Regulations have always been a sticking point for many int he cryptocurrency industry, as the move to global regulations has intensified. There are many who prefer the current patchwork legal system that allows certain exchanges to get away with a lot more than in other jurisdictions. The Eu is aiming to change that with the new AMLD5 regulations.
However, that is changing with more and more participants entering the cryptocurrency industry such as large institutions and more risk-averse individuals. Every single hack, every single disaster that strikes an exchange is adding more and more people to the growing crowd calling for proper international regulations for what is the only form of currency that knows no boundaries.
Strict Regulations Lead To More Trust – And Users
As it stands, the countries with the best regulations are often when the most sought after exchanges are based. Japan's strict regulatory framework means that exchanges in that particular country will be far more likely to have stronger security protocols and more government backing in the case of something going awry. User from less sophisticated countries such as Nothern Ireland or Cambodia, whose regulations regarding cryptocurrency lead to a lack of trust in local exchanges will instead choose to go with exchanges in established areas such as Japan.
That all said, Japan is still an anomaly. In a world where the vast majority of countries still don't understand what cryptocurrency really is, let alone what kind of regulatory framework is needed for it, Japan is blazing trails. That it is a G8 country and one of the top economies in the world is another matter entirely.
The EU decided in 2018 that the directive would start being enforced by January 2020 and the latest draft was published this month.
Global Impact Much Like GDPR
Many observers say that much like GDPR impacted websites and how they function, the AMLD5 will have a similar ripple effect in the world. Due to the online, reachable everywhere nature of cryptocurrency (much like websites), the regulations that are specific to Europe will still need to be followed by anyone wishing to offer services in the EU.
While there were a few websites that geoblocked EU users from their content, they were vastly in the minority. Almost the entire internet was forced into complying with the regulations. This will be the same for many of the largest exchanges. While not based in Europe, any larger exchange will definitely have a presence in European Union countries. They can either compy or end their operations – which would be disastrous for their bottom line.
It seems that many people in the crypto world were waiting for Europe to finally make its move. While many Asian countries tried to implement transparency and move the view of crypto as a fantastic criminal tool, no one had much power to do it. Japan might have profited from its early adoption of cryptocurrency and the regulations it made, with exchanges that are robust and trusted around the world, but it did not have the political power to force change in other countries.
The EU doing this will force those exact changes in the rest of the world and will reiterate how strong the EU is when it comes to legislation that has an impact on any internet based activity. It seems that the EU is starting to be the world's regulatory body of the internet as whatever they say, most people with an online presence have to follow.
This does have the consequence of making cryptocurrency much more legitimate basically overnight. If an exchange is available in Europe, it will be known that the exchange is following strict AML rules. This is far different from 2018 when a study found that two-thirds of cryptocurrency exchanges around the world failed to check the identity of their users. There is of course much debate whether this is good or bad, but with more and larger institutions coming into the cryptocurrency fold, the side that argues that it is good is slowly winning the race.