January 10th is rapidly approaching, 5AMLD is the new legislation aimed at bringing fiat to custodial wallets and crypto exchanges throughout the EU. This regulatory framework is structured to change crypto regulation and force exchanges to comply with a set of rules and regulations by the 10th of January 2020.
What is 5AMLD
The former US treasury specialist David Carlisle is an expert on cryptocurrencies and crypto regulation; He has a unique perspective on the difficult transition that faces the crypto companies around the continent. Even though the majority of Eliptics customer list is kept confidential, there are some companies such as Binance and Coinbase, who are happy to be the pubic face on the company. The primary purpose of Elliptic services is to allow these exchanges to monitor their transactions to prevent any activities that might be considered illicit or suspicious funding. They watch the exchange to block crypto wallets and dark web transactions that are linked to criminal organisations. Carlisle has explained that the belief that crypto exchanges are anonymous and untraceable is a myth, the larger ones, in particular, are easy to trace. The company specialise in researching the people or organisations behind crypto addresses and helps exchanges avoid any transactions that might be flagged as illegal.
The primary purpose of 5AMLD’sis to implement AML regulations. They require exchanges to follow KYC regulations by monitoring all customers transaction and make it mandatory to report suspicious activity. Customers must provide proof of identity, to provide the trade with evidence that they are who they proport to be. This is to help exchanges weed out any nefarious customers intent on abusing the services that they provide.
To date, crypto companies have been operating with impunity across the EU able to work without any KYC or AML regulations in place. This lack of legislation has given many European exchanges an unfair competitive advantage of US-based exchanges such as Coinbase who are already subject strick regulations. Most of these already comply with AML regulations.
Too many EU based companies are allowed to operate without following any security procedures, that are now considered standard practice elsewhere. 5AMLD will take steps towards providing a more level playing field in the EU crypto market. The question is, are EU exchanges ready for these changes?
Are EU exchanges ready for these changes?
When this question was posed to Dmitri Lihno, he explained that currently, the outlook is uncertain. Many of the more extensive EU and Estonian exchanges already comply with many of the regulations because they have interests in already regulated markets. These are well prepared for the changes.
But he believes that the companies who solely operate in the EU are increasingly a cause for concern. He stated that many companies are in no way prepared for this transition. He explains that at the root of the problem is that while 5ALMD in theory at least should work, but the issues arise with how each country in the EU will enforce the new regulations.
How one country decides to implement these regulations can vary hugely from one to the next. It will prove difficult for companies to ensure they can meet the expectations of each country that they operate in. He also states that 5AMLDs minimum threshold allows for procedures and regulations to differ far too much from region to region.
One of the exchanges that are fully prepared is Kraken, they have been following all these developments closely and have been working hard in the background to ensure its clients will be able to comply with all the new regulations.
Any Exchange who operate in more than one EU country will have to be sure that they are complying with the licenses for each jurisdiction. This is of core concern for those who are readying themselves for these sweeping changes. While some companies are continuing to procrastinate, others like Kraken are refusing to be caught off-guard.
One of Dmitri’s key concerns is that too many companies appear to be waiting until January to get their compliance operations up to speed. He believes that in the Crypto business, you will achieve the best results from being pro-active rather than waiting for regulations to be sprung on you.
Why has Europe suddenly chosen to regulate its crypto industry
The main reason is that European Crypto exchanges have processed a much higher volume of illicit transactions in comparison to regions that have been subject to stricter regulations. The US, by contrast, shows little or no illegal activity on their exchanges due to the regulations that have been in place for years. Criminal elements have widely abused European exchanges because of the absence of laws such as 5ALMD
One example is the notorious BTC-e case, where an exchange based in eastern Europe was the centre of a money-laundering ring. In this case, malicious actors took advantage of the complete absence of any rules to prevent such activity. It is also widely known that criminal elements in Spain and Holland have used other lax exchanges to launder the proceeds of their illegal activity. Carlsie stated that the whole European system has left itself open to criminals and that the implementation of the 5AMLS measures are a massive step in the right direction to ensure such practices cannot continue.
Will this be a help or a hindrance?
While changing the practices of your company in the short term will undoubtedly cause some headaches and incur some additional investment to make sure that they are compliant. In the medium to long term, users of these exchanges can do so with a renewed confidence knowing that they are safer and more secure than ever, they will see that their funds, as well as their digital information, will be more challenging to jeopardise. Carlisle explained that companies might initially struggle to find the balance between regulatory compliance and user privacy. But a company spokesman for Kraken said they are dedicated to collecting the information required by the regulations while remaining conscious of the needs for privacy of their customers.
One thing is for sure, and If you get your exchange compliance-ready, today wit will save you a lot of hassle in the future.