The Fifth Anti-Money Laundering Directive must be implemented by EU member states by January 2020. Many financial processes and sectors are affected, but here we will talk about how cryptocurrency businesses will have to increase ownership transparency.
We will also let you know how we can help, through our online global identity verification tools.
The latest AML requirements will target anonymous purchases and exchanges including virtual currencies such as Bitcoin. These changes classify virtual currency exchange platforms (VCEPs) and custodian wallet providers (CWPs) as “obliged entities” and are therefore subject to EU regulations that aim to increase ownership transparency.
Extension of AML to virtual currencies
Virtual currencies, as defined in 5AMLD are “a digital representation of value that is not issued or guaranteed by a central bank or a public authority, is not necessarily attached to a legally established currency and does not possess a legal status of currency or money, but is accepted by natural or legal persons as a means of exchange and which can be transferred, stored and traded electronically.”
Under this definition, most of the coins, tokens, and cryptocurrencies known today probably qualify as “virtual currency.” While not all of the tokens are necessarily used as a “means of exchange,” and this may not be their intended purpose, 5AMLD adds that its objective is to cover “all the potential uses of virtual currencies,” such as “means of exchange, investment, store-of-value or use in online casinos.”
As for the reason behind the extension of the 5AMLD to virtual currencies, in its 2016 Communication on an Action Plan for Strengthening the Fight Against Terrorist Financing, the European Commission identified the ability for virtual currencies to be abused to conceal transactions related to terrorist financing, due to the relative anonymity of the virtual currency environment and the lack of an EU-level reporting mechanism for identifying suspicious activity.
To tackle these issues, 5AMLD brings the “gatekeepers” of virtual currencies within the scope of EU anti-money laundering and terrorist financing legislation. Providers engaged in exchange services between virtual currencies and fiat currencies (“virtual currency exchange platforms”) and providers of services to hold, store and transfer virtual currencies (“custodian wallet providers”) have been made “obliged entities” for the purposes of the EU anti-money laundering and terrorist-financing framework. This means that providers of those services will be subject to the same obligations to carry out customer due diligence and report suspicious transactions as other firms designated as obliged entities under EU law, including credit institutions, financial institutions and certain professionals such as auditors and accountants.
Identity of the owner
The EU acknowledges that regulating virtual currency exchange providers and custodian wallet providers will not entirely address the issue of anonymity attached to virtual currency transactions, since users can transact without going through such providers. But to combat the risks related to anonymity, 5AMLD states that national financial intelligence units should be able to obtain information allowing them to associate virtual currency addresses to the identity of the owner of virtual currency.
Many already follow the regulation
This year in March LocalBitcoins.com implemented new measures to satisfy 5AMLD, and became the first exchange in Europe to align to the guidelines.
To comply with the regulations the online Bitcoin marketplace is making new users sign up through a new account registration process. It will require users to verify basic information about themselves, and sacrifice some anonymity.
What’s more, LocalBitcoins planned to develop an identity verification process to introduce four account levels for individual traders (ranked on trade and BTC transaction volume). The exchange hopes this will highlight trustworthy traders over less trustworthy ones.
What it means for cryptocurrency businesses
- They will have to perform customer due diligence, also known as know-your-customer (KYC).
- Financial investigators can be mandated to obtain addresses and identities of cryptocurrency owners, removing anonymity of exchange users.
- Cryptocurrency exchanges and wallet providers will need to be registered with relevant financial regulators in their home country. Such as the Financial Conduct Authority in the UK, or the Securities and Exchange Commission in the US.
How Hello Soda can help
We provide a range of solutions and specialise in cryptocurrency KYC checks
We offer global verification, that takes seconds, using Profile iD, and can offer further verification such as national identity document verification through iDocufy, and address verification through UtilityConnect.
All of our solutions are available via a single API, which we call UniversalConnect.
We work with clients like Blockchain, AML Bitcoin, eToro and many more.
EU Member States have until 10th January 2020 to implement 5AMLD (5AML / MLD5).
If you’d like to know more please get in touch to request a hassle-free demo here.