There is a common cycle in financial security. A criminal will adapt to security protocols and regulation, the regulator adapts to combat the development and this repeats ad infinitum. The European Commission’s (EC) anti-money laundering (AML) division is making progress, however. Stronger rules have been released to combat new threats. Patrick Brusnahan reports
In May 2015, the EU adopted the Anti-Money Laundering Package, a significant step forward in combating money laundering. Just over a year later, amendments have been made to Directive (EU) 2015/849 on preventing the use of financial system for money laundering or terrorist financing.
A key measure added to the regulation regards digital and virtual currencies. Virtual currency exchange platforms and wallet providers have been added to the list of obliged entities to regulation. This means that, as gatekeepers, they are the first step for the public to enter the marketplace and need to be monitored. As a result (changed to avoid repetition of ‘this means’) the sector is now obligated to undergo the same level of regulation and monitoring as other financial institutions.
Monica Monaco, Founder and Managing Director of TrustEu Affairs, said:
"This is the first time that virtual currencies exchange platforms and custodian wallets are defined under European law and I think this comes with a very clear message from the European Commission, that they embrace and value technology as long as the prevention of anti-money laundering and terrorism financing can be continued and improved.
"It is interesting that virtual currency exchange platforms and custodian wallet providers are becoming obliged entities and that definitions of custodian wallets and exchanges are in the Proposal."
Threats associated with money laundering, which can lead to terrorist financing, are constantly evolving. The EC has stated that recent terrorist attacks in the European Union (EU) and beyond, as well as the ‘Panama Papers’ scandal, have brought this issue further into the foreground.
The second key measure is to tackle the use of anonymous prepaid instruments, tightening identification rules to curb criminal use and those cards issued outside the European Union may only be used inside the Union where they comply with 4AMLD stipulations.
"As far as prepaid cards are concerned, the fact that the European Commission proposal indicates that anonymous prepaid cards issued outside of the Union will only be used in the Union where they can be shown to comply with requirements equivalent to the ones in 4AMLD, clearly shows that for UK issued prepaid cards – whether after Brexit the UK gets a EEA status or starts a bilateral agreements negotiation with the EU- prepaid cards issued in the UK will need to comply with EU regulation equivalent to be used in the European Union,"said Monaco.
The nine measures
- Designate virtual currency exchange platforms (and wallet providers) as obliged entities
- Tackle the use of anonymous prepaid instruments
- Give new powers to FIUs to request information from any obliged entity
- Enable FIU and competent authorities to identify holders of bank and payment accounts
- Harmonise the EU approach towards high-risk third countries
- Improve transparency: new rules on access to beneficial ownership information
- Interconnection on national central registers
- Additional technical clarifications
- Earlier transposition