The New Regulatory Framework Is Mandatory For All EU-Based Crypto Exchanges And Custodial Wallets

ЕU lawmakers proposed new, first-of-their-kind, crypto regulations across the entire European Union. Directive (EU) 2015/849, or otherwise known as 5AMLD (the Fifth Anti-Money Laundering Directive), is set to take effect on January 10th, 2020. Until then, every crypto exchange operating on the European Union market must meet the legislation in order to continue its operation in the EU. 

David Carlisle, former U.S. Treasury Anti-Money Laundering (AML) specialist, spoke about the new Know-Your-Customer (KYC) rules, implied by the EU Directive.

“The European Union tries to find a way to trace crypto transactions and their owners. Apart from a few isolated cases, the majority of the big cryptocurrencies are very traceable, despite companies claiming to be untraceable”, Carlisle stated.

The new Directive puts a regulatory framework for all 28 EU members to date. The new KYC mechanism would require personal ID when opening an account on EU-operating exchanges. The proof-of-identity would serve as insurance, for not making any illicit financial operations, according to Carlisle. 

Worldwide exchanges, however, must undergo an AML/KYC upgrade for the EU market, as until now, there were no rules about implementing such mechanisms. Coinbase, for example, already did AML/KYC upgrades to comply with U.S. regulations. 

Compliance may become a real issue, as the time frame for implementation is short. However, meeting those regulations would streamline the EU market to become competitive to other regulated markets, such as the United States. 

Crypto exchanges, on the other hand, show mixed readiness for KYC upgrades to their platforms. U.S.-based exchanges have the expertise to deploy AML/KYC protocol updates to comply with the EU Directive. European exchanges and companies, however, are still far behind the “KYC-ready” state that 5AMLD requires.

And while Directive (EU) 2015/849 suggests a “harmonized regulatory framework,” there are significant differences in the ways the Directive is implemented across the European Union. Big exchanges like Kraken are in a “5AMLD frenzy” to become one of the first fully regulatory-compliant crypto exchanges in Europe. 

The way exchanges and crypto-oriented companies must verify they are KYC-compliant, is via appropriate licensing in every jurisdiction. Carlisle mentioned that the majority of EU-operating exchanges “are procrastinating until January 2020, which could be very bad for them”. The specialist also noted that “by far, the best strategy in the crypto sector is to be proactive, rather than procrastinate and wait for regulations to take effect.”

The new crypto regulations come amid severe fear of terrorism. The European market processes far more cryptocurrencies tied to illicit activities, compared to the heavily regulated U.S. market. One of the most prominent cases was the eastern-European BTC-e exchange, created solely for money-laundering procedures. 

“Customers want to know the platform they use is safe and compliant to regulations,” Carlisle concluded. 

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