While there was plenty of reporting this week about the fact that the European Commission proposed new EU-wide rules with somewhat stricter requirements than have been applied to date, the fact that these rules would only be applicable to exchanges and custodial wallet providers went largely unremarked. From the propose amendment to the AML directive, the newly covered entities would be:
(g) providers engaged primarily and professionally in exchange services between virtual currencies and fiat currencies;
(h) wallet providers offering custodial services of credentials necessary to access virtual currencies.
This is very careful and wise drafting. It should mean that service providers who do not hold keys for customers (like software wallets) or services providers who do hold keys but not enough to access a balance (like multisig wallet services) would be exempt. As for exchanges and custodial wallet services, these new rules should not be too burdensome because they already comply with essentially the same obligations imposed by the individual countries in which they do business. This new proposal would only standardize existing requirements across the EU.