Euro regulator calls for delay to virtual currency exchange anti-money laundering regime

Not enough time for businesses

EU law makers should step back from plans to subject virtual currency exchanges and digital wallet providers to anti-money laundering (AML) regulations from the beginning of next year, the European Banking Authority (EBA) has said.

The regulator said that more time is needed to implement a legal framework across EU countries and that without a postponement until "26 June 2017, at the very earliest" for the introduction of the regime, businesses would have little time to adapt to the regulatory requirements.

The EBA's new opinion (9-page / 164KB PDF) was issued in response to plans outlined earlier this summer by the European Commission. The Commission wants to update the Fourth Anti-Money Laundering Directive (AMLD4) to bring virtual currency exchange platforms (VCEPs) and custodian wallet providers (CWPs) within the scope of the framework.

At the moment AMLD4 does not need to be implemented into national laws in EU countries until 26 June 2017 but the EBA said it "understands that member states have committed to transposing the Directive earlier, by December 2016". It said the Commission "appears" to be pushing for changes bringing VCEPs and CWPs within scope of the AML rules to be introduced at the same time, and for those changes to become effective from 1 January 2017, in light of recent terrorist attacks.

"The proposed amendments come at a time when most member states are still consulting on changes to their national legal and regulatory framework, which risks exacerbating the already considerable legal uncertainty for both national authorities and obliged entities (including credit and other financial institutions, and creates significant resource pressure, as member states and competent authorities will be required to create and implement a licensing and registration regime as well as decide on a supervisory approach for entities that have so far been outside of the Directive," the EBA said.

"CWPs and VCEPs, too, would be required in a very short time frame of less than six months to implement policies and procedures to be compliant with the Directive as transposed by member states," it said.

In its opinion, the EBA also said that "further legal and business model analysis" would be required before virtual currency transactions are brought within the scope of EU payment services laws (PSD2). It agreed with the Commission's decision not to place virtual currency (VC) schemes subject to PSD2 regulation "for now".

"While some of the provisions of the PSD2 could potentially be suitable to address specific risks arising from virtual currencies, VCs incur additional, technology-specific risks that makes them distinct from conventional fiat currencies that are in the scope of PSD2," the EBA said. It said PSD2 is "currently not suitable for mitigating all the risks arising from VC transactions" and that "a separate regulatory regime, or more far-reaching amendments to PSD2, would be required" instead.

"Such a regulatory regime, or such amendments to PSD2, would require several years to develop, consult, finalise and transpose, and is therefore not an option, given the short time frame within which the Commission was asked to develop its proposals," the EBA said. "It may therefore be advisable for the Commission and co-legislators to initiate as soon as possible the comprehensive analysis that is needed for assessing which, if any, regulatory regime would be most suitable for VC transactions."

Copyright © 2016, is part of international law firm Pinsent Masons.

Similar topics

Other stories you might like

Biting the hand that feeds IT © 1998–2021