EU crackdown on Bitcoin and prepaid card - Will it stop terror financing?

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The European Union has struggled to control the nefarious use of the digital currencies and the prepaid cards in recent times. However, over the time the outcome of it has become equally destructive as Money Laundering and Terrorist activities in the European Union are becoming easy. But EU has now stepped in to take the measures for Anti-Money Laundering (AML) and restrictions on digital currencies to control the free flow of the currencies.

PayNXT360 believes that EU crackdown will have an impact on growth of prepaid cards, especially the general purpose prepaid cards. However, over the medium to long term growth story remains intact. Directives will certainly increase the operating cost of card issuers and certain part of it is bound to be passed on to customers due to low margins in prepaid card segment.

What are the EU Directives?

EU has come up with the directives to apply the same norm for the digital currencies and wallet custodians that are used for customer cash as Bank and other financial institutions. The new directives to counter the various anti-money laundering or AML challenges could possibly mean that Bitcoins and other digital currency companies now must have to Know Your Customer formalities. The companies need to regularly update for the suspicious activities to the authorities as well. Well, there are some companies that have the same facilities but ideally, this is not mandatory in EU. EU has particularly come with the decision to tackle the tax evaders, terrorists, fraudsters and other criminals. However, the directives have majorly focused on terror financing using the prepaid card and the digital currencies. As per the new proposed guidelines, the lower limit of the non-reloadable Prepaid Card in the EU would be slashed by around €100. It is now at €250 and the proposed rate is €150. Aftermath the Paris attack where the terrorist used the Prepaid Cards, EU has come up with the new proposals.

How effective is EU Directive?

There are two different things about the EU proposed directives. The EU report does not speak about the Wallet Providers inclusion for Private Key under the proposed rule. However, the Bitcoin and other currency exchange and wallet services would be applied to customer funds. The individual users have been kept away from the directive so far. But is that enough to control the flow of digital currencies? Well, even EU has mentioned about the risk in the draft. The Bitcoin Users may not need the exchange or wallet providers at all as they can simply do that with their computer and smartphone. EU has indicated that in near future may be all the individual will be associated with the valid address and details as part of the directives.

Significance

AML is the biggest threat that all the Financial Institutions face in all these years. However, as the reach of the customer funds is increasing through the digital currencies, the need of regulations is utterly important. Even though the regulation formulations and the implementation are in the nascent and premature stage but it sends the right signal to the money launders.

Even though EU has proposed the new directives, it has not been finalized yet and there would be a further round of discussions on the same in this year. The European Union Parliamentary Committee has to approve it and so far the directives are in the draft stage. However, the new rules are expected to be implemented from January 1, 2017, in the member state of the EU Nations. The directives will be however made a law in each member state as per the constitution.

It is expected that apart from digital currencies and the prepaid cards, there will be other modes of currencies and payments to be included. Terror Financing has become one of the most troublesome impacts of these currencies.

To know more and gain deeper understanding of prepaid card industry in europe, click here.