Introduction
Tony Stark [an entirely fictitious character] once remarked: ‘Is it better to be feared or respected? And I say: ‘Is it too much to ask for both?’ One can certainly surmise that Virtual Currencies are finally given the necessary ‘respect’ through their insertion in the ‘Amendment to the Fourth Money Laundering Directive’ [colloquially known as the Fifth MLD] but have all fears and concerns re: VCs been allayed accordingly?
Virtual Currencies insertion.
‘The Proposal for a Directive of the European Parliament and of the Council amending Directive (EU) 2015/849’ has certainly been greeted with raised eyebrows by a variety of ‘crypto-enthusiasts’ throughout the world. Is the EU finally embracing the obvious fact that the ubiquitous term: ‘Virtual Currency’ must be finally enshrined and catered for in National Legislation? Perhaps. A brief appreciation of what is being proposed will be discussed accordingly.
The Explanatory Memorandum notes that ‘the proposed revision of the Fourth Anti-Money Laundering Directive is also consistent with global developments’. This comes as no surprise given the recent waves of terror attacks around the world. So essentially, the whole essence of this Directive is to curb the funneling of funds for sinister terrorism plans so much so that: ‘effective supervision and enforcement are crucial to prevent money laundering, the financing of terrorism and crime in general’.
GDPR and Virtual Currencies. A tangible link?
Considering the recent GDPR [General Data Protection Regulations], the Memorandum also states that ‘the need to ensure enhanced transparency of business relationships, legal standards in the field and particularly all rules regarding protection of privacy and personal data dictate that there should be a clear distinction between categories of legal entities engaged in the management of trusts as a business, and other categories’. This ‘other categories’ is interesting since it allows for a wide interpretation and indirectly acts as an ‘umbrella provision’ for all other subject persons.
And herein lies the nexus to Virtual Currencies. Extending this notion of ‘personal data’ specifically to Virtual Currency exchange platforms highlights the EU’s quest to also attempt to ‘regulate’ Crypto-exchanges.
Elevating the status of ‘Virtual Currencies’
After all, it is stated that: ‘Positive effects for consumers are expected as a result of the proposed rules on designating virtual currency exchange platforms as obliged entities’. In other words, these ‘exchanges’ will now be elevated to the level of ‘obliged entities’ [such as: Company Service Providers, Trusts, Financial Institutions, Credit Institutions, Notaries, Legal Professionals etc…]. The scope or purpose is crystal-clear: ‘Reducing anonymity surrounding VCs will contribute to increasing trust of their good-faith users’.
With the prospective amendment to Article 2 of the 4th Money Laundering Directive, the Commission is attempting to provide clarity and certainty as to what is meant by Virtual Currency. In this connection, virtual currencies will henceforth be defined as:
”a digital representation of value that is neither issued by a central bank or a public authority, nor necessarily attached to a fiat currency, but is accepted by natural or legal persons as a means of payment and can be transferred, stored or traded electronically”.
This definition is certainly paving the way towards regulation and ‘acceptance’ of Crypto-currencies. In a way, the EU is almost seemingly elevating VCs to the position of ‘acceptance’ already enjoyed by traditional FIAT currencies.
Possible harmonization of ‘Virtual Currencies’ at EU Level.
By designating virtual currency exchange platforms as ‘obliged entities’ whilst also clearly defining VCs, the EU is attempting to fully harmonize Member States’ approach to Crypto-currencies. Regulation therefore is the key to acceptance and eventual day-to-day usage of VCs. It goes without saying that the fears of most people are in a way abated as ‘legal certainty’ slowly begins to prevail.
Moreover, as seen in Preamble (7) of the Directive ‘to combat the risks related to the anonymity [of VCs], national Financial Intelligence Units (FIUs) should be able to associate virtual currency addresses to the identity of the owner of virtual currencies.’ This is already being catered for in Malta with the Government also seeking to work in tandem with the both the MFSA and FIAU accordingly.
Why the need to Regulate Virtual Currencies?
The Commission goes on to explain the necessity of having such text in place and this is because there are obvious risks ‘relating to the irreversibility of transactions, means of dealing with fraudulent operations, the opaque and technologically complex nature of the industry, and the lack of regulatory safeguards’.
The need for Member-State Regulation as is already being done here in Malta [with three important Bills currently being tabled] was also reinforced in the text as well as ensuring that there are laws covering: ‘custodian wallet providers that operate as gatekeepers’. Crucially, as obliged entities, Crypto-Exchanges will now have the legal obligation to implement preventive measures and report suspicious transactions to local/EU authorities.
Exciting times lie ahead!
Disclaimer: The above-mentioned article is simply based on independent research carried out by Dr. Werner and Partner and cannot constitute any form of legal advice. If you would like to meet with up with any of our representatives to seek further information please contact us for an appointment.
