On 11 August 2016, the European Banking Authority (EBA) published its opinion on the European Commission's (EC) proposal to bring virtual currencies into the scope of the Fourth EU Money Laundering Directive (Directive (EU) 2015/849) (4MLD) which was published on 5 July 2016.
The EC proposed various amendments to the 4MLD, including a proposal to bring custodian wallet providers (CWPs) and virtual currency exchange platforms (VCEPs) within the scope of 4MLD. The EBA explained that this would require CWPs and VCEPs to have policies and procedures which detect, prevent and report money laundering and terrorist financing. The EBA stated that the EC proposed to subject CWPs and VCEPs to registration or licensing requirements and impose fit and proper testing on the owners and managers of such entities.
The EBA has indicated that it supports the EC's proposals and described them as an important step towards mitigating the risks of financial crime associated with the use of virtual currencies. However, it explained that the EC and legislators need to put effective supervision in place to ensure that CWPs and VCEPs comply with their anti-money laundering (AML) and counter terrorist financing (CTF) obligations. Moreover, the EBA indicated that supervision must be consistent throughout the European Union (EU) because of the transnational nature of virtual currencies. Taking into account these views, the EBA set out seven proposals for the EC and legislators to consider when finalising the amendments to the 4MLD.
The first proposal put forward by the EBA was that the transposition deadline for the amendments to 4MLD should be set in a way that facilitates the adoption of a consistent approach to AML/CTF supervision of CWPs and VCEPs across the EU. The EC has proposed that the deadline to transpose the 4MLD and its proposed amendments is brought forward to 1 January 2017. The EBA argued that the deadline for the transposition of the new amendments should not be changed and, accordingly, that 26 June 2017 should continue to be the deadline. The EBA put forward this proposition in order to give member states, competent authorities, VCEPs and CWPs time to implement the new amendments, taking into account that an AML/CTF regime for VCEPs and CWPs does not yet exist.
The EBA's second proposal was that virtual currency transactions should remain outside the scope of the Payment Services Directive (Directive (EU) 2015/2366) (PSD II). The EBA indicated that it agreed with the EC's decision not to bring virtual currency transactions within the scope of Directives, such as the PSD II. The EBA agreed with the EC on this point because it does not think that the PSD II would be suitable for mitigating all of the risks associated with virtual currency transactions. Instead, the EBA argued that a separate regulatory regime, or substantial amendments to the PSD II, would be required in order to mitigate such risks.
The third proposal advocated by the EBA was that the status of CWPs and VCEPs should be clarified. The EBA highlighted that there is a lack of awareness of the meaning of the EC's proposed amendments. It explained that some VCEPs and CWPs refer to themselves as 'regulated' or 'authorised'; thereby giving the impression that certain regulatory safeguards are in place when this is not the case. Accordingly, the EBA proposed that the EC and other legislators inform the public about what the amendments to 4MLD mean in order to clarify the status of CWPs and VCEPs in the short term. The EBA said that virtual currencies should be subjected to a comprehensive framework in the long run.
The EBA's fourth proposal was that the amendments to 4MLD should enable competent authorities to exchange information easily regarding VCEPs and CWPs. The EBA explained that the exchange of information between supervising authorities can sometimes be prevented due to 'legal obstacles'. On this basis, the EBA said that the EC should consider amending section 3 of 4MLD in order to ensure that information can be exchanged more easily between authorities responsible for the AML/CTF supervision of VCEPs and CWPs.
As its fifth proposal, the EBA also suggested that the amendments to 4MLD should provide more detail on how competent authorities should carry out fit and proper tests of owners and managers of VCEPs and CWPs. The EBA said that 4MLD does not specify what makes those who hold a management function in or the owners of VCEPs and CWPS fit and proper persons. Given that VCEPs and CWPs present a significant AML/ CTF risk, the EBA proposed that more detail is provided to supervising authorities to ensure that enforcement is carried out consistently across the EU. The EBA also explained that this proposal should be considered because VCEPs and CWPs are new concepts and therefore present challenges for supervisory authorities. The EBA explained that the required detail could be provided in the amendments to 4MLD.
The EBA's sixth proposal was that the amendments to 4MLD should clarify the scope of the proposed licensing/ registration regime suggested by the EC for VCEPs and CWPs. The EBA explained that 4MLD provides a choice between a licencing and registration regime. Accordingly, it is likely that different member states will choose different regimes. On this basis, the EBA proposed that the EC and legislators consider whether a licencing or registering regime would be most suitable for deterring terrorist financing in the EU. Failing that, the EBA said that clarity should be provided regarding the features that each regime should have.
The final proposal put forward by the EBA was that the proposed extension of national sanction powers to VCEPs and CWPs should be retained. The EBA explained that the basis of this proposal is to ensure that VCEPs and CWPs comply with the requirements by giving supervisory authorities dissuasive sanctioning powers for VCEPs and CWPs for failing to comply with requirements of 4MLD. The EBA identified that this included the reporting of suspicious transactions.