From next year, the crypto industry in the EU will face new regulations with businesses responsible for storing crypto assets on behalf of their clients, or providing exchange services for fiat-to-crypto being affected. EU regulation has not typically included cryptocurrency previously, however recently regulation for Anti-Money Laundering was adapted to include providers for cryptocurrency custodian wallet services and crypto-to-fiat exchanges. The EU Fifth Anti-Money Laundering Directive will be conversed into national legislation for each state that is a member of the EU, taking effect from 10th January 2020. In comparison, the U.S. felt the requirement to take action on the emergence of digital assets around six years ago, when FinCEN (Financial crimes Enforcement Network) presented a guide for exchangers and administrators within the cryptocurrency industry.
Similarly, both the EU and the U.S. have placed emphasis upon regulation focusing on Anti-money laundering measures and counteracting the financing of terrorism. At the G-20 summit earlier this year, it was highlighted that caution must kept for the potential risks of cryptocurrencies, specifically with the protection of consumers and investors. Consequently, certain businesses that provide crypto service are required to meet the same conditions as traditional financial institutions. This is in terms of; KYC (Know Your Customer), monitoring accounts, keeping records, reporting any suspicious activity and a financial regulator providing the business with authorisation. Another similarity to note is that both the United States and the EU allow for close monitoring, as members of the EU can introduce more stringent AML measures in their own national legislation.This is the same as states within the U.S. who are permissible to do the same. The intention is to ensure that the anonymous element of cryptocurrency does not promote illegal activity, or hinder the future growth of fintech.
There are still some differences between the regulatory approach to cryptocurrency between the entities, as the ‘obliged entities’ in the EU applies to providers of a custodian wallet service and crypto-to-fiat exchanges. Whereas, in the U.S. the ‘covered financial institutions’ applies to providers of any exchange or transfer of crypto, irrespective of whether fiat currency is involved. There are also varying levels of compliance, as service providers of crypto in the U.S. must ensure they are applying federal and state regulation - however, some states provide exemption for service providers of crypto. This contrasts to the EU where each nation must enforce legislation that is equal or stricter than the provisions in the EU Fifth Anti-Money Laundering Directive. The other distinct difference is the approach on data protection, as the EU ensures that businesses providing a crypto wallet service or crypto exchanges must protect their customers’ information following measures under the General Data Protection Regulation. On the contrary, the U.S. does not enforce any federal regulation with regards to data protection and privacy.
Although there are some variations between the regulatory frameworks in place, the general consensus is that there is a level of safeguarding introduced for customers and businesses within the crypto market. As the EU now follows in the footsteps of the U.S. in bringing forward regulation, it may encourage further adoption of the crypto industry.