Cryptocurrency exchanges have been a dominating topic for European users as the government has made drastic moves to regulate financial institutions that are using cryptocurrency. Fifth Anti Money Laundering Directive is a regulation that is being put into place for cryptocurrency wallets in European countries. All exchanges must adopt the rules and be able to carry out the verification processes by January 10th, 2020. Coinbase and Binance are the first exchanges to come into mind as they are two of the largest exchanges that are currently servicing residences in these areas. These regulations will make it monitory that exchanges look for illegal activity and report it to government officials. KYC/AML policies have not been put into place, but now these exchanges will need to track transactions and make sure they are not coming from dark web addresses. For companies like Coinbase, this transition might come easier as they have already been required to follow similar laws in other jurisdictions like the US. However, for many of the other cryptocurrency exchanges, it might come with some hiccups since they have not been used to filing and reporting this information.  Some dark web addresses have been made public and so simply blacklisting these addresses will not be a difficult task, however some addresses are not public and might be newly created giving the exchanges a difficult job.

5AMLD will put a big emphasis on releasing activity reports of users that seem to be making suspicious transactions, which may cause more users to have frozen funds. It is always a good rule of thumb to not hold cryptocurrency on exchanges for this exact reason. When users don’t own their private keys, exchanges have the power to lock funds in and reframe you from withdrawing. The European ruling is meant to scare of some fraudsters as it may be easier now to find and prosecute these criminals since these identities are not being demanded.

A very clear problem with this regulation is that it is different from area to area and so it can be hard for some companies to follow the procedures. Cryptocurrencies by nature are free to use, so by requiring more identification and regulation it puts some resistance to it. Even after the law is created there will still be more countries that are not following the KYC/AML procedures and so switching on and off between users can be a difficult task for businesses.

Image by Michael Gaida from Pixabay

Leave a Reply

Your email address will not be published. Required fields are marked *