European crypto-oriented exchanges and custodial services must comply with Directive (EU) 2015/849, as the deadline for embracing the new regulatory framework was set for January 10th, 2020. The so-called Fifth Anti-Money Laundering Directive, or 5AMLD, forces companies to register with local regulators, as well as provide evidence of full compliance with the know-your-customer (KYC) and anti-money laundering mechanisms. The new rules also provide law enforcement authorities with greater powers towards crypto-related businesses.
Albeit being a strategic weapon against crypto scams and terrorism financing, the new regulatory rules act as a barrier for smaller companies, as the costs they have to pay for complying with the 5AMLD may shut down their businesses. It is possible for some of the companies to join forces, while others would most certainly suspend operations.
Siân Jones, director of xReg Consulting, commented that the Merge and Acquisition (M&A) sector “will see an increase in numbers, as the industry would consolidate and scale up to stay afloat.”
Some companies even plan a relocation due to the new compliance rules. The Netherlands-based crypto derivatives exchange company Deribit is aiming to shift operations towards Panama, as the Netherlands version of the 5AMLD “sets too high entry levels in terms of costs and regulations”, according to a press release.
The other major problem with 5AMLD is how the regulatory framework would be translated into 28 country-specific laws and its latter usage.
On the other hand, financial institutions should increase their trust in the crypto sector over the long run. Experts believe the earned trust is going to translate into banks offering their services to crypto businesses more often, as well as the institutional flow of cash into the crypto sector in Europe.
However, being compliant in all 28 EU member-states adds complexity to the legislation process. For instance, France has different regulatory requirements when compared to Germany. Global Digital Finance’s Head of AML Malcolm Wright stated that the added complexity would become a real issue “if you live in the United Kingdom and Brexit really does happen. We need a concentrated approach in order to enable the crypto sector in the EU to continue its growth.”
In the U.K, crypto-related companies have to register with the Financial Conduct Authority (FCA) until October 20th 2020. The cost of registering is estimated at around $6500.
5AMLD is a regulatory framework, superseded by the Financial Action Task Force (FATF). The Directive was first introduced in October 2018, with its final form arriving in June 2019. FATF’s crypto guidelines saw a significant imprint on the final form of the Directive. However, the EU would only regulate fiat-to-crypto and crypto-to-fiat transactions, while FATF’s guidelines cover crypto-to-crypto exchanges too.
The new legislation, however, may include non-custodial crypto wallets, despite their completely decentralized nature. Ethereum-based companies like TokenCard and Wirex would have to pay for registration, although their operations are crypto-only.
The 5AMLD transcription for the Netherlands caused massive disagreements across the Dutch financial sector. Crypto enthusiast thinks the Dutch Ministry of Finance, as well as the Central Bank of Netherlands, are implying stricter than 5AMLD regulatory rules. The main concern is the used“license” term in the original version of the document, which requires crypto-oriented companies to have some form of licensing.