What we need to know about regulating cryptocurrencies

What we need to know about regulating cryptocurrencies

New technology has dramatically transformed the global economy in the past decade, especially in the way we exchange goods, services and assets. The whole idea behind development of monies and payments systems is based on making exchanges more efficient and secure.

Now, virtual currencies transform the global economy by questioning the paradigm of state-supported fiat currencies and the dominant role of central banks and conventional financial institutions by offering better financial efficiency, significant cost and time transaction reductions. However, along with their obvious benefits, the unregulated virtual currencies pose risks of misuse.

Several events from the last two years led to the adoption of an "Action Plan to Strengthen the Fight against Terrorist Financing". This plan proposes a set of strict rules on cryptocurrency regulation within an expanded framework of EU’s anti-money laundering (AML) directive. The endorsement of the plan was announced by the Commission as an instrument for tackling money laundering, terrorist financing, and increasing the transparency of payment networks and companies: “The changes proposed plan to tackle new means of terrorist financing, such as prepaid cards and virtual currencies.”

The providers will be obliged to monitor transactions and users the same way banks do, including disrupting all sources of revenue that might be used to finance terrorist organizations.

The Commission is also bringing virtual currency exchange platforms under the scope of the Anti-Money Laundering Directive, so that these platforms have to apply customer due diligence controls, ending the “anonymity associated with such exchanges.” AMLD directive is the first action to enforce the plan, adopted by the Commission, and is considered to be effective in Luxembourg by 26 June 2017 at the latest.

Under the AMLD, once a country is listed as having strategic deficiencies in the area of money-laundering or countering terrorist financing, EU obliged entities will already have to increase the degree and nature of monitoring of financial transactions (i.e. apply enhanced due diligence measures) with economic operators coming from that country.

The concerns and the events that led to taking these measures are generally addressed to the open source cryptocurrencies, which allow anonymous transactions. Being a centralized reserve cryptocurrency, OneCoin already complies with all the new regulations, preventing individuals from engaging in criminal and unwanted behaviour. OneCoin monitors its clients and implements rules aligned with the legal development. For example, to prevent money laundering, identity theft, financial fraud and terrorist financing, OneCoin has implemented KYC (know-your-customer) information, thus preventing any possible misconduct by its users. Alongside with KYC, OneCoin has implemented CDD (Customer Due Diligence), which is one more act of performing background checks on the customer to ensure that they are properly risk assessed before being on-boarded.

In a report from the International Monetary Fund (IMF) about virtual currencies and their impact, it is stated that without a doubt there should be regulations, but “national authorities will need to calibrate regulation in a manner that appropriately addresses the risks without stifling innovation”; that policymakers have to find the balance between addressing the risks and vulnerabilities posed by virtual currencies while triggering innovation.