The SWIFT Institute has released a new paper analyzing the regulation of third party payment (TPPs) providers and virtual currencies. The paper, titled “The evolution of third party payment providers and cryptocurrencies under the European Union’s PSD2 and AMLD4”, assesses current legislation and ongoing legislative initiatives for their inclusion of TPP’s. It also sets out the potential for the regulation of cryptocurrency in terms of combatting money laundering and terrorist financing. The research focuses on regulatory developments within the EU, namely the Payment Services Directive (PSD2) and the fourth Anti-Money Laundering Directive (AMLD4), but also includes an expanded view into the US and Asian markets. “In the last decade, the financial landscape has changed considerably under the influence of new technologies and communication methods,” says Peter Ware, Director, SWIFT Institute. “All over the world, new legal frameworks have been adopted to bring non-credit institution actors under regulation. However, there are two major new developments for which the legal framework is less clear and those are third party payment providers and virtual currencies.” According to the research, TPPs allow consumers to make online payments without the need for a credit card by establishing a “link between the payer and the online merchant via the payer’s online banking module”. They do not require the consumer to open an account directly with them. Instead, they gather information on the consumer’s existing bank accounts and present that information in an integrated manner. In doing so, they gain possession of a significant amount of sensitive information, by providing a gateway from which consumers log in to their bank accounts using their unique identifiers and credentials. Virtual currencies are mainly used in payment systems that do not rely on traditional actors such as banks and payment service providers. The most notable example is cryptocurrencies – such as bitcoin – which are decentralized, and use pseudonyms for their transactions. The research concludes that whilst the PSD2, AMLD4 and other regulations are a step in the right direction, certain aspects remain unclear and need further attention. As a result, the report provides policy recommendations for both regulators and financial practitioners. Recommendations for regulations include: addressing remaining ambiguities; harmonizing the EU’s legal frameworks, coordinating global regulatory initiatives, avoiding a nationalist approach to virtual currencies and adopting a rational outlook on virtual currencies Recommendations for financial practitioners include: looking beyond the disruptive forces, emphasizing a need for compliance, not dismissing virtual currencies wholesale and minding the block chain.
While the EU's regulatory framework, the Payment Services Directive (PSD2) and the Anti-Money Laundering Directive (AMLD4), are a step in the right direction in regulating digital currencies in terms of tackling money laundering and terrorist financing, certain aspects remain unclear and need further attention, according to a new paper titled, "The evolution of third party payment providers and cryptocurrencies under the European Union's PSD2 and AMLD4". The paper, which was published by the European Commission on Tuesday, is based on an analysis conducted by the Commission's Directorate General for Internal Market and Services, as well as Europol. Financial practitioners should look beyond disruptive forces and focus attention on the need for compliance and rather than wholesale dismissal of virtual currencies.