EU’s new money laundering deal poised to tax crypto more than traditional finance – DL News

In a move that could force the crypto industry to scrutinize payments more intensely than traditional finance firms do, European lawmakers tentatively agreed late Wednesday to adopt a new anti-money laundering regulation.

After negotiations in Strasbourg, officials will now move to reviewing technical details in discussions expected to begin on Friday.

While the regulation has not been officially adopted, key decisions affecting the crypto industry have already been made, according to a parliamentary official who declined to be named and spoke about pending legislation.

Intense due diligence

Unlike other financial transactions, crypto firms will now have to carry out know-your-customer, or KYC, measures on transactions worth less than €1,000.

In addition, it is stricter due diligence that is applied to transactions of more than €1,000.

In contrast, cash payments have a prudential threshold of €3,000.

These provisions come as the European Union reaches the end of a three-year process to pass the Anti-Money Laundering Regulation, or AMLR.

This rulebook will force financial firms to strengthen measures to prevent criminals from using the financial system to handle illicit funds in the 27-nation bloc. The rules are expected to take effect three years after the bill becomes law, according to the parliamentary source.

The EU will also set up a new authority to oversee the new rules if they become law.

Marathon of negotiations

In a marathon of negotiations, EU officials grappled with how to include crypto and DeFi within the scope of the regulation.

The result is, most likely, that purely decentralized protocols are left out.

The process took place while other EU rules on crypto, such as the comprehensive regulation of markets in crypto-assets, were also in the works.

The result is double-edged for the crypto industry.

Lawmakers have sought to reassure the industry that they are creating a “level playing field for the crypto sector,” in the words of Eero Heinäluoma, a Finnish member of the European Parliament.

“We succeeded in making sure that the crypto sector will play by the same rules and have the same obligations as the traditional financial sector,” said Heinäluoma, a member of the Socialist and Democratic groups and one of the main negotiators on the regulation, said Thursday in a press conference in Strasbourg.

Heavy requirements

But crypto advocates don’t see it that way.

They say there are more onerous requirements for crypto firms than for traditional financial counterparts, pointing to the different levels of due diligence they must perform on low-value payments.

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EU lawmakers are causing confusion by saying the rules will level the playing field for crypto because “they’re not,” said Tommaso Astazi, head of regulatory affairs at Blockchain for Europe trade association.

Then again, the new regime could have been much worse for crypto.

As the negotiations continued in recent weeks, EU lawmakers dropped some of the tougher provisions for crypto.

‘After all the panic and confusion we ended up in a very good place for our industry.’

– Tommaso Astazi, Blockchain for Europe

For example, a requirement that would have restricted merchants from accepting payments of more than €1,000 from unidentified self-storage wallets has been dropped for the time being. However, other official sources a final call on the relevant articles will come during the technical discussions in the coming weeks.

“After all the panic and confusion, we ended up in a really good place for our industry,” Astazi said.

While this brings relief to policy observers, there are still concerns that the regulation could have a “chilling effect” on Europe’s crypto industry, according to Mark Foster, EU policy leader for the Crypto Council for Innovation.

If the EU is overbearing with DeFi industry compared to other jurisdictions, “developers will rise up where there are no such requirements,” he told DL News.

Self-service wallets

Another key takeaway from Wednesday’s negotiations is the removal of some of the burdensome provisions for non-custodial wallets, or what lawmakers call self-hosted wallets.

Although the restrictions on the amounts merchants are allowed to accept from self-hosted wallets that are not connected to a licensed crypto firm have been dropped, this does not mean that self-hosted wallets are off the hook.

“For self-hosted wallets, the commission has a mandate to monitor the evolution of the market and to identify technical solutions to identify users, it was a bit difficult to put it in place today,” said Damien Carême, member of the French Green Party, said on Thursday.

If a customer makes a payment made outside of a relationship between a licensed crypto firm, the transaction must “involve control of the customer to identify any instances of financing terrorism,” he said.

The anti-money laundering rules come as a host of regulations applied to the crypto sector in the 27-nation bloc.

The AMLR also prohibits crypto service providers from offering fully anonymous accounts.

The text of the legislation is still preliminary and may see changes during technical discussions in the coming weeks.

Once finalized, the bill will have to be approved by the finance ministers in the EU council and pass a vote in the European Parliament’s plenary session.

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Post-MiCA regulations

The anti-money laundering rules come as a host of regulations applied to the crypto sector in the 27-nation bloc.

Regulating markets in crypto-assets is the European Union’s landmark law that sets out a licensing regime for crypto-asset service providers, starting at the end of the year, and rules for stablecoin issuers, starting in June.

The Transfer of Funds Regulation will also apply from the end of the year, and also introduces provisions against money laundering.

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Also known as the Travel Rule, this will mean that crypto firms will have to record identifying information about the senders and receivers of crypto transactions.

This law already requires the verification and identification of transfers to and from self-storage wallets.

The European Banking Authority this week issued guidance for crypto firms on how to apply the travel rule, which will apply from December 30.

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