The European Union has joined a growing list of regions and countries that are actively seeking to regulate the hitherto unregulated cryptocurrency market. Earlier in the year, the Securities & Exchange Commission (SEC) of the United States declared that some tokens being sold by ICOs as utility token were actually securities meaning that they fell under the purview of securities law. Later in the year, China placed a blanket ban on all cryptocurrency ICOs as well as exchange services. Other countries have also taken firm steps to regulate the market in a bid to checkmate fraudulent activities being carried out using cryptocurrency channels.
A Bit of Context
Right from the onset of the cryptocurrency revolution, the biggest opposition has always centered on the anonymity of blockchain transactions. The lack of access to user information has led to fears that the technology could be exploited by less than savory characters. Many Government and Financial Regulatory Agencies around the world are of the opinion that cryptocurrencies present a veritable means for supporting Money Laundering and Terrorist Funding (ML/TF).
There have also been fears that it offers a framework for tax evasion on a large scale. While there are security frameworks that protect the identity of users in the mainstream financial space, they are nowhere like the ones that are ubiquitous in the cryptocurrency world. Cryptocurrencies have also been notorious for being used on the dark web where all sorts of illegal activities like illicit drug trades and illegal weapons purchase are known to happen regularly.
Terrorism continues to be a global problem and Europe in the last decade has experienced some of the worst attacks. From London to Manchester, and even Barcelona and Paris, several cities have been victims of horrific acts of terrorism. The Paris attack of 2015 and the attack in Brussels in 2016 were a catalyst that saw the EU begin to look at the mechanism by which funding for terrorist activity was being carried out. Apparently, the operating theory is that terrorists were taking advantage of the inherent anonymity of cryptocurrencies to provide funding for terrorist attacks.
The European Council together with the European Parliament has passed a resolution that details significant steps to be taken with respect to cryptocurrency operations, you can read more about it here. After close to a year of behind the scenes talks and negotiations, EU lawmakers and member States yesterday (December 15, 2017) agreed to stricter regulations to be imposed upon cryptocurrencies. In a move that has been hailed by several officials as a step in the right direction, the EU hopes to arrest the trend of cryptocurrencies being seen as a haven for criminal and terrorist activity.
Analyzing the Ruling
Amidst the fallout that is likely to accompany this new ruling, it is not inconceivable that many of the details become muddled up. With that in mind, here is a breakdown of the actual details of the ruling.
- KYC and User Identification
Cryptocurrency exchange platforms and providers of cryptocurrency wallet services must now identify their users. This KYC framework will no doubt undo the secrecy that is a hallmark of cryptocurrency ownership.
- Transaction Limits
The second aspect of the ruling has to do with putting restrictions in the form of transaction limits on pre-paid payment cards. The feeling is that these cards are being used to funnel money for aggressive militant and terrorist attacks.
- Identification of Trust Beneficiaries
The final part of the ruling focused on the transparency requirements imposed on trusts and companies. The main point of this part of the ruling was to enable the identification of the beneficiaries of trusts with access being granted to information like bank account statements and tax records.
Significance of the Ruling
By virtue of these rulings, the inherent anonymity of cryptocurrency transactions will cease to exist. Government and Financial Regulators will now have access to a ton of private data about the holders of cryptocurrency. This is another step in the efforts to introduce a tighter regulatory framework on the burgeoning digital currency market.
Reactions to the Ruling
Many senior EU officials are calling it a step in the right direction. The general feeling among these officials is on that is in line with the general negative narrative against cryptocurrencies. The Justice Commissioner of the EU, Vera Jourova expressed her delight with the regulations, saying that they will introduce a great deal of transparency which will help in preventing money laundering and cutting off funding for terrorist groups.
This view was also echoed by Transparency International, with the group even going further to state that even stricter measures needed to be put in place regarding public access to pertinent information on trusts and their beneficiaries. They went further to express the hope that these issues will be examined critically by member states when they begin the process of ratifying and implementing the ruling.
Not everyone is all for the EU’s ruling though as some member countries have expressed concerns over the negative impact it can have on their respective economies. The major thorny issue as it turns out happens to be out the increased levels of transparency being introduced into trusts and companies.
2018 is sure to be an interesting year as far these issues are concerned. With various member countries having a year and a half (18 months) to ratify, adopt, and implement this ruling into law, there are sure to be more developments in the story. Already, countries like Cyprus, Ireland, and Britain are against the ruling.