Digital Currency Perspectives
July 15, 2016

EU Proposal to Address Virtual Currency Exchanges & Wallet Providers in Anti-Money Laundering Laws


The European Commission recently published a proposal to amend the Fourth Anti-Money Laundering Directive, the legislation that specifies the anti-money laundering, or AML, and counter terrorist financing rules for EU Member States.  The proposal seeks to introduce stricter rules on the reporting and identification around the users of virtual currencies, as well as anonymous prepaid cards.  If the proposal is adopted, EU Member States would be required to incorporate it into their national laws by January 1, 2017.  This means that virtual currency exchanges, wallet providers, banks and others would also be required to comply by that date.

The main drive behind the proposal is to remove anonymity from payments in order to combat terrorist financing. For example, the proposal seeks to lower the identification threshold for pre-paid cards from €250 to €150, to minimize the anonymous use of these products.  The proposal also seeks to introduce a legal definition of “virtual currency.”

The proposal would amend AML Directive in several ways. In particular, the proposal defines “virtual currency” as “a digital representation of value that is neither issued by a central bank or a public authority, nor necessarily attached to a fiat currency, but is accepted by natural or legal persons as a means of payment and can be transferred, stored or traded electronically.”  The proposal also specifically identifies virtual currency providers, including those providing exchange services between virtual currencies and fiat currencies; and wallet providers offering custodial services of credentials necessary to access virtual currencies, as being subject to the regulations.

Obviously the proposed changes would have a direct impact on the application of the AML requirements of the EU Member States. But it may also offer a framework for other laws in those jurisdictions where a particular Member State does not already have their own definition of “virtual currencies.”