New EU AML Rules Receive Mixed Reactions from Crypto Industry

• EU Parliament and Council Establish Provisional Anti-Money Laundering Regulations for Crypto
• Unease in the Crypto Industry
• Statements from Industry Advocacy Group Blockchain for Europe
• Introduction of the AMLR
• Impact and Scope of the AMLR
• Discussions on NFTs, DeFi, and Anonymizing Tools
• Equal Regulations for Banks and Crypto Firms?
• Final Thoughts on the AMLR Negotiations

EU Parliament and Council Establish Provisional Anti-Money Laundering Regulations for Crypto

The European Parliament and EU Council have arrived at an interim agreement on an anti-money laundering regulatory package that implicates cryptocurrency. The approved framework mandates that crypto firms implement customer due diligence for transactions exceeding 1,000 euros. The industry largely favours the outcome of the framework, but some believe it may not be as equitable as policymakers suggest.

Unease in the Crypto Industry

Crypto industry actors are apprehensive about the new anti-money laundering regulations established by European Union policymakers. These regulations are seen as more severe than those that apply to more conventional financial institutions. This week, EU policymakers came to an agreement on a comprehensive anti-money laundering regulatory framework, which imposes stringent requirements on crypto firms.

Under this agreement, service providers must comply with strict customer verification requirements and take steps to mitigate the risks of transactions involving self-hosted wallets and cross-border transfers. While the goal was to create a level playing field by applying the same rules to crypto firms and financial institutions, some in the industry are sceptical about the sincerity of this claim.

Statements from Industry Advocacy Group Blockchain for Europe

Robert Kopitsch, secretary-general at the industry advocacy group Blockchain for Europe, stated, Despite the enthusiastic press statements of the co-legislators about this agreement, a level-playing field has not been created, as the thresholds for crypto asset service providers and other financial institutions are not equal. The EU crypto industry also lobbied extensively during the legislative session to exclude non-fungible tokens (NFT) and decentralized finance (DeFi) from the package's scope.

Introduction of the AMLR

The EU made a historic move last year when it established the first comprehensive regulatory framework for crypto by a major jurisdiction. Along with the groundbreaking Markets in Crypto Assets (MiCA) regulation, the bloc also enforced rules for gathering information on crypto transfers (TFR) as part of the wider Anti-Money Laundering Regulation (AMLR).

Impact and Scope of the AMLR

The AMLR is an extensive effort by the 27 European states to combat illegal fund flows and sanctions evasion. It targets anything from jewelry and luxury cars to large football clubs as potential vehicles for laundering funds and limits large cash payments in the EU to 10,000 euros ($10,888). The AMLR assists in creating a single rulebook for the EU and establishes a supervisory authority that will also oversee the crypto sector.

Discussions on NFTs, DeFi, and Anonymizing Tools

There was intense debate about whether to include non-fungible tokens (NFT) in the regulation's scope. Vyara Savova, senior policy lead at the industry advocacy group, the EU Crypto Initiative, stated that these assets are likely to remain excluded from the package. Concerns were raised that the AMLR would seek to prohibit or restrict crypto anonymizing tools amid sanctions against Tornado Cash, and fears that crypto was being used by sanctioned entities.

Equal Regulations for Banks and Crypto Firms?

AMLR aims to treat crypto asset service providers the same as credit institutions, imposing equal obligations on both. However, according to Kopitsch, the agreed measures apply different thresholds to crypto firms, cash transactions, and financial institutions for applying customer due diligence. Crypto firms will also need to conduct basic know-your-customer (KYC) checks on all occasional transactions, which occur outside of business relationships.

Final Thoughts on the AMLR Negotiations

Despite differences, the industry is generally satisfied with the final outcome of the AMLR negotiations. As the regulatory package is yet to be formally adopted by Parliament and Council, there is no set timeline for the process. However, technical discussions on the AMLR are anticipated to be intensive, with hopes that the package will be ready for Parliamentary approval in April.

Edited by Jonathan Stoker