How Is the 5AMLD Disrupting Crypto Service Providers

Data & Research / 02.05.2020

January 10th, 2020, saw the European Union’s 5th Anti-Money laundering Directory (5AMLD) come into force. The new law gives sweeping powers to compliance organizations and law authorities to introduce a series of restrictive demands on crypto companies in a way never seen before.

Organizations that deal with crypto-related activity have been under mounting pressure to implement compliance measures when it comes to registering new clients.

With the advent of the law, the compliance measures will only increase on an industry-wide scale, with regulations aiming to improve information exchange between anti-money laundering supervisors and the European Central Bank.

What have the effects of the 5th AML directive been so far? And, more broadly, are regulations having a positive or negative effect on the crypto industry? Read on to find out.

Key Measures Introduced by the 5th Directive

Cryptocurrencies such as Bitcoin and Ethereum have concerned a lot of regulators. Due to the lack of any government regulation and the ease at which digital cash can be transferred without detection, many worry that crypto gives criminals the tools to transfer illicit funds around the world.

Because of these concerns and the increase in popularity of cryptos, the 5AMLD seeks to add an element of regulation and accountability to crypto and its users.

Under the new EU rules, virtual currency platforms and wallet providers will become regulated entities. While many exchanges such as Binance are already conducting varying forms due diligence and reporting suspicious transactions, the 5AMLD will make it a legal requirement to perform extensive know-your-customer (KYC) and anti-money laundering (AML) practices.

Such measures aim to bring the EU in line with regulations introduced by the US in 2013, which help tackle the use of crypto in money laundering and terrorist activity.

The takeaway is clear: the EU is paying serious attention to virtual assets and has established its first set of rules for how crypto businesses in this space must behave.

Now it’s up to crypto companies to gain compliance or risk paying hefty fines or being denied authorization to operate entirely.

How 5AMLD is Affecting Crypto Service Providers

While the 5AMLD shows that lawmakers recognize the maturing cryptocurrency industry, a number of businesses are shutting down due to the extensive KYC and AML practices the new law calls for.

For instance, the UK-based crypto wallet provider Bottle Pay announced its decision to cease operations at the end of last year. According to a blog post published on Dec.13, 2019, the crypto startup explained that the amount and type of extra personal info they would be required to collect from clients would alter their current user experience so radically and so negatively.

Similarly, in a blog post published on January 9th, 2020, BTC derivatives platform Deribit, a platform frequented by many crypto traders, revealed that it is officially leaving the Netherlands due to the 5AMLD. Deribit will be setting up operations in Panama, where there are laxer regulation laws.

Moreover, KyberSwap, which is a top non-custodial crypto exchange, also moved from Malta to the British Virgin Islands due to the newly introduced 5AMLD.

Nonetheless, some crypto business providers seemed to have recognized the shifting compliance momentum and ramped up their compliance procedures in advance.

For instance, Yehor Lastenko, a certified anti-money laundering specialist and head of the EDD division of the U.K.-based CEX.IO, recently told reporters that the crypto exchange had been prudently alteration its compliance procedure for years and is already completely compliant with the new legislation.

Could Increases in Regulation Boost Crypto Adoption?

The issue of anonymity is likely to be at the forefront of debates among lawmakers and influential figures in the cryptocurrency industry for the foreseeable future.

Despite the seemingly negative effects on crypto business, some prominent crypto evangelists believe that improving supervisory measures and minimizing the high levels of risk could help bring in greater institutional investments by filling the regulatory gap.

For instance, Winheller Attorney Kirschbaum outlined his view that the effects of the 5AMLD are likely to be felt by almost all cryptocurrency exchanges but predicted that it would be good for growth in the sector:

“This will help to bring cryptocurrency trading out of the gray market and make it easier for banks and institutional investors to make a move into space, without regulatory backlash.”

David Carlisle, head of community at the Elliptic crypto forensics company, echoed this view, commenting that many crypto companies across the EU are well prepared for the teething problems that new regulatory measures may bring along:

“Many EU crypto businesses are prepared for the challenges of implementation that lie ahead and have taken proactive steps to ensure their companies can secure necessary regulatory approvals and comply on an ongoing basis.”

This implies that regulation is a good thing, although crypto startups may have to upgrade their compliance strategies and seek out new monitoring tools.

5AMLD Laws May Harm Crypto Adoption

For some crypto exchanges, burdensome regulation could make shutting down a better option than figuring out how to comply with emerging monitoring rules.

Indeed, many of the earlier members of the cryptocurrency space were attracted to Bitcoin and the decentralized tech that powers it because of the fact that it does not require its users to provide personal information in order to use it.

Edan Yago, founder of CementDAO, a decentralized tool built to unite the stablecoin ecosystem, was quoted saying that KYC and AML practices “have cost us many more billions than all initial coin offering (ICO) scams put together,” while creating a global surveillance apparatus.

Even Bitcoin enthusiasts and entrepreneur John MacAfee believe that strong regulation will kill crypto, as the need for stringent AML and KYC rules may severely impact the usage of digital assets on any given platform.

Bottomline

The debate over whether regulation is a positive or negative thing for the cryptocurrency industry has evolved over the past two years as regulation has shifted from theory into practice.

All over the world, the regulatory tide is rising as government bodies, especially in the US, move towards regulation of crypto assets since the announcement of Facebook’s Libra.

Per the 5AMLD fact sheet, the new law will increase transparency about the owners of digital assets and give European regulators greater access to info stored in centralized bank account registers.

The insistence on stricter AML and KYC rules will, on the one hand, hurt some crypto business providers, while also allowing digital assets to gain mass acceptance and be embraced by mainstream financial regulators.

If regulation brings more businesses and companies into space, that’s a good thing. It is our hope that we’ll see more crypto businesses taking this new wave of regulation as a sign of mainstream adoption.

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A creative writer in the field of content writing for the past 7 years. Iulian is passionate about his work and his interest in areas such as technology, travel, sports, literature and gastronomy have aided him to the research quality in articles that reflect these themes. Recently, he discovered the Bitcoin and the blockchain technology and he’s a big fan now.