The European Union Adopts Rules to Reduce the Anonymity of Crypto-Currency Users

The Council of the European Union has just adopted new directives on crypto-currencies in Europe. The paper discusses the various risks associated with cryptographic currencies and updates the anti-money laundering regulations of Europe to adapt to the use of cryptocurrencies. The main purpose of the new rules is to reduce the anonymity of transactions and users with customer identification requirements that platforms will need to put in place.


In-depth transaction monitoring

The changes adopted are aimed at strengthening EU legislation to prevent terrorist financing and money laundering. According to the Council’s press service, the new directive aims to stop criminal finances without preventing the smooth operation of payment systems. At the meeting of the General Affairs Council on Monday, the amendments to the Council Directive of 20 May 2015 and the European Parliament 2015/849 were unequivocally adopted. The decision follows an agreement with the European Parliament at the end of 2017. During the previous month, MEPs also voted to support the agreement bringing cryptographic currencies closer together.

To reduce the anonymity of transactions and users related to cryptocurrencies, according to the document, trading platforms and portfolio providers will be required to identify suspicious activity. According to the new directive, platforms should allow competent authorities to monitor the use of cryptographic currencies; and the information relating to the crypto address and the identity of the users will be accessible to the national FIUs.
The measures taken in the directive do not fully address the issues of anonymity. But the rules will be detailed by the Member States. They will have 18 months to integrate the directive into national regulations. It will only be after that that all the European Union’s trading platforms will have to agree with the directive and put in place the necessary mechanisms for its application.

The Localbitcoins platform did not wait long to go in this direction. The popular peer-to-peer (P2P) trading platform has updated its terms of use that will be applied this month. Other platforms will soon follow the example.

Thinning points

The Council of the European Union declared that electronic currencies and cryptographic currencies should not be confused. Crypto-currencies, although they can serve as means of payment, they can have a wider application.

The directive provided a definition of cryptocurrencies whereby cryptocurrencies are a numerical representation of value that is unissued and unsecured by a bank or public authority. In the document, it is also said that cryptographic currencies have no legal status like fiduciary currencies, but legal or natural persons can accept them as bargaining chips.
The portfolio providers have been identified by the European institution as entities protecting private cryptographic keys for its customers by holding, storing and transferring cryptocurrency. According to the directive, its entities and trading platforms must be licensed or registered.

In the directive, there was also talk of anonymous prepaid bank cards. The mandatory identification threshold has been revised downwards, 150 €. Long distance transactions over € 50 will need identification.

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ECB suggests separation of cryptographic activities and traditional finance

The EU Council reinforces legislation on cryptographic transactions, the ECB calls on banks to take security measures against cryptocurrencies. Yves Mersch, Member of the Executive Board of the ECB, calls on banks under the ECB to separate the activities related to cryptographic currencies from other operations.

Recall that cryptographic currencies were not considered money, Mersch calls for the regulation of cryptocurrency issuers, trading platforms and all banks or financial institutions dealing with them.

During the conference held in Turkey, Yves Mersch said that crypto-currencies because of their high volatility, all transactions of these should be supported by adequate levels of capital and separate from other transactions.

At present, according to him, the cryptocurrency market is still insignificant to undermine financial stability. However, if they were used as collateral for loans or settlement of transactions in a clearing house, this could be problematic.

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