European firms handling cryptocurrency are facing a new regulatory regime that comes into law Friday 17th January. It’s called AMLD5, or the Fifth Anti-Money Laundering Directive. The new rule requires “crypto exchanges and custodial service providers to register with their local regulator and demonstrate compliance with thoroughgoing know-your-customer (KYC) and anti-money laundering AML procedures,” Coindesk reports.
Alongside stronger KYC processes, businesses will also face the fact that financial intelligence units and law enforcement bodies will have more powers.
Coindesk says, “These regulations represent a double-edged sword for the industry. On the one hand, the added costs of compliance may burden smaller firms in the field, and possibly force some to fold or merge.”
Siân Jones, director at xReg Consulting supported this view, saying, “This will result in some closures and there are some early indications of that already, and in consolidation, where the industry starts to see M&A to scale up and meet increased costs.”
One Dutch company, Deribit, has already relocated to Panama because of AMLD5. It said, “it would put too-high barriers for the majority of traders, both regulatory and cost-wise.”
However, while it may present issues for smaller crypto businesses, Coindesk says, “the long-term effect should be greater trust in crypto from financial institutions in Europe. In particular, it should make banks more open to providing their services to crypto companies and attract more institutional capital.”
One thing companies should be aware of is that while an e-money license in one European country can be passported into another, the AML authorization schemes regarding crypto vary across Europe. And for British companies, the UK’s imminent departure from the EU causes yet another headache.
Malcolm Wright, head of the AML Working Group at the trade group Global Digital Finance said, “There almost needs to be a more coordinated approach to make sure it allows the industry to still flourish and offer services to residents in the EU who want to invest in virtual assets products.”