Virtual currency regulation: the European Parliament’s box of frogs
On 26 April 2016, the European Parliament’s Internal Market & Consumer Protection (IM&CP) Committee published an Opinion about virtual currencies. The Opinion was prepared by Ulrike Trebesius (MEP) and it calls on the Parliament’s Economic & Monetary Affairs (ECON) Committee, as the Committee responsible for virtual currencies, to include a number of statements in a forthcoming “motion for a resolution“. If the ECON Committee accepts the IM&CP Committee’s Opinion in full, when it makes its resolution, the ECON Committee will call on:
“the VC [i.e. virtual currency] industry in cooperation with the Commission and the Member States to consider applying the relevant … anti-money laundering / countering the financing of terrorism … requirements specified by international standards to convertible VC exchangers and any other types of institution that act as nodes where convertible VC activities intersect with the regulated fiat currency financial system”; and
“the Commission to evaluate and consider extending the scope of the Anti-Money Laundering Directive to include virtual currency exchange platforms“.
This is slightly odd, because it calls on the Commission to do some things that it’s already doing, but nothing material turns on that. There’s more information about the Opinion in our blog, here.
Later on 26 April 2016, the ECON Committee published a press release, together with its amendments to a draft report on virtual currencies, which covers a similar range of issues. The draft report was prepared by Jakob von Weizsäcker (MEP) and published in February 2016. Our blog about that is here. The ECON Committee’s amendments are here. (The clean copy of the amended report doesn’t seem to be available yet.)
In its press release, the ECON Committee calls for “The creation of a taskforce which would regulate virtual currencies … to prevent their use for money laundering and terrorist financing“. However, the press release also includes a quote from Mr Von Weizacker which might contradict this assertion: “To avoid stifling innovation, we favour precautionary monitoring instead of preemptive regulation. But, IT innovations can spread very rapidly and become systemic. That’s why we call on the Commission to establish a taskforce to actively monitor how the technology evolves and to make timely proposals for specific regulation if, and when, the need arises”. Some reports have suggested that this means that MEPs have decided not to regulate fiat to virtual currency exchanges for anti-money laundering purposes after all … and they might be right. This quote certainly makes it harder to predict what might be about to happen, especially as the Parliament’s Committees seem to be “going off like a box of frogs“. However, we think the direction of travel is reasonably clear; and that it’s still towards anti-money laundering (only) regulation of fiat to virtual currency exchanges from about the turn of the year.
This seems to be consistent with the UK Treasury’s expectations. A few days ago, it published a “consultation paper on draft innovation for financial services“, which notes that the UK’s Financial Conduct Authority is “working with government on its plans to introduce anti-money laundering regulation for digital currency exchanges, to provide a supportive environment for legitimate digital currency users and businesses, and create a hostile environment for illicit users“. It is also consistent with recent (but so far unconfirmed) reports that the Treasury has decided not to extend anti-money laundering regulation to virtual currency wallet providers, if they do not offer a fiat to virtual currency exchange facility as well.
Things should become clearer shortly because:
(although the detail is not yet clear), the European Parliament will be asked to consider and vote on “virtual currencies” on 25 May 2016 (the relevant legislative observatory is here); and
the European Commission will deliver a set of targeted proposals by the end of June 206, which (if made) will amend the 4th Anti-Money Laundering Directive in a way that will deliver AML (only) regulation of fiat to virtual currency exchanges by (about) January 2017 (our blog about this is here).