BY CONNOR STEENS
In a significant move that will bring crypto assets in closer monitoring alignment with fiat currencies, The European Parliament reached a provisional agreement on the 29th of June. The agreement aims to ensure cryptocurrency transactions can always be traced and potentially suspicious transactions can be blocked.
The Agreement in the EU looks to extend the travel rule, already in existence for fiat currencies, to include the transfer of crypto assets. In a bid to increase transparency the legislation calls for “traceability from the first euro sent.”
This requires crypto asset service providers (CASPs) to collect, and make accessible, information pertaining to the source of the asset and its beneficiary. This information is also to be transferred with the asset and stored on both sides of the transaction. With regard to reporting thresholds, it has been stated that there will be no minimum threshold or exemption for lower value transfers, as was originally proposed.
The security of personal data also came into question. It was decided that if there is no guarantee that privacy is upheld on the receiving end of the transfer, such information should not be sent.
The Agreement also aims to curb money laundering and terrorist financing. Rules introduced mean that before crypto-assets are made available to beneficiaries, CASPs will be required to confirm that the source of the asset is not a money laundering or terrorism financing risk, and verify that the asset is not subject to any sanctions or restrictive measures. Building from this, a public register of non-compliant and non-supervised CASPs will be established. EU CASPs will be restricted from trading with entities on this register. More information will be covered in the Markets in Crypto-assets rules (MiCA) which is currently being developed.
Traceability rules will also come into effect when an un-hosted wallet (wallet maintained by a private user) interacts with a hosted wallet that is managed by a CASP. If a customer sends or receives more than €1000 worth of crypto to or from their own un-hosted wallet the CASP in question will be required to verify that the un-hosted wallet is “effectively owned or controlled by the customer”. These rules will not apply to person-to-person transfers conducted without a provider.
The technical aspects of the agreement are yet to be confirmed and published, however, affected entities will have 9 months to perform phased rollouts applying the new rules and are expected to be fully compliant within 18 months.
The European Commission praised the provisional agreement stating that the introduction of the new rules will significantly enhance the monitoring and traceability of crypto-asset transfers and ensure compliance with the relevant measures called for in the Financial Action Task Force (FATF) Recommendations.