AML/CTF EU directive 2018/843 (AMLD5) entered into force on July 9, 2018, with effective application from January 10, 2020. It has caused many crypto companies to drastically alter the data they collect on their customers, has caused some to close down entirely, and has stirred up a hornets’ nest of antipathy among privacy advocates, among which crypto can naturally boast quite a few. But the fact is that crypto as an industry needs regulation like this if it is to have any chance of reaching the lofty goals it has set itself.
AMLD5 Lands with a Bang
AMLD5 is intended, according to Deloitte, to “reduce the capabilities to exploit identified loopholes by criminals and better counter terrorism financing…by increasing transparency about who really owns legal entities and trusts.” Cryptocurrencies are a particular target of the new regulation, with Deloitte adding that the directive “tackles terrorist financing risks linked to anonymous use of virtual currencies and pre-paid instruments”.
The impact of AMLD5 on the crypto sector has been profound. Suddenly, crypto companies within the EU or that extend their services to EU countries are being asked to perform enhanced KYC, including collecting all sorts of extra data about their customers, something that many have baulked at for a number of reasons, from financial to ideological. This is made harder for EU companies who also have to comply with GDPR data protection regulations, with heavy fines likely if they fall foul of them.
Smaller Companies Forced to Close
While larger organizations like Coinbase and Binance will have factored in the new legislation, smaller companies such as BottlePay and Chopcoin have chosen to shut up shop rather than implement the changes, with the incoming legislation criticized for “radically” and “negatively” affecting customer experiences. This is true, as customers likewise will find themselves hugely inconvenienced as the rules kick in, but if the crypto market wants to realize its potential then it cannot skulk in the shadows forever.
It might even make people think twice about handing over their details to a shady-looking alt coin exchange where the risk of a hack or exit scam is high. Of course smaller operations will die, but those passionate about the space will find a way to re-enter it in line with the rules.
Crypto at a Crossroads
At the heart of the debate lies a core argument of what we want crypto to be. Do we want it to be a platform for freedom, where citizens of oppressed nations have an alternative currency to fall back on? Or do we want it to be an opportunity to make life-changing sums of money?
The former will mean that crypto entities pushing back against regulations, or finding ways to circumvent them, which will only perpetuate the negative stereotypes associated with the ecosystem and lead to harsher regulations in the future. The latter requires opening cryptocurrency up to the same kind of measures and controls exerted on all other markets, which is the only way the average man or woman on the street is going to have the confidence to enter the market and pump your bags. We cannot have it both ways.
AMLD5, and to a certain extent the incoming Financial Action Task Force on Money Laundering (FATF) regulations, will push the ecosystem away from the one-man shitcoin exchanges and into the hands of the more ‘legitimate’ operations that are able to comply with the current raft of changes and whatever other regulations lie ahead. Many will complain long and loud about the erosion of privacy, but after ten years in a cocoon of scams, hacks, and manipulation, crypto has the opportunity to emerge as a recognized, legitimate ecosystem in which people can operate and trade in safety. And make many of us extremely rich in the process.
Time to Accept Regulations and Work With Them
2020 will bring with it more regulation that the crypto world has ever seen. Operating in the space with impunity is going to be virtually impossible, and it’s time to smash the illusion that the space can exist, let alone thrive, without being opened up and controlled in some way.
It’s not a pleasant thought for many crypto evangelists, but regulations like AMLD5 are not just inevitable, they are happening right now, and the time has come to accept them and use them to propel the space to the levels we know it can achieve. Crypto can either rebrand itself into a trusted, innovative, and safe ecosystem, or it can remain a secretive, scam-ridden, lawless casino where the few celebrate their freedom and they many lose everything.
