Crypto Compliance Corner: May the 5th Be with You

virtual currency exchange platforms

This blog is part of the “Crypto Compliance Corner” series from our Chief Compliance Officer, Peter Singer.


Greetings, dear readers, and welcome back! Today we’re going to talk about recent developments in the virtual currency anti-money laundering and combating the financing of terrorism (AML/CFT) law addressed in the 5th European Union (EU) Anti-Money Laundering directive (or 5AMLD for short). Some of you may be thinking “Dear Peter, here is a geography lesson for you: you are in the U.S., and that law is in the EU, so it doesn’t matter.” Thanks for that, but let’s take a quick look at a couple of current events, shall we?

Have you noticed all of those privacy notices you’ve been getting in your email recently? Or how every site has annoyingly put up a big block of text saying they use cookies? You can thank the General Data Protection Regulation (GDPR) from the EU. How about the recent enactment of the Beneficial Ownership rule and all that data you need now when onboarding a company….that’s FinCEN creating its own practice based on the 4th EU AML directive of ultimate beneficial ownership, which brings us to today’s topic. If I may be technical for a minute, the 5AMLD is an amendment to the 4AMLD, but several media reports are calling it the 5th, so I will too.

This piece of legislation comes as a result of the recent terror attacks in Europe and the troubling realization that terrorism can be financed on a shoestring budget with practical anonymity. The law expands the definition of entities that are required to perform AML and KYC to include “virtual currency exchange platforms” (VCEPs), entities that trade virtual currency for fiat currency or vice versa (e.g. Coinme) and “custodial wallet providers” (CWPs), defined as companies that hold virtual currency accounts for customers.

These entities will have to adhere to the same standards as money services businesses (think Coinme or Venmo), which include having an AML program, knowing your customers, performing due diligence on customers, informing law enforcement about suspicious activity, etc. The amendment additionally recommends that member states create central databases composed of virtual currency users’ identities and wallet addresses, as well as self-declaration forms submitted by virtual currency users.

EU member states have 18 months to implement these changes. If you’re interested in learning more details of 5AMLD (and I know you are), click here or over here for some good reads.

Will these changes come “across the pond” so to speak? Will U.S. virtual currency companies need licenses? My crystal ball has suddenly decided to stop working, but I’m pretty sure the regulatory landscape will undoubtedly be tighter within the next 12 months. From my corner to yours — thanks for stopping by.

As always, tweet me @compliancepete or contact me on LinkedIn with any questions or comments.


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