With the rapid spread of cryptocurrency and blockchain technology in all fields, the need for regulation is an ever-increasing necessity. However current regulation efforts may present too much of a constraint that may hinder growth for the still new sector.
As of today, Jan 10th, the EU 5th Anti-Money Laundering Directive (5ALMD) came into effect. The new law, which was first introduced on July 9, 2018, is considered as an effort to bring increased transparency to financial transactions for pushing back against money laundering and terrorist financing across Europe. The 5ALMD will give European financial regulators increased access to information via centralized bank account registers. According to a 5ALMD fact sheet, it will also tackle terrorist financing risks linked to anonymous use of virtual currencies.
However, crypto companies in the EU are struggling to meet the guidelines set by the new law. Cryptocurrency firms are to register with local authorities and obtain information about the source of funds from their users. Extensive practices like know-your-customer (KYC) and anti-money laundering (AML) are encouraging a number of firms to shut down their operations in the EU and move overseas.
Still, the law provides “baseline” directions to be implemented by European countries, and it remains up to each country to apply even more strict regulations regarding crypto business. This definitely doesn’t help avoid current state of confusion in some EU member states. Poland for example announced last December it will apply backdated tax on crypto after having suspended taxation.
Deribit, Prominent Cryptocurrency Futures and Options Exchange, has announced that it will be moving its operations to Panama. According to a blog post by the Dutch company, it will close its headquarters in Amsterdam and will operate through DRB Panama Inc., a 100% subsidiary of Deribit. The move comes as the company expects the Netherlands to apply strict regulations of the 5ALMD.
We wish to continue offering an easily accessible trading platform at very low costs. Currently, Deribit is operating in the Netherlands. However, the Netherlands will most likely adopt a very strict implementation of new EU regulations that also apply to crypto companies (5AMLD).
Deribit is not the first to take such measures. The UK-based crypto wallet provider Bottle Pay announced its decision to cease operations at the end of last year. “As we are a UK based custodial Bitcoin wallet provider, we will have to comply with the 5AMLD EU regulation coming into effect on January 10, 2020”, a blogpost by the company ran.
“The amount and type of extra personal information we would be required to collect from our users would alter the current user experience so radically, and so negatively, that we are not willing to force this onto our community.”
It seems that the need for security may be at odds with promises of flexibility and decentralisation. Will the European Union be able to strike a balance between the two?