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European Union Plans Imminent Regulation of Digital Currency Exchanges in Counter-Terrorism Push

The European Commission plans to regulate digital currency exchanges operating in the European Union, according to a communication to the European Parliament published earlier in February. The Commission will present a legislative proposal to amend the Anti-Money Laundering Directive (AMLD) bringing “virtual currency exchange platforms” under control of regulatory authorities.

The regulation of digital currency exchanges will include standard licensing and oversight rules of existing payment services.  The commission elucidated the following as part of its action plan and statement for strengthening the EU’s crack down on terrorist financing.

There is a risk that virtual currency transfers may be used by terrorist organisations to conceal transfers, as transactions with virtual currencies are recorded, but there is no reporting mechanism equivalent to that found in the mainstream banking system to identify suspicious activity.

Virtual currencies are currently not regulated at EU level. As a first step the Commission will propose to bring anonymous currency exchanges under the control of competent authorities by extending the scope of the AMLD to include virtual currency exchange platforms and have them supervised under Anti-Money Laundering / countering terrorist financing legislation at national level. In addition, applying the licensing and supervision rules of the Payment Services Directive (PSD) to virtual currency exchange platforms would promote a better control and understanding of the market. The Commission will examine this option further. The Commission will also examine whether to include virtual currency “wallet providers”.

The EU’s executive body defines “virtual currency exchange platforms” and “wallet providers” in the following way:

Virtual currency exchange platforms can be considered as ‘electronic’ currency exchange offices that trade virtual currencies for fiat currencies. Virtual currency wallet providers hold virtual currency accounts on behalf of their customers. In the ‘virtual currency’ world, they are the equivalent of a bank offering a current account on which fiat money can be deposited. They store virtual currencies and allow for their transfers to other wallets/virtual currency accounts.

The Commission will present a legislative proposal to amend the AMLD, at the latest by 2nd quarter 2016, in the following areas:

  • Enhanced due diligence measures/countermeasures with regards to high risk third countries
  • Virtual currency exchange platforms
  • Prepaid instruments
  • Centralised bank and payment account registers or electronic data retrieval systems
  • The access of Financial Intelligence Units to, and exchange of, information

In addition to “virtual currency exchange platforms”, businesses that issue pre-paid digital currency virtual or physical debit cards could also be impacted by regulation of “prepaid instruments”.

Journalist, policy analyst, and evangelist of new, disruptive technologies including big data analytics, Internet of Things, and cryptocurrencies. Internet industry veteran with regional c-suite experience, and journalist credentials earned at internet.com, Internet World magazine, and Mecklermedia Corporation.
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