The proposed Directive amending the fourth anti-money laundering Directive (“MLD5”) has been endorsed by the EU Parliament and awaits final sign-off by the Council. The current proposal is publicly available and will be published in the EU Official Journal, entering into force 20 days later. Member states must implement MLD5 within 18 months after entry in force.
The FinTech sector is watching closely as MLD5 will, inter alia, affect virtual currencies. Entities impacted by MLD5 include virtual currency exchange platforms (“VCEPs”) and custodian wallet providers (“CWPs”).
VCEPs are defined as “providers engaged in exchange services between virtual currencies and fiat currencies” while a CWP is defined as any “entity that provides services to safeguard private cryptographic keys on behalf of its customers, to hold, store and transfer virtual currencies”.
These new “Obliged Entities” under MLD5 will notably have to comply with many preventive measures relating to customer due diligence, including “know your customer” procedures and reporting suspicious transactions to domestic financial intelligence units.
Significantly, MLD5 provides the first EU definition of a virtual currency:
“A digital representation of value that is not issued or guaranteed by a central bank or a public authority, is not necessarily attached to a legally established currency and does not possess a legal status of currency or money, but is accepted by natural or legal persons as a means of exchange and which can be transferred, stored and traded electronically.”
This fourfold definition was created to cover any sort of coin or token (issued through an initial coin offering (“ICO”)), irrespective of its inherent features (see our previous eAlert).
On the one hand, we note that MLD5 only partially captures VCEPs, as it does not consider exchanges that only offer pairs of coins or tokens without reference to fiat. On the other hand, ICO issuers might fall under the definition of CWPs if they offer the services described, and they should therefore assess their anti-money laundering status in concreto.