The European Union (EU) is currently in a battle over how to treat bitcoin and cryptocurrencies. Opposing camps from within the European Commission (EC) both released separate reports dealing with new regulations over cryptocurrencies on Tuesday.
In May 2015, the EU adopted its fourth Anti-Money Laundering Directive, primarily to prevent the use of its financial system for money laundering and terrorist financing purposes. However, the Paris attacks in November 2015 prompted them to urgently take further action. An "Action Plan to Strengthen the Fight against Terrorist Financing" was subsequently published by the EC in February.
Among the key actions laid out in the Plan was to “Ensure virtual currency exchange platforms are covered by the Anti-Money Laundering Directive.” This specific task was designed to “Tackle the risks of virtual currency exchange platforms and pre-paid instruments,” which the Commission had planned to achieve by early 2016.
That version of the Plan had some strong language concerning cryptocurrencies, but it did not go nearly as far in suggesting regulation as this week’s version.
On Tuesday, the executive branch of the EU, the EC, adopted the new “Action Plan for strengthening the fight against terrorist financing.” The proposal is aimed at tackling money laundering, terrorist financing, and increasing the transparency of payment networks and companies. “The changes proposed will tackle new means of terrorist financing, such as prepaid cards and virtual currencies,” the Commission said in a press conference announcing the news.
“We propose to bring virtual currency exchange platforms under the scope of the anti-money laundering directive.” - Věra Jourová, EU Commissioner for Justice, Consumers and Gender Equality.
The Plan contains many initiatives to tighten anti-money laundering (AML) and know-your-customer (KYC) laws, by the end of this year, and includes two separate sections that would affect cryptocurrencies, which they refer to as “virtual currencies.” The larger section targets terrorism funding directly, while the smaller is specifically about pre-paid debit cards, which several bitcoin companies now offer.
“The Commission proposes to bring virtual currency exchange platforms and custodian wallet providers under the scope of the Anti-Money Laundering Directive,” the Plan states. “These entities will have to apply customer due diligence controls when exchanging virtual for real currencies, ending the anonymity associated with such exchanges.”
“As a first step the Commission will propose to bring anonymous currency exchanges under the control of competent authorities by extending the scope of the AMLD to include virtual currency exchange platforms, and have them supervised under Anti-Money Laundering / countering terrorist financing legislation at national level.” - Action Plan to Strengthen the Fight against Terrorist Financing.
Another section of the Plan, “Tackling risks linked to anonymous pre-paid instruments,” discusses the regulation for pre-paid debit cards, regardless of whether those cards use bitcoin or not. “The Commission also proposes to minimise the use of anonymous payments through pre-paid cards,” the Plan stated, “by lowering thresholds for identification from €250 to €150 and widening customer verification requirements.”
Pre-paid bitcoin debit cards, such as those offered by Xapo, Wirex, and Coinbase, would face some kind of greater restriction from this part of the plan. All of these cards have limits above €150.
On the very same day that the action plan to fight terrorist financing was released, a different office within the EC published “Opportunity Now: Europe’s Mission to Innovate,” by Robert Madelin, the Senior Adviser for Innovation to EU President Jean-Claude Juncker
The 346-page e-book was co-authored David Ringrose, Acting Director at the EC Directorate General for Communications Networks, Content & Technology (DG CONNECT). The pair were commissioned by Juncker, in June last year, to conduct the EU policy review.
"My report's conclusion is that innovation is central to the priorities of the European Commission.[...] We cannot build Europe 2.0 with Government 1.0. At present we are at best muddling through." - Madelin.
Bitcoin and blockchains seemed to shape the direction of several chapters throughout the work. Chapter 41 of the report, “Blockchain and its application in fintech and beyond,” spends two pages pointing out the benefits of blockchain technology, calling for “turning Europe into an innovation leader by creating an environment that spurs the development of stable, safe and reliable blockchain applications.” Among their recommendations were both financial and non-financial support, including looser regulations on FinTech.
Although the e-book didn’t spend much time addressing cryptocurrency regulation, the overall theme was one of moderation across the entire field. “Too often,” Madelin reasoned in the report, “regulatory policy debate around new technology comes down to a false stand-off between ‘wait and see’ or ‘do something now.’ Europe can instead offer to ‘look AND wait’: the recent European Parliament report on Blockchain shows how this might work.”
Madelin and Ringrose were most likely referring to the report by Jakob von Weizsäcker, advocating a relatively hands-off virtual currency regulation scheme, voted in by parliament this May. The proposal was very bullish on cryptocurrency and called for a task force dedicated to “precautionary monitoring,” instead of regulation for digital currencies and blockchain technology.
“The key is greater agility,” stated Madelin and Ringrose in their report, “to act more promptly as a new ‘thing’ emerges (in this case Bitcoin), to gather people with insights as well as interested but less informed parties, to gather evidence of both facts and hopes or fears, to accelerate society’s collective learning.”
“Only when we have some understanding of what is going on, and should then touch to learn more before we even begin to assess what must be done (so, as conversation evolves, we understood that the issue is not Bitcoin, or even crypto-currencies or Blockchain, but distributed ledger technologies and how to maximise their beneficial use across society and not just in financial services).” - Madelin.
The voting body of the EU, the European Parliament, has discussed cryptocurrency and blockchain innovation several times. In stark contrast to the Action Plan for strengthening the fight against terrorist financing, the Parliament has made very few aggressive statements towards cryptocurrencies, and their first meeting on the subject in January could have been described as a cryptocurrency appreciation session.