The UK government has published the answer to a written question asked of HM Treasury that reveals that they are in the process of negotiating amendments to the 4th Anti-Money Laundering Directive to bring virtual currency exchange platforms and custodian wallet providers into the AML regulatory framework, thereby bringing them within the scope of relevant national competent authorities.
In the UK, HMRC has responsibility for the enforcement of AML for certain sectors; the FCA is the competent authority for credit and financial institutions among others.
At present, while the FCA as well as EMSA have recently issued warnings to potential customers regarding potential dangers of investments in crypto-currencies, regulatory oversight of crypto-currencies depends on how the particular instruments are structured and what activities are taking place, and whether they thereby come within the existing regulatory framework. This development therefore could extend the ambit of their regulatory oversight.
The concern is that virtual currencies provide anonymity to those involved in transactions relating to criminal activities. In theory, currencies based on distributed ledger transactions have inherent traceability, as all transactions become part of the ‘chain’ (and arguably the most anonymous form of currency is cash); however the issue may be in identifying in real life the ‘individual’ who originated the transaction. Regulations are likely to therefore focus on this element of the process.
These developments, of course, come against a backdrop where Bitcoin and Ethereum, two of the most prominent and popular virtual currencies, have hit record highs. The UK government indicated that it expects negotiations to conclude at an EU level in late 2017 or 2018. It will therefore be interesting to see whether expansion of the regulatory framework will have a tampering effect on the virtual currencies market.