Crypto Industry cautiously welcomes agreement on new EU AML rules

Crypto industry participants are concerned that new anti-money laundering rules agreed to by European Union policymakers are stricter than measures that apply to more traditional financial institutions.

EU policymakers this week reached an agreement on a comprehensive anti-money laundering regulatory framework, which includes strict requirements for crypto firms.

Under the agreed terms, service providers will have to meet strict customer verification requirements, as well as take measures to mitigate the risks of transactions involving self-hosted wallets and cross-border transfers.

While the stated goal was to level the playing field by applying the same rules to crypto firms and banks, some in the industry are concerned that policymakers’ insistence that digital asset firms be subject to the same money laundering checks that other financial institutions might be a little can be. light on truth.

“Despite the enthusiastic press statements of the co-legislators about this agreement, a level playing field has not been created, as the thresholds for cryptoasset service providers and other financial institutions are not equal,” said Robert Kopitsch, secretary general at the industry advocacy group Blockchain for Europe.

The EU crypto industry also lobbied quite hard during the legislative session to keep non-fungible tokens (NFT) and decentralized finance (DeFi) out of the package’s scope, and may have even succeeded in – at least temporarily – restrictions on privacy-enhancing prevention tools, CoinDesk was told.

The EU made history last year when it finalized the first comprehensive regulatory framework for crypto by a major jurisdiction. In addition to its landmark regulation of Markets in Crypto Assets (MiCA), the bloc also introduced rules for gathering information on crypto transfers (TFR) as part of a much larger Anti-Money Laundering Regulation (AMLR).

The AMLR is a broad effort by the bloc of 27 European states to combat illicit fund flows and sanctions evasion. It targets everything from jewelry and luxury cars to major soccer clubs as potential vehicles for money laundering and caps large cash payments in the EU at 10,000 euros ($10,888).

While the AMLR package is not yet final, “the most important political principles have been agreed upon,” Eero Heinaluoma, a Finnish member of the European Parliament leading negotiations on the regulation, said at a Thursday press conference.

Heinaluoma added that technical discussions on crypto-related details – which Kopitsch said would not involve adjusting actual measures as much as making sure the text makes sense on a technical level – would begin on Friday.

While there has been heated discussion over whether non-fungible tokens (NFT) should be included in the scope of the regulation, Vyara Savova, senior policy leader at industry advocacy group the EU Crypto Initiative, said at a Wednesday call said that the assets are likely to remain out of the package.

Tommaso Astazi, head of regulatory affairs at Blockchain for Europe, also said that NFTs are likely to remain outside the scope of the regulatory package along with decentralized finance (DeFi).

“I think we can be sure that the scope has not been increased. The scope is the one of MiCA,” Astazi told CoinDesk in a Thursday interview. Crypto service providers captured under MiCA will also be subject to the AMLR, and where they are not – in the case of DeFi and possibly NFTs – the measures do not apply, he explained.

There were concerns that the AMLR would try to ban or restrict crypto-anonymization tools following the sanctions against Tornado Cash, and fears that crypto was being used by sanctioned entities such as Russia, Marina Markezic, co-founder of the EU Crypto Initiative, said during a Wednesday call.

But it is unclear whether discussions on those instruments have continued by policymakers or whether they will be included in the final text, Astazi said Thursday.

In Heinaluoma’s own words, the AMLR seeks to treat crypto asset service providers the same as credit institutions – with equal obligations for both.

“The most important thing is that exactly the same obligations that are enforced now and will be enforced in the future for the banking sector are also enforced in relation to crypto-assets business,” Heinaluoma said during the Thursday press conference.

“This is important because we know that a lot of money from the traditional payments is going into the crypto area,” he added.

According to Kopitsch, the agreed measures apply different thresholds to crypto firms, cash transactions and financial institutions for applying customer due diligence.

The legal texts show that while all regulated entities must apply due diligence to transactions above 10,000 euros, financial and credit institutions as well as crypto firms must perform full customer checks on transactions above 1,000 euros, Astazi said.

But this is where things differ, according to Astazi.

Crypto firms will also need to perform basic know-your-customer (KYC) checks on all occasional transactions, which are transactions that take place outside of business relationships.

“For occasional transactions, they will always still need to identify the customer and verify the customer’s identity. Now, this is a change,” Astazi said, adding that companies can currently do these types of transfers in some EU member states because nations do not always uniformly implement existing AML requirements.

It’s not exactly a hill the industry wanted to die on, especially since it doesn’t really matter for fully regulated entities — but Kopitsch says the imposition of different thresholds “shows that the technological advantage of blockchain technology has not been recognized.”

“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 is ensured. That was the key,” Kopitsch added.

Although it is difficult to give an exact timeline, Savova expects the technical discussions on the AMLR to be “quite intensive” as policymakers hope to have the package ready for parliamentary approval in April, ahead of the upcoming elections.

“This means that for us, as representatives of the crypto industry, work on the AMLR continues at an even faster pace,” Savova said.

The regulatory package will have to be formally accepted by Parliament and the Council before it can come into effect.