Unmasking the Cryptocurrency Industry

Unmasking the Cryptocurrency Industry 13/10/2020

“Man is least himself when he talks in his own person. Give him a mask, and he will tell you the truth.” – Oscar Wilde

For too long, the anonymity of cryptocurrency has allowed dubious individuals to conduct questionable transactions behind a virtual mask. Whether it’s money laundering or terrorism financing, the cryptocurrency industry’s lack of regulation has been a cause for concern in countries worldwide.

To address this issue, the European Union’s 5th Anti-Money Laundering Directive (“5MLD”) has specifically included crypto-asset businesses in its expanded scope. In the UK, MLR 2019 is the legislation that implements 5MLD. Because of 5MLD, crypto-asset businesses are required to conduct customer due diligence, meaning they have to know a certain amount of information about their customers before approving any transactions (KYC).

If the business wants to conduct a transaction with a “high-risk third country,” they will need to conduct enhanced customer due diligence (EDD) by gathering more information on the customer and their intentions, as well as obtaining senior management approval and watching out for any suspicious transaction patterns. In order for all of these requirements to be enforced, these businesses will have to register with the UK’s Financial Conduct Authority (FCA) by 10 January 2021 so they can be properly supervised.

But what about Brexit? HM Treasury has publicly stated that they would continue to implement 5MLD even if the UK is no longer part of the EU. Furthermore, the UK has indicated that it wants stronger oversight of the cryptocurrency industry, and the definition of a “crypto-asset” in domestic law is actually broader than the definition under 5MLD which treats it as a “virtual currency.”

Considering that approximately £2.2 billion was laundered worldwide through cryptocurrency in 2019 alone, reform has been long overdue. Hopefully, 5MLD will finally be the legislation that unmasks the cryptocurrency industry.

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