Money laundering and terrorist financing remain the top two concerns for financial regulations to this very day. 4MLD, a new regulatory directive, will have significant consequences for virtual currencies in Europe.
4MLD Targets Virtual Currencies
It does not come as a complete surprise to learn companies in Europe will have to adhere to stricter KYC and due diligence obligations. Every company dealing with finances wants to avoid being held liable for their [unwilling] involvement in illegal activities.
The Fourth Anti-money Laundering Directive [4MLD] touches upon the risk assessments associated with financial misconduct. Specific changes will be introduced to the broad e-money sector. This means Bitcoin and other forms of virtual money will face more scrutiny than ever before.
Higher Costs for E-Money Businesses
This new directive targets various individual products and services, ranging from prepaid debit cards to reloadable products. Especially the funding methods for these products are put under the microscope. Using “an anonymous e-money product” will require a business to conduct proper identity verification. However, it is still possible to fund a prepaid card for up to 100 EUR without verification. Reloadable cards will have a 250 EURO monthly spending limit unless the user goes through a customer-due-diligence procedure.
Applying these new guidelines will make point of sale transactions less appealing for illicit financial activity. But there is a side effect to consider as well, as it is not unlikely consumers will resort less often to e-money products. Moreover, there will be higher costs for card issuers due to increasing compliance fees.
PPRO Financial Ltd’s John Fernandez comment on the situation as follows:
Although there is some degree of uncertainty regarding the extent of change facing industry, what is clear is that issuers will need to start considering their own risk assessments, sales and compliance strategies in order to adequately cope with the new regulations.
The primary concern is how 4MLD seems tailored towards giving banking products an unfair advantage. Businesses dealing in e-money products will be at a severe disadvantage due to stricter identity verification. In a way, this is forcing the hand of consumers to use bank-offered products and services. Interestingly enough, this may also increase the usage of cash. That is in stark contrast to the desire of several central banks to get rid of this form of payment entirely.
So What About Bitcoin in Europe?
Given the broad scope of businesses active in this industry, there is a strong indication this directive was created to oppose Bitcoin adoption. Governments and regulators around the world have not taken kindly to Bitcoin in the past due to its pseudonymous nature, and they seem adamant to regulate cryptocurrency one way or another.
There is a case to be made of how the 4MLD directive applies to traditional payment solutions as well. Companies such as Paypal and Venmo offer e-money as well, and funds come from anonymous sources in some cases. That being said, these platforms usually have sensitive user and payment information on file for every user already.
In the end, the directive is allegedly created with good intentions, but it is clearly another example of not addressing the real problem. Money laundering and terrorist funding occur through traditional financial tools and cash, rather than Bitcoin and e-money. But until governments and regulators get that thought through their thick skulls, proposals like 4MLD are sure to yield some unintended consequences.
What are your thoughts on the 4MLD proposal and its impact on e-money? Is this a direct jab at Bitcoin usage? Let us know in the comments below!
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