Starting from January 10, 2020, the Fifth Anti Money Laundering Directive (5AMLD) takes effect. The Directive contains requirements for the mandatory verification for all cryptocurrency platforms clients following the KYC and AML standards, all users who make cryptocurrency transactions must pass verification.
Many users are seriously “scared” of verifying their accounts according to some common myth around the cryptocurrency market, and now we’ll #BUST them.
– Cryptocurrencies are not regulated
#busted Offer and Sale of digital assets by “virtual” organizations are subject to federal securities’ law. Issuers of a ledger or blockchain-based securities are required to register with SEC and Financial Industry Regulatory Authority. In 2019, all anonymous cryptocurrencies were officially banned in Japan. The need to implement such a ban is being discussed in other countries like France and Italy.
– Sharing personal and bank information on the internet is not safe.
#busted EXMO Cryptocurrency Platform stores the user’s personal information on the encrypted servers, and no company employee has access to the original documents, except for a certified AML officer. For the verification the team uses copies with the protective watermarks, which do not allow reuse of the submitted documents. So, verifying your identity just enhances the protection of your data and funds.
– I can be fined for using cryptocurrencies
Come on, this is such a myth that even doesn’t need to be #busted.
– Crypto can is often used for criminals because it’s anonymous
#busted This is a common opinion in media. I hope you are not using bitcoin for any illegal payments, because … Crypto transactions are traceable and public! All the cryptocurrency transactions are transparent and highly traceable. You can see how many funds have moved from one wallet to another, and even the amount of crypto in an online crypto-wallets.
– Trading is a hard complicated process
#busted Do you know exactly how mobile phones, computers or the Internet works? Think about crypto in the same way. You don’t have to understand the underlying technology completely, but you can learn to benefit from Trading by following the best practices.
Let’s get back to the main article’s idea,
Today we will outline the following questions:
- What is the KYC/AML policy in general?
- What is 5AMLD?
- How it will affect the crypto market?
- KYC/AML policy: general requirements and high importance.
KYC or “Know Your Customer” is the process of verifying a customer’s identity. In KYC, each client is required to provide credentials such as ID documents to use a company’s services.
Since Fintech companies provide financial services, they are mandated by AML regulations to verify their customer’s identities before offering their services. These are necessary measures to ensure that the institutions are doing business with legitimate entities.
Anti-money laundering and counter-terrorist financing: fighting money laundering and terrorist financing contributes to global security, the integrity of the financial system and sustainable growth. Laws to combat money laundering and the financing of terrorism are designed to prevent the financial market from being misused for these purposes.
Anti Money Laundering (AML) practice is broader than KYC, and it refers to measures used by financial institutions and governments to prevent and combat financial crimes especially money laundering and terrorist financing.
A financial institution’s AML policy forms part of its wider AML compliance program and should be developed to comply with the requirements of its local AML regulations.
2. The Fifth Anti-Money Laundering Directive (5AMLD) compliance is easier than it seems. So, what is 5AMLD?
The Fifth Directive of the European Commission Against Money Laundering (AML) was issued in May 2018, it deals with the regulation of cryptocurrencies. New rules are more strict, due to ensuring the transparency of transactions conducted by anonymous parties using cryptocurrency trading platforms. EU member states are required to implement the amended rules in their national laws no later than January 10, 2020.
According to the EU statement, it must:
- Enhance transparency by setting up publicly available registers for companies, trusts, and other legal arrangements;
- enhance the powers of EU Financial Intelligence Units, and provide them with access to broad information for the carrying out of their tasks;
- limit the anonymity related to virtual currencies and wallet providers, but also for prepaid cards;
- broaden the criteria for the assessment of high-risk third countries and improve the safeguards for financial transactions to and from such countries;
- set up central bank account registries or retrieval systems in all Member States;
- improve the cooperation and enhancement of information between anti-money laundering supervisors between them and between them and prudential supervisors and the European Central Bank.
5AMLD for Cryptocurrency Platforms
The 5th AML Directive represents a major update for cryptocurrency platforms and provides more clarity on compliance requirements. 5AMLD includes:
- A legal definition of virtual currencies, namely: ”a digital representation of value that is not issued or guaranteed by a central bank or a public authority, is not necessarily attached to a legally established currency and does not possess a legal status of currency or money, but is accepted by natural or legal persons as a means of exchange and which can be transferred, stored and traded electronically.”
- Platforms holding customers’ private keys are considered “obliged entities”, and consequently need to follow the same compliance requirements as traditional financial institutions under 4AMLD. As a result, all relevant cryptocurrency platforms will be required to perform customer due diligence and submit suspicious activity reports. Moreover, they will have to be registered with the appropriate national authorities.
- 5AMLD significantly increases the power of the Financial Intelligence Unit (FIU), which will have the mandate to obtain the addresses and identities of token holders. How this will be achieved isn’t explained and it is still unclear how it would be possible.
I am sure that 5AMLD is going to have a huge impact on cryptocurrency platforms, but the legislation also paves the way for new innovation. The more guidance we receive from the EU and others, the fewer uncertainty entrepreneurs have to deal with.
The key is to operate in good faith and try to maximize transparency with both your customers and the regulator.
Verifying your account is the best thing you can do for your account! Personalize your data using the identity verification method and set the two-factor verification. Armed = not broken! Of course, the issue of transparency and full accountability in the modern world is perhaps one of the most controversial. However, the positive consequences of introducing AML requirements into the cryptocurrency industry may eventually lead to an unconditionally positive transformation of the entire financial system.
What AML movements does EXMO team use?
– Monitoring of transactions
Users are studied not only by verifying their identity but, more importantly, by analyzing their transactions. EXMO relies on data analysis as a tool to assess risk and detect suspicious activity. EXMO performs many compliance tasks, including data collection, filtering, record-keeping, investigation management, and reporting.
– Risk Assessment
EXMO, in accordance with international requirements, applies risk assessment practices to combat money laundering and terrorist financing. By adopting a risk assessment practice to combat money laundering, EXMO ensures that measures to prevent or deter money laundering and terrorist financing are commensurate with the risks identified.
Also, there are several services that can help exchanges. EXMO Strengthens The AML Process With CipherTrace Service!
The CipherTrace system is monitoring cryptocurrency flows and assigning risk levels from 1 to 10 to wallets depending on whether this address was receiving/sending funds, which were previously seen in use by drug stores, terrorist organizations, scam projects or mixers.
Moreover, the CipherTrace system has all wallets of worldwide exchanges marked, which allows you to determine the route of funds accurately. This is the reason why this product is also being used by many government agencies in their investigations related to the use of cryptocurrencies for criminal purposes.
CipherTrace uses machine learning to deanonymize blockchain transactions and control cash flow. The company was founded in 2015 by experienced Silicon Valley entrepreneurs with in-depth knowledge of cybersecurity, online crime, payments, banking, encryption, and virtual currencies.
In crypto we trust!