The European Union to Tighten Control over Cryptocurrency Exchanges

News and Analysis

The European Commission, the executive body of the EU, announced its plans to tighten accountability requirements for cryptocurrency exchanges and bitcoin wallet providers. The measure is a part of the EU’s extended efforts to combat financing of terrorist groups.

In particular, the European officials intend to oblige EU-based wallets and exchanges to have all of their users identified.

The recently published note by the European Commission reads:

“As requested during the extraordinary Justice and Home Affairs Council of 20 November 2015, the Commission will work on a proposal for a number of targeted amendments to the Fourth Anti-Money Laundering Directive, on the following points:
– enhanced due diligence measures/counter-measures to be taken towards high risk third countries;
– virtual currency exchange platforms;
– prepaid instruments, such as prepaid cards;
– enhance the powers of EU Financial Intelligence Units and facilitate their cooperation. This entails the further alignment of rules for such Units to the latest international standards,
– provide the Financial Intelligence Units with swift access to information on the holders of bank-and payment accounts, through centralized registers or electronic data retrieval systems at national level.”

The note also states that the European Commission purpose is to put a lid on anonymity associated with this kind of platforms.

The new edition of Payment Services Directive (PSD2) was adopted by the EU in October 2015. It contains a set of rules for payment protection incentivizing development of innovative mobile and online payment methods.

The fourth AML Directive (AML4) was adopted upon the recommendation of the Financial Action Task Force in 2012 to implement relevant EU laws more effectively.

Less than a week ago, Europol, the EU top law enforcement agency, stated there is no confirmed evidence linking any digital currency to ISIL terrorists.

According to the Financial Times, some particular provisions in the European Commission’s new plans were incorporated in the document at the insistence of French president François Hollande in the wake of last year’s terrorist attack in Paris. The European Commission also considers restricting use cases for prepaid cards or turnover of large denomination bank notes.

The European Commission’s note also mentions possible ban of virtual money within the EU. The document, however, emphasizes that no ban is currently on the table, while virtual currencies are considered innovative but small market.

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