On 10 January 2020, the EU’s Fifth Money Laundering Directive (5AMLD) went into force, and the European Commission (EC) isn’t wasting any time in ensuring full compliance.

The EC is readying infringement procedures, due to begin in earnest next month. It’s an action being taken to motivate member states that haven’t yet implemented the new legislation — a step the EU’s Commissioner for Economic and Monetary Affairs, Valdis Dombrovskis, confirmed in a meeting with finance ministers on Tuesday. Failure to comply could mean hefty fines and it seems several countries will need that push.

Member states struggled to stick to the timeline set by 5AMLD’s predecessor, 4AMLD so it’s no surprise that some states are behind schedule. However, with 4AMLD the member states were given two years prior to suffering consequences. Granting only a month’s reprieve seems severe when only 11 member states managed to implement 4AMLD in time in 2017.

In the case of 4AMLD, the EU Commission initiated infringement procedures against 20 member states and formally referred three — Luxembourg, Romania and Ireland — to the Court of Justice for failure to comply. Some still haven’t fully transposed 4AMLD into law.

5AMLD builds on 4AMLD to update the bloc’s existing AML/CFT regime and address a number of gaps in the previous legislative framework. Some of the key changes include lowering the transaction limit for prepaid cards and updating requirements for UBO registers. Among other changes, registers must now include trusts and must be publicly accessible and interconnected at the EU-level.

It’s this last criterion that has been especially challenging for member states to implement. Along with data privacy and security concerns, there is a lack of clarity around the practical aspects of the registers — that is, what information must be collected, how centralization would play out in reality and who is responsible for maintaining, harmonizing and ensuring the accuracy of the information.

High-value goods also received attention: art traders and other intermediaries must now perform due diligence on customers and comply with AML/CFT reporting obligations.

Perhaps the most high-profile change, however, is to the treatment of cryptocurrencies. Exchanges are now considered “obliged entities” and are treated the same as financial institutions for purposes of AML/CFT law, including the responsibility to impose strong IDV and KYC processes. These cryptocurrency exchanges and virtual wallets must register with the relevant domestic authorities. In addition, they must hand over to Financial Intelligence Units (FIUs), if asked, the names, addresses and other identifying information of those who own virtual currency on their exchanges.

These more stringent requirements, and the higher costs associated with compliance (or noncompliance, for that matter, as the fines can be steep), have caused many exchanges to move their operations out of the EU or close their doors entirely. BottlePay, a UK-based company that had raised $2 million in a seed round in October, shuttered on December 31 of last year, following in Simplecoin and Chopcoin’s footsteps. Deberit is moving its operations from the Netherlands to Panama, and KyberSwap is leaving Malta for the British Virgin Islands. However slow national implementation has been across the EU, it’s likely this exodus will continue to gain steam as member states work to ensure their local laws comply with 5AMLD.

Companies ill-prepared to handle the regulatory burden may close, but this simply paves the way for others to set up shop in their place. As Benjamin Kirschbaum, an attorney at Winheller Attorneys at Law & Tax Advisors told Bitcoin Insider, the greater clarity around which regulations apply to cryptocurrencies could provide an opening for those with a lower risk appetite, such as banks and other financial institutions, to experiment with offering their own products in this space.

As governments and companies alike adjust to the new paradigm brought about by 5AMLD, growing pains are inevitable. Yet with 6AMLD due to take effect in December 2020, those who are lagging behind now will have an even steeper mountain to climb if no action is taken soon.

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