This blog post is a perfect choice for individuals who would like to obtain a cryptocurrency license in the European Union and start a crypto business in one of the member states.
Probably the key issue related to cryptocurrencies is the fact that they can be potentially used for illegal activities such as money laundering. Despite trying to solve this problem for years, the European Union’s efforts do not seem successful yet.
It is important to remember, that cryptocurrencies’ share is money laundering is still a small fraction compared to operations in cash. Nevertheless, the main fear of digital currencies is the problem of anonymity.
Transactions in a form of virtual currencies can be performed anonymously and do not have to be registered under specific jurisdiction. Such transactions only require internet connection to be conducted. This is why there are no centralized intermediary or specific location needed. Consequently, the control over cryptocurrencies becomes exceptionally difficult due to these characteristics.
Not surprisingly, the EU decided there was a need for a new approach in regulating digital currencies at the European level. The new regulation entails:
- Each virtual currency must create and have licensed a “governing body”;
- Anti-fraud rules and AML requirements are extended to apply to virtual currencies;
- Market participants should adopt general operating rules.
European regulators are intending to extend the AML directives to providers of virtual currency exchange services soon, knowing how complex the adoption of the new approach can be.
To find and react to risks that affect the EU internal market, the European Commission runs risk assessments on a regular basis. This makes the decision-making process to fight these threats on the international level less difficult. To illustrate, after disclosing a number of serious cases of money laundering, the Commission founded a joint working group cooperating with the European Central Bank and the European Supervisory Authorities. The working group provides recommendations for creating the Guidelines on strengthening the anti-money laundering system as well as practical rules to reinforce the position of European financial management.
According to the approach of the EU authorities, VCEP and CWP are to be enlisted as entities to which the AML rules are applied. It means that the rules for banking and other financial institutions and the regulations covering cryptocurrencies will be now similar.
Specifically, cryptocurrency firms will now be required to:
- present necessary reliability proofs
- examine transactions
- detect high-risk customers
- report suspicious activity to the relevant authorities.
From now on the competent authorities have a right to control the use of digital currencies and grant licenses to cryptocurrency exchanges. Even so, the EU regulators still do not exclude the possibility of users bypassing the new regulation principles. The authorities acknowledge that the anonymity issue will not be completely solved by the new approach.
Accordingly, the member states are now being examined on whether their central databases record user identities and wallet addresses. Additionally, the EU Commission has an assignment to develop proposals for self-declaration of virtual currency holders by the beginning of 2022. It is probable that other legislative initiatives on the EU will be created for other aspects of virtual currency usage and for cryptocurrency license obtainment.
If you planning to establish your crypto-exchange in the EU soon, it would be useful to know that the EU Council is planning to confront the following issues in the field of money laundering:
- harmonizing EU rules with international obligations
- removing obstacles on the way of judicial and police cross-border cooperation
- introducing minimum rules for classifying crimes and penalties.
The maximum penalty for money laundering will include 4 years of prison term and possibly other additional sanctions.
COREDO is here to help you establish your cryptocurrency exchange business in the EU in accordance with all necessary legislation and digital currency regulation.