The European Commissions has unveiled a plan to further curb terrorist financing. According to the new proposal, digital currency exchanges and cryptocurrency wallet providers will be subject to tighter regulations and more extensive data gathering requirements.

“The Commission is planning to bring virtual currency exchange platforms under the scope of the Fourth Anti-Money Laundering Directive, in order to help identify the users who trade in virtual currencies. In addition, the Commission will examine the possibility of applying the licensing and supervision rules of the Payment Services Directive (PSD) to virtual currency exchange platforms, as well as virtual “wallet providers”

If digital currencies are brought under the the Fourth Anti-Money Laundering Directive, exchanges will have to verify the identities and documents of their clients under the ‘know-your-customer’ rules.

In the press release, Valdis Dombrovskis, Vice President of the EU Commission, stated that authorities need better oversight over various payment systems within the EU so that they can more effectively disrupt terrorist financing:

“We want to improve the oversight of the many financial means used by terrorists, from cash and cultural artifacts to virtual currencies and anonymous pre-paid cards, while avoiding unnecessary obstacles to the functioning of payments and financial markets for ordinary, law-abiding citizens.”

The report also emphasized that virtual currencies are still a very small market and do not pose any material risk to the financial system. The Commission’s action plan also highlighted the usefulness of cryptocurrencies and why they have not been banned.

“Virtual currencies are often considered as a useful tool for rapid international payment transfers and low cost money remittances. To date, virtual currencies represent an innovative but rather small market.”

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