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EU AML Rules: Implications For Crypto Industry

 

European Union policymakers have taken a major step by agreeing on a comprehensive anti-money laundering (AML) regulatory framework for the crypto industry. The intention is to subject digital asset service providers (CASPs) to the same AML checks as traditional financial institutions, creating a level playing field. However, concerns persist within the crypto industry regarding the stringency and specific details of the rules.

LEVEL PLAYING FIELD: MISSION ACCOMPLISHED?

Robert Kopitsch, the secretary-general at the industry advocacy group Blockchain for Europe, expressed reservations. He stated, “Despite the enthusiastic press statements, a level-playing field has not been created. The thresholds for crypto asset service providers and other financial institutions are not equal.”

KEY PROVISIONS AND INDUSTRY CONCERNS

The agreed-upon provisions mandate crypto service providers to:

  • Adhere to stringent customer verification requirements (KYC/AML)
  • Implement measures to mitigate risks associated with transactions involving self-hosted wallets and cross-border transfers

During the legislative session, a contentious issue was whether to include non-fungible tokens (NFTs) and decentralized finance (DeFi) in the regulatory framework. Lobbying efforts by the EU crypto industry seemed to succeed, keeping NFTs and DeFi temporarily out of the immediate scope of regulation.

DIFFERING THRESHOLDS AND INDUSTRY RESPONSE

While the Anti-Money Laundering Regulation (AMLR) package is not yet final, key political principles have been agreed upon. Eero Heinaluoma, a Finnish member of the European Parliament leading negotiations, emphasized treating CASPs similarly to credit institutions. The goal is to ensure equal obligations for both.

Concerns arise from the discrepancy in thresholds for customer due diligence between crypto firms, cash transactions, and financial institutions. While all regulated entities must apply customer due diligence to transactions over 10,000 euros, financial institutions and crypto firms are required to conduct full customer checks on transactions exceeding 1,000 euros.

Tommaso Astazi, head of regulatory affairs at Blockchain for Europe, pointed out this notable difference: Crypto firms will now need to perform basic know-your-customer (KYC) checks on all occasional transactions occurring outside established business relationships. Astazi noted that this change reflects a departure from the current practice in some EU member states.

Despite the reservations, Astazi acknowledged, “As an industry, we can live with the final outcome of the AMLR negotiations as the alignment of its regulatory scope with MiCA and the TFR has been ensured.”

BEYOND CRYPTO: A BROADER AML FRAMEWORK

The regulatory framework aims to combat illicit fund flows and sanctions evasion across various sectors. It extends its reach from jewelry and luxury cars to prominent football clubs. The AMLR establishes a single rulebook for the EU and introduces a supervisory authority with oversight over the crypto sector.

A PIVOTAL MOMENT FOR CRYPTO REGULATION

As technical discussions on crypto-related details commence, the industry anticipates intensive deliberations. Experts like Vyara Savova from the EU Crypto Initiative anticipate the package to be ready for parliamentary approval in April. This is ahead of upcoming elections, emphasizing the accelerated pace of work for representatives of the crypto industry.

IN CONCLUSION

The EU’s strides towards comprehensive crypto regulation signal a pivotal moment for the industry. As negotiations continue, stakeholders closely monitor the evolving landscape, navigating the intersection of traditional financial norms and the innovative realm of cryptocurrencies.

This blog has summarized the key aspects of the new EU AML rules and their implications for the crypto industry. Concerns persist about the specifics of the regulations, but the overall direction suggests a more regulated and transparent crypto market in Europe. Only time will reveal the effectiveness of these new rules and their long-term impact on the industry.

It’s important to stay informed about these developments as they may significantly impact how you interact with cryptocurrencies in the future. Don’t hesitate to reach out if you have any questions or want to learn more about this topic.

Crypto products and NFTs are unregulated and can be highly risky. There may be no regulatory recourse for any loss from such transactions. Crypto is not a legal tender and is subject to market risks. Readers are advised to seek expert advice and read offer document(s) along with related important literature on the subject carefully before making any kind of investment whatsoever. Crypto market predictions are speculative and any investment made shall be at the sole cost and risk of the readers.