing across the European Union,” Vice-Presidents of the European Commission Frans Timmermans and Valdis Dombrovskis, and Vice-President and Justice Commissioner Vera Jourova said in a joint statement after the EP vote.  “We commit to helping all Member States put them in place and to monitor their implementation,” the commissioners added.

The impact of amendments

The adoption of the new virtual currency rules comes several weeks after two major cryptocurrency exchanges decided to open offices in Malta. Biance and OKEx have announced expansions in the EU-member state after the Maltese government revealed ambitions to become “a blockchain island”. Binance is the biggest crypto exchange by daily trading volume, as our data on Coins.Online shows. It offers only crypto-to-crypto trading while OKEx, one of the leading exchanges, enables peer-to-peer crypto-to-fiat trading.

5AMLD  uses the term “virtual currencies” amid worldwide dilemma what is the right definition: currency or asset.  The G20 financial ministers and central bank governors used the term “asset” in their declaration after the March Summit in Buenos Aires, a sign for possible capital gain taxation.