EU crypto exchanges face new ‘Travel Rule’ regulations in six months

TLDR

The European Banking Authority (EBA) has issued new ‘travel rule’ guidelines for crypto exchanges and service providers. These guidelines will come into force on 30 December 2024, giving companies 6 months to prepare. The rules require reporting of information on transfers of funds and cryptoassets to combat money laundering and terrorist financing Cryptoasset Service Providers (CASPs) will be subject to the EU’s Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) regime

The European Banking Authority (EBA) has announced new ‘travel rule’ guidelines that will apply to crypto exchanges and service providers operating in the European Union.

These regulations, which come into effect on December 30, 2024, give companies a period of six months to prepare for compliance.

The new guidelines, issued on July 4, 2024, are part of Regulation (EU) 2023/1113, which extends the obligation to include originator and beneficiary information to Crypto Asset Service Providers (CASPs).

This regulation brings the EU’s legal framework into line with the Financial Action Task Force’s (FATF) standards and aims to establish a consistent and effective approach to the implementation of the travel rule across the EU.

The #EBA has just published new guidelines on the information that must accompany transfers of funds and certain crypto-assets.

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Under these new rules, crypto exchanges and service providers will be required to report detailed information about transfers of funds and crypto assets.

This includes collecting users’ information for transfers, identifying whether transactions are related to the purchase of services, and tracking transfers that appear to be linked.

The guidelines also require CASPs to declare their policies on multi-mediation and cross-border transfers.

The primary purpose of these regulations is to prevent, detect and investigate money laundering and terrorist financing by allowing relevant authorities to fully trace transfers of funds and crypto-assets.

This move marks a major step towards bringing crypto-assets under the same regulatory scrutiny as traditional financial services.

Simon Schneider, director of AML compliance at CryptoFirm, commented on the new regulations:

“These guidelines represent a significant shift in how crypto businesses should operate in the EU. While compliance may be initially challenging, it is a necessary step to legitimize the crypto industry and protect it from illegal activities.

The EBA acknowledges that achieving compliance with these guidelines is likely to put crypto exchanges and service providers under financial stress.

However, the regulatory body foresees that the overall benefits in the long term will exceed the potential costs, contributing to a more effective fight against money laundering and terrorist financing.

It is important to note that crypto exchanges and service providers that currently fall within the scope of the EU’s Anti-Money Laundering Directive (AMLD) or a domestic AML/CFT regime will continue to be subject to the applicable AML/ CFT requirements in addition to these new guidelines.

The implementation process includes a two-month buffer period for payment service providers (PSPs), intermediary PSPs, CASPs and intermediary CASPs to declare compliance with the new requirements after the regulation is introduced. This period starts after the publication of the translations in the official EU languages.

These guidelines are part of a broader regulatory framework being developed by the EBA. The authority has also published guidelines on risk-based AML/CFT supervision of CASPs and guidelines for CASPs to effectively manage their exposure to money laundering and terrorist financing risks.

The EBA is finalizing work on guidelines for internal policies, procedures and controls to comply with restrictive measures applicable to CASPs and other financial institutions.

The crypto industry’s response to these new regulations has been mixed. While some see this as a necessary step toward mainstream adoption and improved security, others are concerned about the potential impact on user privacy and the operational challenges it may present.

EuroCrypto Exchange CEO Maria Lopez said,

“While we fully support measures to combat financial crimes, implementing these guidelines will require significant resources and may affect the speed and ease of transactions that our users have come to expect. We work hard to find a balance between compliance and user experience.”

As the deadline approaches, crypto businesses operating in the EU will need to carefully review their current practices and make the necessary adjustments to ensure compliance. This may involve updating their KYC (Know Your Customer) procedures, improving their transaction monitoring systems and possibly reviewing their operational processes.