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EU set to ban and restrict some of crypto’s most popular features – DL News
- EU cracks down on private currencies and self-managed wallets as part of new anti-money laundering regime.
- The changes, including a ban on crypto mixers, are expected this week.
- DeFi, DAO, and NFT platforms, among others, will need to increase their due diligence on users.
Limit self-held wallet payments. Increase tracking of cryptocurrency transfers. Ban private cryptocurrencies.
These are three crucial changes that European Union lawmakers are expected to make this week as they complete a three-year process of updating the bloc’s rules on money laundering and terrorist financing in the financial sector.
What’s at stake
The European Commission, Council and Parliament are currently finalising the final details of this far-reaching regulation in a process known as trilogues.
Here’s what’s at stake for the crypto industry, based on draft bills and internal negotiation memos seen by DL News:
The Anti-Money Laundering Regulation, or AMLR, will work in tandem with the Markets in Crypto Assets Regulation, or MiCA. Parts of the latter are expected to come into force this year. The AMLR law’s effective date is still being negotiated, but it is expected to occur between 2026 and 2027.
For cryptocurrency advocates, the main challenge is to ensure that AMLR does not disrupt the regulatory clarity established by lawmakers in MiCA. Ideally, the two laws should work in harmony and establish clear rules for cryptocurrency businesses.
Unlike the confusing situation in the US, the EU has been praised by crypto industry leaders for presenting a clear new regime. But with every new law comes the risk of overburdening crypto businesses, especially startups and other self-funded businesses.
“Our main objective has been to ensure that the scope of AMLR does not exceed that of MiCA,” said Tommaso Astazi, head of regulatory affairs at Brussels-based lobby group Blockchain For Europe.
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In both regulations, purely decentralized protocols are excluded. But MiCA-licensed crypto businesses — including some DeFi projects, DAOs, NFT platforms, and wallet service providers — all fall under its purview.
Anonymization tools
The AMLR law requires companies to strengthen the identification and monitoring of their customers’ transactions. In addition, the regulation targets anonymization tools.
Since the regulation was proposed in 2021, crypto lobbyists have fought to ensure that lawmakers do not scrutinize the industry more than other financial sectors.
It has not been easy amid scandals such as Binance Admission It violated U.S. law by failing to implement adequate controls against money laundering and terrorist financing.
Ahead of the next AMLR trilogue session on Wednesday, here are the main cryptocurrency issues on the table:
“Few people were willing to defend these privacy-enhancing tools.”
— Tommaso Astazi, Blockchain for Europe
The EU Council wants to ban cryptocurrencies that increase anonymity. These would include private cryptocurrencies such as Monero and Zcash.
“Not many people were willing to stand up for these privacy-enhancing tools,” Astazi said. Blockchain For Europe represents some of the largest cryptocurrency companies, including Binance, Coinbase and Kraken.
This year, cryptocurrency exchanges have target Privacy-focused coins. OKX has delisted several key privacy-focused trading pairs, Binance may delist them in the future as it has started monitoring them.
‘High-risk’ cryptocurrency mixers
The European Commission will have to present a report assessing whether to ban anonymous accounts offered by crypto service providers offering “high-risk” privacy wallets, as well as crypto mixers like Tornado Cash.
The commission and council have suggested the report be published three years after the laws come into force, potentially by 2027, but parliament hopes to push that back to two years.
Limits of the personal custody portfolio
The regulation would prohibit companies from offering anonymous accounts. Yet in response to crypto industry advocates, lawmakers amended the binding language that would prohibit companies from offering self-hosted wallets, which are run by individuals rather than commercial firms.
Parliament, however, wants to limit to €1,000 the amount that merchants are allowed to accept from self-hosted wallets without the intervention of a licensed cryptocurrency company. Any violation would result in sanctions.
Parliament also asks the Commission to report back to it on whether these provisions should be amended in three years’ time to adapt to European plans to roll out a digital identity framework.
According to a person familiar with the political process, the provision could be dropped because of resistance from the commission and council about its feasibility.
“The idea is that in a peer-to-peer environment, merchants should be able to accept crypto payments without having to rely on an intermediary. [like a crypto firm]” , Astazi said.
“In the future, we plan to develop technological solutions that will allow citizens and merchants to accept cryptocurrency payments through personal wallets, in a manner that complies with know-your-customer rules.”
Customer Due Diligence for All Cryptocurrency Payments
After Hamas’ attack on Israel on October 7, lawmakers rushed to stop terrorist organizations to use cryptocurrencies to fund their operations, particularly in light of reports that the Palestinian group was using digital assets to help fund its militants.
In November, the European Parliament proposed adding additional due diligence measures for companies handling cryptocurrency transactions below €1,000. Other forms of payment would not need these additional measures.
The rationale was that terrorist groups often use low-value transactions to conceal their financing practices.
Regulation, not directive
Cryptocurrency businesses in Europe must comply with previous EU anti-money laundering laws. To register with national authorities, cryptocurrency service providers must comply with AML standards.
But the current regulation is a directive, not a regulation. A directive means that each Member State can interpret and apply the rules in its own way.
This explains the large differences in the number of cryptocurrency business registrations in the EU. For example, the Czech Republic has almost 10,000 registered entities, while Belgium has none.
But a regulation is much stricter than a directive, and the laws will be applied more uniformly across the 27-nation bloc.
In addition, the EU’s anti-money laundering package establishes a new authority that will oversee the rules once they are adopted.
This article was updated on January 17 with more information on when AMLR will be implemented.
Got any tips on crypto in Europe? Contact the author at inbar@dlnews.com