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AMLD5 Won’t Save Crypto Exchanges From Bank Rejection

Simon Chandler
Last updated: | 4 min read

AMLD5 grants crypto-exchanges and other transmitters the same legal status as non-crypto entities. But banks may still refuse to accept crypto customers.

Source: iStock/Raylipscombe

EU regulation is catching up with crypto. Once an anarchic domain where only code was law, cryptocurrency’s rise to international notoriety has meant that the world’s legislators have been busy over the past few years creating a framework that just might tame crypto.

The EU’s 5th Anti-Money Laundering Directive (AMLD5) is one example of this. Passed in July 2018 and obligatory for all member states from January 10, 2020, the AMLD5 updated the EU’s anti-money laundering regulatory regime: for the first time it stipulated that cryptocurrency exchanges had to follow the same rules as banks and everyone else.

This might not sound like much fun for crypto, but there is now a growing school of thought that the AMLD5 actually obliges the EU’s banks to accept crypto exchanges and other crypto-fiat transmitters. According to this interpretation, they can’t refuse to serve a company simply because it belongs to the cryptocurrency sector.

However, crypto-focused lawyers disagree with this analysis. They state that banks and other financial institutions can still find other reasons to refuse to serve crypto exchanges, and that they aren’t obliged to take them on as customers.

Interpreting AMLD5

The publication of AMLD5 in 2018 by the European Parliament and Council was a big deal. For the first time, it required all “providers engaged in exchange services between virtual currencies and fiat currencies… to apply enhanced customer due diligence measures,” in order to prevent money laundering and terrorism financing.

And now that the January 2020 deadline for implementing these new directives has passed, some commentators are suggesting that the AMLD5 is a big win for crypto. Not only will it force crypto-exchanges to make themselves more reputable, but it also prevents banks and other ‘traditional’ financial institutions from treating exchanges differently from non-crypto businesses.

Pawel Kuskowski, CEO and co-founder of Coinfirm, an AML and blockchain analytics software provider, argued recently that AMLD5 means that banks can “no longer shut crypto out.”

“Under AMLD5, banks must manage the AML risk related to the specific counterparties they work with,” he writes.

“They cannot refuse services simply because an entity belongs to a particular sector such as crypto; cases must be assessed individually. So a bank cannot refuse service just because a counterparty is, for example, a cryptocurrency exchange.”

This sounds like good news for the cryptocurrency sector. Effectively, AMLD5 grants crypto-exchanges and other transmitters the same legal status as non-crypto entities, suggesting that banks can no longer refuse to serve them, as they’ve done in previous years.

Yeah, but…

To an extent, this kind of analysis is true. However, AMLD5 doesn’t legally require banks to accept business from crypto-exchanges, even if it removes one of the complaints – non-AML compliance – that had previously been used as a reason for rejection.

“It can be expected that banks will be more willing to do business with customers holding crypto,” agrees Dr. Niklas Schmidt, a lawyer with Wolf Theiss in Austria. But Schmidt tells that AML compliance alone doesn’t legally obligate banks to treat crypto-exchanges any differently than they’ve been treated in the past.

“It should however be noted that AMLD5 does not grant a right of the customer to be onboarded and to be able to get banking services. In other words, banks may still refuse to accept crypto customers.”

James Kaufmann, a crypto- and blockchain-focused lawyer at Howard Kennedy, agrees. “I don’t think it is accurate to say that AMLD5 prohibits EU-based banks from refusing to serve cryptocurrency exchanges,” he tells

AMLD5 does bring cryptocurrency exchanges under the umbrella of EU & UK-wide anti-money laundering obligations, Kaufmann accepts.

“Prior to AMLD5, banks could refuse services to cryptocurrency exchanges on the basis that they presented an AML risk. However, under AMLD5 cryptocurrency exchanges have to comply with rules made under the same regulations as the banks themselves. As such, banks will now have to either change their mind or find another reason to refuse service.”

Basically, it’s true to say that banks can’t refuse service to AML-compliant crypto-exchanges on the basis that they don’t comply with AML rules (because this is a contradiction in terms). But they could potentially find another reason, perhaps arguing that the whole crypto sector is volatile and unstable, so they don’t want to take on ‘risky’ clients.

Niklas Schmidt also points out that the AMLD5 on its own doesn’t necessarily guarantee anything, since it could be implemented by each EU member state differently.

“Also, as a directive, AMLD5 does not have direct legal effect,” he says. “Rather, it must be transposed into national law by the EU’s 27 Member States. AMLD5 provides for a minimum standard, meaning that Member States may provide harsher rules.”

As an example, Schmidt notes that, while AMLD5 only covers fiat-to-crypto and crypto-to-fiat exchanges, Austria has implemented the directive and applies the AML rules (since 10 January 2020) more broadly, namely to fiat-to-crypto, crypto-to-fiat and crypto-to-crypto exchanges.

Still, while AMLD5 doesn’t provide crypto with any legal guarantees of banking service, it does make it considerably more likely that compliant crypto-exchanges will be served by banks.

As James Kaufmann concludes, “Add in the broader drive for banks to assist increasing financial inclusion and the argument that crypto creates greater financial inclusion. Taken altogether, I think we could say that by bringing crypto under AMLD5, it (indirectly) presents stakeholders in the crypto world the opportunity to demonstrate crypto’s financial inclusion credentials.”