EU Tightens Crypto Rules to Fight Money Laundering

The European Union has reached a provisional agreement on a new anti-money laundering regulation that will affect the crypto sector. The regulation aims to increase the transparency and traceability of crypto transactions and prevent criminals from using crypto assets for illicit purposes.

The new regulation, which is part of a broader package to combat money laundering and terrorist financing, will require all crypto asset service providers to apply customer due diligence measures when carrying out transactions amounting to €1,000 ($1,090) or more. This means that crypto firms will have to collect and make accessible certain information about the originator and the beneficiary of the transfers of crypto assets they operate. This is similar to what payment service providers currently do for wire transfers.

The regulation will also introduce measures to mitigate the risks associated with transactions involving self-hosted wallets, which are not controlled by any intermediary. These measures include enhanced due diligence, monitoring, and reporting obligations for crypto firms.

EU Tightens Crypto Rules to Fight Money Laundering
EU Tightens Crypto Rules to Fight Money Laundering

The regulation is based on the recommendations of the Financial Action Task Force (FATF), the global money laundering and terrorist financing watchdog, which has set the international standards for the exchange of crypto assets. The EU aims to comply with the most demanding and up-to-date global requirements, while also ensuring the competitiveness, innovation, and protection of the crypto sector and its users.

A Single Rulebook and a Supervisory Authority

The new regulation is part of a wider reform of the EU’s anti-money laundering system, which also includes the creation of a single rulebook and a supervisory authority. The single rulebook will harmonize the rules and definitions across the EU, and the supervisory authority will oversee the compliance and enforcement of the rules by the national authorities and the crypto sector.

The reform is expected to improve the coordination and cooperation among the EU member states and the relevant stakeholders, and to enhance the effectiveness and efficiency of the EU’s response to the evolving threats of money laundering and terrorist financing.

The reform also aims to address the challenges posed by the sanctions evasion and the circumvention of national and EU restrictive measures by criminals and terrorists. The regulation will require crypto firms to implement appropriate policies and procedures to prevent and detect such activities, and to cooperate with the authorities in case of suspicion.

A Balanced and Proportional Framework

The EU claims that the new regulation will provide a balanced and proportional framework that respects the fundamental rights and freedoms of the crypto sector and its users, while also protecting the financial integrity and stability of the internal market.

The regulation will not apply to transfers of crypto assets that are not used for payment purposes, such as non-fungible tokens (NFTs) or utility tokens. The regulation will also respect the data protection and privacy rights of the users, and will not introduce any separate data protection rules for crypto transactions.

The regulation will also acknowledge the diversity and innovation of the crypto sector, and will allow for the adoption of technical solutions and standards that can facilitate the implementation of the rules and the interoperability of the systems.

The regulation will be subject to the formal approval of the European Parliament and the Council, and will enter into force 20 days after its publication in the Official Journal of the EU. The regulation will be directly applicable in all EU member states, without the need for national transposition.

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