There has been a lot made over the upcoming Fifth Anti-Money Laundering Directive (AMLD5) in the European Union. This directive is intended to place a lot more rigour on anti-money laundering rules, and thus make the hoops for crypto companies a lot harder to jump through, but there are some benefits too.
This new regulation will have a big impact on cryptocurrency businesses in the EU. It will require 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.
More so, these new rules also give greater power and reach to financial intelligence units and law enforcement. But in saying that, it also comes down on the banks that are involved with providing services to cryptocurrency businesses.
There have been many instances where banks, afraid of mingling with cryptocurrency providing services, have simply shut down their operations and cut off services without giving any clear means or reasons. This could come to an end in Europe thanks to AMLD5.
The new law requires banks to provide legally acceptable, individual justification to discontinue their services to a particular customer. Banks will no longer exercise unchecked authority against cryptocurrency-related companies or payment processors by refusing to offer them their services without a well-founded reason.
This aspect of the AMLD5 rules does legitimize cryptocurrency in many ways, it is by no means a rule change solely for the benefit of the cryptocurrency space.
But, at least, this new law aims to give the crypto industry an equal opportunity at growth, as enjoyed by other established sectors. It also removed ambiguity which crypto firms had last year concerning the new AML (anti-money laundering) standards introduced by the Financial Action Task Force.
On the other hand, there are added costs for firms that come with this new directive, and this could represent challenges for smaller firms.
“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,” said Siân Jones, director, xReg Consulting.
Already, Deribit, a Netherlands-based crypto derivatives exchange, is planning to relocate to Panama because its home country’s version of AMLD5 “would put too-high barriers for the majority of traders, both regulatory and cost-wise,” the company said.