In January 2020, the new pan-European legislation regulating cryptocurrency went into effect. That means Europe has decided to gradually tighten the rules for the crypto space by introducing stricter requirements for companies operating in the industry.
Although the amendments were to be transposed into national law by 10 January to be precise, EU member-states are at different stages of the regulatory implementation. The approach to complying with the Pan-European directive has also varied between countries. Some governments opted to expand their regulatory frameworks beyond what Brussels was requiring but the fact is the regulations have gone into effect.
Many cryptocurrency projects will undoubtedly scramble to fulfill the regulatory requirements, some will reject government oversight as they advocate total decentralisation and privacy of users, others will embrace regulations as they see view them as the clear path to mainstream crypto adoption. UK-based Electroneum is far ahead of the pack because they became the first cryptocurrency in the world to become fully KYC/AML compliant in Q4 2018.
The 2020 directive is simply an updated version of the Fifth Anti-Money Laundering Directive, which entered into force in July 2018. European Union member states are obliged to integrate it into their legislation by January 20, 2020.
One of the key goals of this regulation is to extend the scope of anti-money laundering laws to cover crypto exchange platforms and wallet providers. The directive also contains provisions regarding know your customer (KYC) rules and procedures.
In a 103-page study, the Directorate-General for Internal Policies of the European Parliament says “more and more regulators are worrying about criminals who are increasingly using cryptocurrencies for illegitimate activities like money laundering, terrorist financing and tax evasion.”
The report acknowledges that the misuse of cryptocurrencies in illegal activities is insignificant when compared to fiat currency. That amount of crypto reported to be wrongly used is far less than 1% of the total amount of fiat currency being used for the same purposes. The United Nations Office on Drugs and Crime reported that in one year US$800 billion to US$2 trillion is laundered globally.
Two key arguments for crypto regulation
Regulators around the world have two key arguments when talking about imposing rules on cryptocurrency, which are consumer protection and financial stability.
“We need to ensure innovation works in the interest of consumers,” Christopher Woolard, a senior regulator at the UK’s Financial Conduct Authority (FCA) said recently. His comments came on the heels of Facebook’s plans to launch Libra, which has caused havoc among financial authorities globally. “And we need to consider the wider impact on the market integrity and stability,” Woolard added.
The FCA has warned Facebook and other cryptocurrency issuers against attempting to cut corners and disavowing calls for regulation. Again, Electroneum early on saw the benefit of complying with regulations and it is push for global adoption of ETN, is working in many countries with governments to find ways to appease them by demonstrating a will to follow all financial rules.
The co-inventor of blockchain, Dr Scott Stornetta, said many cryptocurrency projects reject the notion of becoming regulatory compliant.
He said he “admires companies that like Electroneum are flexible about their means of getting from here to there. That includes finding ways to co-exist with the regulatory environment rather than attempt to subvert it.”
In the words of regulators and crypto leaders
US Financial Crimes Enforcement Network Director Kenneth Blanco in October 2019 warned cryptocurrency startups have to comply with anti-money laundering laws (AML) and the Bank Secrecy Act (BSA) or else face the consequences.
“What we tell everybody is if you’re going to innovate, you better make sure that you’re complying with your regulations prior to executing that innovation or prior to going to market,” Blanco said. “You have to make sure you comply with the law first and then you can execute. You must comply and we as a regulator … we will make sure that you do and you are going to have a hard time if you do not.”
Ripple Global Head of Government Relations Michelle Bond said “we believe it is the responsibility of industry leaders to work together to help policy makers as they review the regulatory landscape and shape the regulatory landscape and shape conditions that will enable this technological innovation to thrive.”
Facebook’s Mark Zuckerberg has been facing regulatory issues and speaking with regulators around the world who are deeply concerned with the impact his cryptocurrency project Libra may have on global financial stability. He feels that lawmakers in the US are stifling innovation and putting the country’s financial leadership at risk.
“While we debate these issues, the rest of the world isn’t waiting,” he told US lawmakers who are opposed to the idea of a corporate-led currency that would undermine the governments control over monetary policy.
“China is moving quickly to launch similar ideas in the coming months,” he warned. “If the United States does not innovate, our financial leadership is not guaranteed.”
Electroneum CEO Richard Ells recognises that the biggest hurdle the cryptocurrency space is facing is regulation, but highlights that it is the only way to spur adoption.
“Proper regulation makes people comfortable to work with the environment. As soon as the cryptocurrency industry adopts regulations, users, merchants, service providers and corporations fear of crypto will decrease dramatically,” he said.
Ells adds that Electroneum has prioritised regulatory compliance and this has unlocked many amazing opportunities which have been instrumental in making the ETN Everywhere a true reality as merchants and service providers are increasingly showing interest in accepting their crypto as payment.
So as financial watchdogs around the world move towards regulating the cryptocurrency space, Electroneum is already positioned to vastly increase its already massive 3.3 registered user base, which makes this crypto a top four by number of users preceded only by Bitcoin, Bitcoin Cash and Bitcoin Gold.
Part 4: The evolution of payments