Digital asset companies facing new regulation requirements in Spain

25 Jun, 2020

As a reaction to the European Union’s 5th anti-money-laundering (AML) Directive, AMLD5, Spanish regulators tackle national anti-money laundering and terrorist financing laws which also affects the regulation requirements for digital asset companies in Spain.

About AMLD5

On 19 June, 2018, the 5th anti-money-laundering Directive (Directive (EU) 2018/843) came to being. The transposition into national legislation was set with a deadline for January 20, 2020. In February, 8 member states received warning letters by the EU. Among them were Spain and the Netherlands.

The 5th Directive aims at further preventing money laundering and terrorism funding. Publicly available registers can enhance transparency. Thus, limiting anonymity in the digital asset space. The Directive also encourages cooperation and information-sharing: the Directive envisions a higher interconnectedness between national supervisory agencies and the European Central Bank. Financial intelligence units and law enforcement agencies will also have a greater information-access and enhanced capabilities.

The Directive also tackles aspects of know-your-customer (KYC) regulations to reinforce the legal framework set by the Financial Action Task Force (FATF).

Applying European directives to national legislation is always a lengthy process. This is reinforced as traditional finance regulation was not envisioned for digital assets. Since AML regulation differs depending on the member state making transposition even more difficult.

AMLD5 and digital asset companies

Following AMLD5, crypto exchanges and custody providers have to register with local regulators. They have to prove compliance with KYC and AML checks.

Since the Directive was published, firms in the digital asset space fear added compliance costs, burdening especially smaller companies. Some companies are also considering relocating to jurisdictions with lower compliance costs. Still, the main challenge remains: how will implementation across all member states look?

At the same time, further regulation bears the potential to increase trust in digital assets. In the long term, banks are expected to engage more with digital assets and seek partnerships with FinTech companies. With bank involvement, the space could also attract institutional capital.

One of the most pressing questions is how regulation might affect non-custodial wallets – They aren’t custodians but provide wallet services.

AMLD5: Changing Spanish regulation

The new regulation is coming to Spain to comply with the implementation requirement by the EU. The deadline to hand-in declarations and comments for the draft law just ran out.

The Spanish Secretary General of Treasury and International Financing, part of the Ministry for Economic Matters and Digital Transformation, presented a draft law to incorporate AMLD5. It also addresses the regulatory requirements for crypto exchanges and wallets. All service providers involved in the exchange between digital tokens and between digital tokens and fiat currencies, the transfer of digital assets, and safeguarding of private keys have to comply with anti-money laundering and terrorism financing legislation. The regulation thus addresses exchanges, wallet providers, and custody providers.

Identifying the natural person behind a service user will become a main component of the new regulation. Also collecting a wider span of customer information becomes necessary. In the end, companies have to identify the nature of the business activities throughout the complete business relationship.

With this new piece of Spanish regulation, entities have to register their services with the Bank of Spain within nine months after the law enforcement.

Source: FX Street and CoinDesk, as well as the amendment suggestions by the Ministry for Economic Matters and Digital Transformation (Spanish)


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