In a recent warning, the European Union Commission sent infringement letters to Romania and seven other countries alerting them that they had failed to notify the EC of any implementation measures related to the transposition of the 5th Anti-Money Laundering Directive (EU Directive 2018/843, or AML 5) into national law, and instructing them to proceed with the transposition, which was supposed to have happened by January 10th, 2020, immediately.
In this context, the question is: “Will the new AML 5 legal framework restrict transactions with virtual currency on the Romanian market?”
Before answering this question, we emphasize that Romania, like many EU countries, did not regulate cryptocurrency at all – qualifying it neither as regular nor electronic currency, nor as a monetary value stored on instruments.
The National Bank of Romania (NBR) has repeatedly emphasized in recent years that it has no competence to monitor virtual currencies deriving from the use of the digital ledgers technologies (DLT). However, on many occasions it has warned that cryptocurrency is not a national currency and may expose end users to certain risks due to its volatility and low degree security.
Many regulatory and supervising authorities of other EU member states (e.g. central banks and national agencies supervising the financial sector) do not recognize virtual currencies generated by “blockchain” technologies as a legitimate payment instrument.
The European Banking Authority (EBA), while reflecting on the qualification of some crypto-assets as “financial instruments” under the Markets in Financial Instruments Directive 2004 (MiFID) to determine whether the current EU financial services law may apply to crypto-assets, concluded that the current perimeter of regulation is such that crypto-assets may, depending on their characteristics, qualify as financial instruments or e-money. Still, the EBA has not issued a clear and straightforward statement.
In other words, cryptocurrency is not forbidden by EU regulations governing the financial sector or by the domestic legislation of many EU members, including Romania. It is a big challenge at the EU and national levels to bring the applicable financial services legislation and technology together. But is there a necessity for EU states’ governments to regulate and supervise cryptocurrency to protect both financial instruments in general and people using virtual currency?
Until a piece of legislation is passed addressing the ramifications of cryptocurrency in the financial instruments, we consider there are no restrictions in using cryptocurrency in Romania.
We must say at least this: the new AML5 brings new restrictions in using cryptocurrency on EU markets! Will these new rules be able to shut-down cryptocurrency payments/exchange in Romania? Well, in UK this happened in case of Bottle Pay and other companies.
In the years following the emergence of cryptocurrencies, more and more officials have expressed concern about DLTs’ capacity to serve as favorable environment for money-laundering, as users/operators of cryptocurrency platforms may be tempted to avail themselves of the degree of anonymity conferred by those platforms to conceal transfers. From this perspective, the enactment of new AML5 seems to be more than a simple occurrence.
In a nutshell, under AML5: (1) providers engaged in exchange services between virtual currencies and fiat currencies (PES/FC), and (2) custodian wallet providers (CWPs) become “obliged entities” and must comply with the AML’s requirements. The member states must ensure that all obliged entities are registered.
Would these new requirements lead the Romanian lawmaker to enact a new regulatory legal framework? Would this require those PES/FCs and CWPs providing cryptocurrency services to Romanian users (such as Revolut and Bitcoin) to establish new entities, or ask for a specific authorization to the NBR?
There is no clear answer, as at the moment there is no final draft project of the law transposing the AML5 Directive into Romanian law. However, the Ministry of Finance has announced that it is working closely with the Office for Prevention of Money Laundering and the NBR to prepare such a draft. This inter-institutional cooperation suggests that the lawmakers intend to have the PES/FC/CWP cryptocurrency businesses regulated by law, and not only subject to the AML’s requirements.
The regime may be similar to that applicable to providers of gambling services, which are subject to both regulatory and AML requirements. But, only time will reveal the final resolution (and legal technique) of the Romanian authorities for transposing the AML5 in Romania. We will come back to this very hot topic …!
By Nicolae Ursu, Partner, CEE Attorneys/Boanta, Gidei si Asociatii
This Article was originally published in Issue 7.5 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.
