The European Union (EU) has agreed on anti-money laundering (AML) rules for cryptocurrencies that will oblige firms to check customer identities regardless of transaction size.
Regulators announced that they had entered a “provisional agreement” to update the existing rules governing AML for crypto service providers.
The rule is an expansion of the “travel rule” to cryptocurrencies, and will mandate crypto exchanges to collect information on both the sender and receiver of cryptocurrency transactions.
The European Council said that the move is geared towards “making it more difficult for criminals to misuse cryptocurrencies for criminal purposes” and “will ensure the traceability of crypto-asset transfers.”
The update is in line with the recommendations of the Financial Action Task Force (FATF) to reduce the risk of money laundering and terror financing globally.
Regulators noted that they were swayed in particular by the 15th and 16th recommendations and the need to protect investors and consumers while maintaining the financial integrity of the markets.
Under the updated rules, crypto service providers will collect details of both sender and receiver regardless of the amount of crypto transacted. This means that for transactions of one euro, crypto exchanges in Europe will have to employ the full AML process.
Crypto exchanges oppose the rules as they may further complicate their internal processes. Ajinkya Tulpule of bitFlyer noted that to comply with the rules, crypto exchanges will be forced to suspend some transactions until users complete the full know your customer (KYC) processes.
Another challenge faced by exchanges is the use of “some coins which are not covered by transaction monitoring systems.”
Over 40 leading crypto firms sent a letter of protest to the European regulators in April over the proposed rules. The exchanges claimed that the rule was against the ethos of user privacy and data safety.
War in Europe reason for update
Russia’s invasion of Ukraine is seen as a major motivator for the imposition of new rules. There are lingering fears Russia could turn to cryptocurrencies as a way around sanctions.
To prevent this possibility, EU regulators are frantically trying to create a legislative blueprint to govern the cryptocurrency industry on the continent.
The Markets in Crypto-Assets (MiCA) is nearing completion as parliamentarians make last-minute tweaks to what might just be the most significant piece of legislation for the industry.
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Source: Markets – BeInCrypto