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Payments & FinTech Lawyer

EU Parliament vote gives green light to 5MLD changes

European Parliament MEPs voted on 19 April 2018 in favour of an agreement made in December 2017 between the Parliament and the EU Council on a series of amendments to the Fourth EU Anti-Money Laundering Directive (‘4MLD’), initially put forward in July 2016; the amendments are typically referred to as the Fifth Anti-Money Laundering Directive (‘5MLD’) and will now be published in the Official Journal of the EU, likely around July 2018, before entering into force 20 days later.

The 5MLD inter alia brings virtual currency (‘VC’) exchange platforms and custodial wallet providers within the definition of ‘obliged entities.’ Thus VC exchange platforms and wallet providers will need to apply customer verification and report suspicious transactions, among other due diligence controls. Additionally the 5MLD will give powers to national Finance Intelligence Units allowing them to obtain information in order to associate VC addresses with the VC owner. “As recognised by the text of the Directive, however, such provisions will not completely eliminate the issue of anonymity in VC transactions, and its potential to result in money laundering and terrorist financing because transactions can still take place without using such regulated providers,” explain Michael McKee, Partner, and James Barnard, Associate, at DLA Piper. “I find it difficult to imagine that this additional burden and customer deterrent will be welcomed by the emerging virtual currency industry,” adds Bruno Fatier, Consultant Solicitor at Keystone Law. “But can this also be positively seen as an opportunity for the industry to decisively turn its back on its dark side, and for the FinTech sector to grow its compliance orientated solutions?”

Another key provision of the 5MLD relates to the lowering of the threshold for identifying holders of prepaid cards, with the threshold to be reduced from €250 to €150. “Prepaid card issuers may also bear compliance costs through lifting or reducing the anonymity of prepaid card instruments,” note McKee and Barnard.

After the 5MLD enters into force, EU Member States will have 18 months to transpose the new rules into their national legislation. However, a number of Member States have not yet fully transposed the 4MLD into national law, which was required by 26 June 2017; in July 2017 this led to a rebuke from the EU Justice Commissioner directed at those Member States who had not yet transposed the 4MLD. “It means a messy legal situation for those businesses connected in any capacity with the countries lagging behind, to be dealt with on a case-per-case basis with a spirit of ‘best effort’ in mind and with careful consideration of how EU law is interpreted by the home state regulator and locally,” said Fatier.

McKee and Barnard add that “The adoption of the 5MLD gives such Member States an opportunity to cure any defects in implementing the 4MLD while implementing the 5MLD, as infringement proceedings tend to move slowly.”

“From a UK standpoint there will be a question as to whether the UK will be obliged to adopt the 5MLD given the likely Brexit transition process timing,” conclude McKee and Barnard. “The House of Commons European Scrutiny Committee has said, however, that it is likely that most, if not all, of the 5MLD will have to be transposed in the UK as a result of the UK-EU transitional agreement.”

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