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European Commission Considers Applying Licensing And Supervision Rules To Virtual Currency Exchanges
The European Commission on Tuesday revealed its action plan to strengthen the fight against terrorist financing which includes raising the standards for digital currency exchanges.
The Commission said that it will work on a proposal for a number of targeted amendments to the Fourth Anti-Money Laundering Directive (AMLD), which will include areas such as virtual currency exchange platforms, prepaid instruments, high risk third countries and many others.
The 4th AMLD was adopted on 20 May 2015 and seeks to protect credit and financial institutions against the risks of money laundering and the financing of terrorism.
“The Commission is planning to bring virtual currency exchange platforms under the scope of the Fourth Anti-Money Laundering Directive, in order to help identify the users who trade in virtual currencies”, the fact sheet read. “In addition, the Commission will examine the possibility of applying the licensing and supervision rules of the Payment Services Directive (PSD) to virtual currency exchange platforms, as well as virtual "wallet providers".
It explained further that there is a growing consensus in Europe that virtual currency exchange platforms should be subjected to KYC (know-your-customer) rules under the Fourth Anti-Money Laundering Directive, which will require the identification and verification of person exchanging virtual currencies for real currencies and vice versa.
The news, however, is quite surprising as recently the EU law enforcement agency Europol said that it did not find any evidence to back up reports linking the ISIS to the use of bitcoin or other alternative digital currencies.
Clarifying its stance on not banning virtual currencies, the Commission said that while there are risks that virtual currencies may entail, they are often considered as a useful tool for rapid international payment transfers and low cost money remittances.
Moreover, it pointed out to the last report from the European Central Bank on virtual currencies (February 2015) that stated that virtual currencies entail certain risks but do not at this point in time pose a threat to financial stability due to their still limited size – around 70,000 transactions are made daily on virtual currency platforms, worth €40 million approximately.