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EU Set to Regulate Crypto Currencies on Security Fears

The European Commission is proposing changes to the law designed to make it harder for terrorists and others to use prepaid cards and virtual currencies anonymously.

The changes – which would effectively begin to regulate virtual currencies – were outlined in a new “Action Plan for strengthening the fight against terrorist financing” this week.

Its fear is that virtual currency exchange platforms could be used by terrorist organizations to hide transfers, because although transactions with virtual currencies are recorded, “there is no reporting mechanism equivalent to that found in the mainstream banking system to identify suspicious activity.”

The report added:

“As a first step the Commission will propose to bring anonymous currency exchanges under the control of competent authorities by extending the scope of the [European Anti Money Laundering Directive] AMLD to include virtual currency exchange platforms, and have them supervised under Anti-Money Laundering / countering terrorist financing legislation at national level. In addition, applying the licensing and supervision rules of the Payment Services Directive (PSD) to virtual currency exchange platforms would promote a better control and understanding of the market.”

The Commission said it would also look into whether virtual currency “wallet providers” should also be covered under the new proposals.

The Commission falls short of accusing virtual currency platforms of helping fund terrorism – but argues that this could happen, given that “highly versatile criminals are quick to switch to new channels if existing ones become too risky.”

In fact, a report from the UK Treasury last autumn argued that digital currencies present a “low” risk for money laundering and the financing of terrorism.

It added:

“There are a limited number of case studies upon which any solid conclusions could be drawn that digital currencies are used for money laundering. There are concerns around anonymity, faster payments, and ability to provide cross border remittances and facilitate international trade. These issues are similar to issues identified with many other financial instruments, such as cash and e-money."

Sean Sullivan, F-Secure security advisor, argued that it was “entirely feasible” to impose stricter regulations on financial institutions governing how they handle virtual currencies.

“It’s not feasible on an individual level and it won’t impact individuals from trading with one another – the same as with real world cash. The key thing is to restrict the amount of virtual ‘cash’ that can be transferred into a bank account,” he told Infosecurity by email.

“The current situation allows for semi-autonomous currency transfers. Forcing stricter regulations could result in many banks simply refusing to do business. The idea of a free and unregulated currency that fits the ideals of (cyberpunk) anarchists looks increasingly out of reach due to practical security concerns.”

The European Commission is proposing changes to the law designed to make it harder for terrorists and others to use prepaid cards and virtual currencies anonymously.

The changes – which would effectively begin to regulate virtual currencies – were outlined in a new “Action Plan for strengthening the fight against terrorist financing” this week.

Its fear is that virtual currency exchange platforms could be used by terrorist organizations to hide transfers, because although transactions with virtual currencies are recorded, “there is no reporting mechanism equivalent to that found in the mainstream banking system to identify suspicious activity.”

The report added:

“As a first step the Commission will propose to bring anonymous currency exchanges under the control of competent authorities by extending the scope of the [European Anti Money Laundering Directive] AMLD to include virtual currency exchange platforms, and have them supervised under Anti-Money Laundering / countering terrorist financing legislation at national level. In addition, applying the licensing and supervision rules of the Payment Services Directive (PSD) to virtual currency exchange platforms would promote a better control and understanding of the market.”

The Commission said it would also look into whether virtual currency “wallet providers” should also be covered under the new proposals.

The Commission falls short of accusing virtual currency platforms of helping fund terrorism – but argues that this could happen, given that “highly versatile criminals are quick to switch to new channels if existing ones become too risky.”

In fact, a report from the UK Treasury last autumn argued that digital currencies present a “low” risk for money laundering and the financing of terrorism.

It added:

“There are a limited number of case studies upon which any solid conclusions could be drawn that digital currencies are used for money laundering. There are concerns around anonymity, faster payments, and ability to provide cross border remittances and facilitate international trade. These issues are similar to issues identified with many other financial instruments, such as cash and e-money."

Sean Sullivan, F-Secure security advisor, argued that it was “entirely feasible” to impose stricter regulations on financial institutions governing how they handle virtual currencies.

“It’s not feasible on an individual level and it won’t impact individuals from trading with one another – the same as with real world cash. The key thing is to restrict the amount of virtual ‘cash’ that can be transferred into a bank account,” he told Infosecurity by email.

“The current situation allows for semi-autonomous currency transfers. Forcing stricter regulations could result in many banks simply refusing to do business. The idea of a free and unregulated currency that fits the ideals of (cyberpunk) anarchists looks increasingly out of reach due to practical security concerns.”

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