Is the EU’s Fifth AML Directive a Positive or Negative For Crypto Start-ups?

12 March 2019

With the European Union’s new stipulations putting more of an onus on crypto companies to monitor user activity, is this going to help the industry or stifle it?

In January, Ireland’s government approved anti-money laundering rules for the crypto market, hoping that it will bring some more legitimacy for start-up businesses.

The amendments were introduced as a part of the EU’s Fifth Anti-Money Laundering (AML) Directive following several high-profile money scandals over the past few years.

One of the most notable cases occurred at the Estonian branch of Danske Bank where millions of illicit funds tied to various countries were passed through the bank.

This has forced governments and financial watchdogs from around the EU to take matters into their own hands to bring some order to this thriving technology.

However, there are some key players in Ireland’s crypto blockchain sector that believe if the rules get too strict, it may put a stop to innovation.

Analysing the facts and figures

The reality is that something needed to be done in the wake of the many money-laundering cases. In fact, CipherTrace revealed that $2.5 billion has been laundered through crypto exchanges in the past couple of years, with the funds usually ending up in countries who have “weak AML laws”.

Europol also estimates that up to €1.8 trillion is laundered in various organisations every single year.

But with the added pressure to make crypto exchanges verify their users with know-your-customer (KYC) checks, report any strange transactions and help law enforcement with any data requests, there is definitely going to be a crackdown on high-profile cases.

Although there is an argument to suggest that adding further processes and regulation will benefit larger crypto businesses but hamper start-ups.

The co-founder of Cork-based cryptocurrency exchange Bitcove, Peter Nagle, said: “There’s a lot more scrutiny on the sector with more stringent requirements”.

“It will be more cumbersome. There will be a lot more paperwork involved, we’ll have to have more extensive training to make sure we’re keeping up to date.”

Despite these comments, Mr Nagle believes that it will help legitimate businesses gain a foothold and weed out malicious activity.

A stricter framework should also bring more credibility to the industry and demonstrate to other banks that crypto start-ups are willing to follow tighter rules.

Finding a balance

Naturally, there is a growing concern that implementing programmes and tighter frameworks requires the assistance of compliance professionals or the need to outsource activity – which isn’t always possible for start-ups on a tighter budget.

However, this shouldn’t be deemed as a negative or a ‘double-edged sword’.

At the end of the day, it all comes down to addressing two key subjects:

  • balancing between regulation and innovation
  • sourcing the right jurisdiction to do business in.

While Ireland’s Fifth AML Directive is largely positive, it’s vital that any crypto-business thinks about the bigger picture. This includes considering laws, taxation, the support provided and the individual government’s attitude towards the industry.

In our opinion, leading the race for the best places to do business in is Switzerland, Estonia and Gibraltar.

Do you need help starting up your crypto business and navigating through various regulations? Then get in touch with us.

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