The European Union’s 5th Anti-Money Laundering Directive (5AMLD) came into effect today, January 10. The regulation was entered as law on July 9, 2018 in an effort to bring increased transparency to financial transactions for pushing back against money laundering and terrorist financing across Europe.

For the first time, 5AMLD is broadening its regulatory scope by including crypto service providers like virtual-fiat exchanges or custodian wallet providers. The idea is make it more plainly knowable who’s participating in crypto transactions. The rationale is that doing so pushes back against money laundering and terrorism financing.

According to an 5AMLD fact sheet, the law will:

increase transparency about who really owns legal entities in order to to prevent money laundering and terrorist financing via opaque structures

give European financial regulators better access to information via centralized bank account registers

tackle terrorist financing risks linked to anonymous use of virtual currencies and prepaid instruments

improve the cooperation and exchange of information between anti-money laundering supervisors and with the European Central Bank

broaden the criteria for assessing high-risk third countries and ensure a high level of safeguards for money moving to or from such countries.

The consequences for not obliging are fines, of course! Austria’s financial regulators, for example, will fine noncompliant crypto service providers a maximum of 200,000 euros. Crypto businesses can’t keep their doors open long if they have to pay 5AMLD noncompliance fines.

How 5AMLD is affecting crypto service providers

European crypto companies are struggling to meet the new regulatory guidelines presented by 5AMLD. A number of businesses are shutting down due to the extensive know-your-customer (KYC) and anti-money laundering (AML) practices the new law calls for. The UK-based crypto wallet provider Bottle Pay announced its decision to cease operations at the end of last year. According to a company blog post published on Dec. 13, 2019:

“As we are a UK based custodial Bitcoin wallet provider, we will have to comply with the 5AMLD EU regulation coming into effect on January 10, 2020. The amount and type of extra personal information we would be required to collect from our users would alter the current user experience so radically, and so negatively, that we are not willing to force this onto our community.”

Bottle Pay shuts its doors after raising $2 million in seed funding this past September. The startup was launched just three months prior in June, offering users a tipping service that let small amounts of cryptocurrency be sent across social media networks and messenger apps

The takeaway is clear: the European Union is paying close attention to cryptocurrency and has established its first set of rules for how companies in this space must behave. Now it’s on those companies to gain compliance or risk being able to operate at all.