European Union virtual currency legislation published
Yesterday (5 July 2016), the European Commission adopted proposals for legislation to amend the 4th Anti-Money Laundering Directive (4AMLD) that will bring virtual currency exchanges and wallet providers into the EU's anti-money laundering framework.
The proposals will see exchanges and custodial wallet providers added to the list of obliged entities required to carry out customer due diligence (also known as KYC), monitor transactions and report suspicious transactions. Only those engaged in exchanging between virtual and fiat currencies are included. Virtual currency to virtual currency exchanges are not covered. So, for example, Bitcoin-to-Ether exchanges will not be regulated.
The proposals extend 4AMLD to "providers engaged primarily and professionally in exchange services..." which suggests companies whose primary business is not exchanging virtual currencies, and anyone buying or selling virtual currency occasionally or just funding a purchase, is excluded.
Only those wallet providers offering custodial services of credentials necessary to access virtual currencies are to be included in the legislation. However, there is no primary purpose limitation, meaning anyone who has responsibility for taking care of virtual currency keys for someone else will likely need to carry out due diligence, monitor transactions and report suspicious activity. Multisig keyholders could well be caught by these provisions.
EDCAB's founder, Siân Jones, who addressed the European Parliament's public hearing on virtual currencies earlier in the year, said: "The draft directive was much expected and in line with the Commission's Action Plan on combatting terrorist financing announced in February. I am pleased the Commission has listened and decided to drop some of its more radical proposals. However, EDCAB continues to make representations to the Commission, MEPs and member states, particularly regarding scope and definitions."
The proposals now go to the European Council (comprising member states) and the elected Parliament before becoming law. Member states will then have to transpose the directive into national law, a process that normally takes up to 2 years. However, the Commission is calling for harmonisation to be completed by 1 January 2017. With the European Parliament currently in its last plenary siting before the summer holidays and with many other money laundering and terrorist financing provisions to be considered, that timeline looks very challenging.