AMLD5/virtual assets

Summary

The Irish Government is advancing a bill which will transpose certain provisions of the AMLD5 into national law. In particular, the bill will bring virtual asset service providers and custodian wallet providers in scope of Ireland’s AML regime. The bill has been amended during its passage through the legislative process to bring it in line with FATF’s recommendations on virtual asset service providers.

Background

In this regard, the Criminal Justice (Money Laundering and Terrorist Financing) (Amendment) Bill 2020 (the “Bill”) proposes to amend the current Irish AML/CTF framework, as set out in the Criminal Justice (Money Laundering and Terrorist Financing) Act 2010 (as amended, the “Principal Act”).

Virtual Asset Service Providers

The Bill contains the following new definitions (note that these have been expanded since the original draft of the Bill was published):

*"custodian wallet provider" means an entity that provides services to safeguard private cryptographic keys on behalf of its customers, to hold, store and transfer virtual currencies;*

“virtual asset” means a digital representation of value that can be digitally traded or transferred and can be used for payment or investment purposes but does not include digital representations of fiat currencies, securities or other financial assets;

“virtual asset service provider” means a person who by way of business carries out one or more of the following activities for, or on behalf of, another person:

• exchange between virtual assets and fiat currencies;
• exchange between one or more forms of virtual assets;
• transfer of virtual assets, that is to say, conduct a transaction on behalf of another person that moves a virtual asset from one virtual asset address or account to another;
• custodian wallet provider;
• participation in, and provision of, financial services related to an issuer’s offer or sale of a virtual asset or both; but does not include a designated person that is not a financial or credit institution and that provides virtual asset services in an incidental manner and is subject to supervision by a national competent authority, other than the Central Bank.

The Bill then adds “virtual asset service provider”, to the list of designated persons who fall within the Irish AML/CTF regime. This effectively means that custodian wallet providers and virtual currency service providers are subject to the same KYC requirements as traditional financial institutions, including monitored transactions and customer due diligence. By way of comparison, the Bill as initiated added “providers engaged in exchange services between virtual currencies and fiat currencies” to the list of Designated Persons, so it was unclear whether or not custodian wallet providers were in fact included.

Registration

The Bill sets out a regime under which VASPs will be required to register with the Central Bank for AML/ CFT compliance purposes. This is a registration as opposed to an authorisation, and VASPs will not be subject to the conduct of business or investor protection rules which apply to regulated financial service providers. In short:

• Registration requirement: the Bill provides that a person shall not carry on business as a VASP without being registered with the Central Bank;

• Transitional provisions: existing VASPs will be covered by a transitional period, but must apply for registration within three months of the Bill entering into force;

• Application: an applicant VASP must submit sufficient information to allow the Central Bank to assess fitness and probity of the applicant, its principal officers and its beneficial owners;

• Grounds for Refusal: the Bill sets out the grounds on which the Central Bank may refuse to register a VASP, including where the Central Bank is not satisfied that the applicant:

  • can satisfy its obligations as a designated person;
  • will have in place sufficient resources and procedures to carry on business as a VASP; and
  • can manage and mitigate the risks of engaging in activities that involve the use of anonymity enhancing technologies or mechanisms that obfuscate the identity of the sender, recipient, holder or beneficial owner of a virtual asset.

• A registered VASP will be required to include a regulatory disclosure statement in all advertisements for its services stating that the holder of the registration is registered and supervised by the Central Bank for anti-money laundering and countering the financing of terrorism purposes only.

• A registered VASP will also be required to hold records as may be specified by the Central Bank for a period of not less than six years.

Conclusion

The scope of the Bill has been expanded since it was first initiated, to take account of the FATF Recommendations in addition to AMLD5, and therefore a larger number of entities will be required to register as VASPs. There are clear benefits to being included within the AML regime, for example entities generally find it easier to open bank accounts when they are registered to the Central Bank.

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