AML5: Same Rules for Everyone

This post has been updated on January 16th, 2020, after the transposition of the EU AML5 directive.

To explain why the AML5 is important for companies like SpectroCoin, we need to go back to 2015, when the AML4 (the fourth EU Directive on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing) was adopted. The AML4 directive included a set of rules aimed at preventing money laundering and terrorist financing in banks, other financial companies and some non-financial businesses. Now, the AML5 will make those rules applicable to both virtual currency custodian wallet providers and virtual currency exchange services providers.

Key aspects of the AML5 directive

The main purpose behind the AML5 is the prevention of illegal activities in fiat and crypto-involved companies. Its strict requirements can cause stress and some inconvenience for clients, but we believe that this also will help to protect our users against identity theft and fraud. The AML5 directive is the first set of rules to consider new financial technologies and the virtual currency market as places where regulatory authorities and consumers interact in data sharing, transparency and trust. This means that:

• For the first time, tokens and cryptocurrencies are granted legal status

'Virtual currencies' means a digital representation of value that can be digitally transferred, stored or traded and functions as a medium of exchange, but does not have legal tender status in any jurisdiction and which is not funds nor monetary value stored on instruments defined in another Payment Directive (2015/2366/EC).

and will be subject to the existing regulatory framework. This means that all crypto-service providers will be obliged to comply with AML and KYC requirements.

• Cryptocurrency businesses now need to monitor transactions looking for signs of illegal activities and report suspicious activities to the authorities.

Obliged entities as far as reasonably possible conduct monitoring of the business relationship by increasing the number and timing of controls applied, and selecting patterns of transactions that need further examination.

These steps will ensure a safer environment and substantially reduce illegal activities using cryptocurrency platforms, in this way benefiting every user by making the whole sector safer, more trusted and recognized.

• To meet the underlying AML5 requirements, companies like SpectroCoin are implementing some regulatory changes for its current operations - identifying and verifying clients, understanding the profile of our client and monitoring suspicious activities, to name a few. These steps will include a revision of current customers’ documents and, if needed, implementing additional documents-gathering processes to fill the gaps in the beneficial ownership data.

As financial companies rely on complex data analysis in order to detect potentially suspicious activities, Machine Learning and Artificial Intelligence solutions are applied to identify complicated patterns in large amounts of loosely structured data. These implementations transform and improve the workflow as well as the quality and efficiency of services, and the overall customer experience.

At SpectroCoin, a fair balance between customers’ interests and security is one of our priorities. The improvement of fraud identification, AML transaction monitoring, sanctions and know your customer (KYC) checks will have a huge impact in preventing financial crimes and, at the same time, ensuring a more stable economical environment for our users.

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Reference: DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL amending Directive (EU) 2015/849 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing, and amending Directives 2009/138/EC and 2013/36/EU