Last year the European Union passed its 5th Money Laundering Directive (5MLD). The changes are to come into effect by the end of this year.

Even if you’ve not heard of 5MLD, chances are you’ve already felt the repercussions.

This directive calls for a severe tightening of anti-money laundering (AML) regulations for all financial institutions in the EU.

That alone was enough to cause concern. But on top of that, 5MLD extended AML regulations to all virtual currency exchanges in the EU.

Now, the UK government is deciding whether to adopt these strict directives as well.

In a recent public consultation, HM’s Treasury stated that it agrees with most of the terms of the EU’s AML directive.

Except, it says, 5MLD doesn’t go far enough…

Though the UK government has not acted yet, the signs are ominous.

Read on for three reasons why the crypto community in the UK should brace itself for strict KYC AML compliance requirements in the coming years…

1. The rules apply to all ‘facilitators’

In its plan, HM’s Treasury proposed to apply AML rules to both centralized exchanges and anyone who facilitates peer-to-peer exchanges.

So far, this resembles the pressure put on peer-to-peer exchanges in the US. We saw this late last year, when the decentralized exchange ShapeShift gave in to regulators’ demands and began collecting user data through a mandatory “membership program”.

Given the US’s example, it is not a surprise that UK regulators would seek to implement similar measures.

Of course, the key here is what they mean by “facilitates”.

Does this mean just the managers of peer-to-peer exchanges? Or could it extend even to websites that allow users to advertise peer-to-peer exchanges?

Take for example, the case of Backpage. This was a classified ads site similar to CraigsList that was known for being a place to advertise sexual services.

Early last year, US authorities seized and shut down the Backpage.com website. The site’s owner was arrested and indicted on 93 counts, including ‘facilitating’ prostitution and human trafficking.

The owner wasn’t involved with any human trafficking activity. But because he had enabled the advertisement of it, he was on the hook for the same crimes.

This may seem like an extreme example. The point is that when regulators use broad words like ‘facilitate’, much is left open to interpretation.

2. Even open-source software developers may be on the hook

It may not seem too surprising that UK regulators are working to target peer-to-peer exchanges. But there’s one thing that stood out in HM’s Treasury’s plan.

In addition to mentioning ‘facilitators’ of peer-to-peer exchanges, they explicitly suggested extending regulation to open-source software developers.

You read that right. If they implement these rules, just working on a project related to a cryptocurrency, wallet or exchange could make you liable for the proper enforcement of KYC AML regulations.

This might seem like a stretch now, but it wouldn’t surprise me if regulators imposed new ‘Know Your End User’ regulations later down the line.

As I’ve written many times before, regulators are not fans of personal privacy. Anonymity is a threat to their ability to monitor and control.

This law could be a way for UK regulators to eliminate anonymous open source development and anonymous exchange transactions all at once. How convenient. 

Of course, the bigger question here is how would this be enforced? The UK is not the US. We do not have an existing precedent for KYC AML compliance for open-source software developers. So at this point, we will have to wait and see.

3. The UK does not have privacy rights to begin with

There’s one main reason why the UK crypto community should be on its guard, and honestly, should have seen coming. This is the simple fact that the UK does not respect personal privacy.

Coin Center, a crypto advocacy group, recently countered HM’s Treasury’s proposal. The group claimed these rules to be “a gross curtailment of free expression within the UK and impose an arbitrary electronic surveillance regime unbounded by law and due process.”

While I agree with Coin Center, I don’t have much hope for their approach.

For as much flak as I give US regulators for imposing overbearing regulations, the truth is, the UK is far worse. It already is a surveillance state unbounded by law.

I learned this the hard way back when I was in London getting my masters at the London School of Economics.

One night, I was walking along with some buddies to a bar when two policemen stopped us.

For no reason at all, the policemen demanded to search us and give us a full body pat down.

I don’t know if that’s ever happened to you, but I can say that I felt extremely violated.

Worst of all, there was no probable cause to justify the search. No reason at all. The policemen just decided that they wanted to search us and they had the right to do so.

In the US, the Constitution protects us against unreasonable search and seizures. But in the UK, none of those rights exist.

One of the UK government’s PR campaigns a few years back said it all. It was a campaign to promote increased CCTV surveillance across the city and public transport.

'Secure Beneath The Watchful Eyes' poster in London

“Secure beneath the watchful eyes”

It’s enough to send shivers down your spine… at least if you value your privacy.

If you don’t, maybe it actually does make you feel safer, in which case I highly recommend living in London. Great food. Great people. Lots of things to do. And you’ll feel safe with big brother watching over you.

What does this mean for Crypto Law Insiders?

For the most part, HM’s Treasury’s plan for KYC AML laws in the country are in line with those of the US and the EU. Though, looping open source software developers into the mix is definitely an escalation on the war against privacy and anonymity.

That said, the bigger issue is that the same privacy rights that we expect in the US don’t exist in the UK.

At the end of the day, what this means for your particular situation depends on your priorities.

If you don’t mind being “protected” under the watchful eye of UK bureaucrats, stay!

But if you don’t want this level of surveillance and ‘protection’, like I always say… go where you’re treated best.

If you want a government that respects and protects your privacy, this is probably not the country for Insiders to call home.

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