DeFi
EU to ban mixers and force crypto companies to monitor users, undermining DeFi anonymity – DL News
- The anti-money laundering regulation was adopted in a final vote in the European Parliament.
- The bill requires crypto companies to collect more user data.
- Tools providing anonymity services will be banned under the bill.
Crypto could lose some of its promise of privacy and self-banking after the European Union voted to strengthen oversight of the sector in a bill targeting money laundering at financial institutions and businesses to risk.
The bill passed by the European Parliament will force crypto companies to collect more data on users and their transactions, impose stricter monitoring of non-custodial wallets and ban anonymity-enhancing tools such as crypto mixers and privacy tokens.
“The biggest loss will be the loss of privacy and the relative ease of transaction that we are accustomed to in the industry,” said Marina Markezic, executive director of the trade association European Crypto Initiative. DL News.
The crypto industry has closely followed the nearly three years of negotiations leading up to the vote, which took place amid a broader crackdown on privacy features that are a big draw for supporters of decentralized finance.
“From cash to cryptocurrencies, from real estate to luxury goods and football clubs, we are targeting all areas where there is a real risk of illegal activity,” the EU Finance Commissioner said on Wednesday. , Mairead McGuinness.
The regulation updates and strengthens the rules against financial crime in all 27 countries for financial and credit institutions. It is part of a wider package renewing the EU’s approach to money laundering.
Lawmakers have placed responsibility on crypto asset service providers, strengthening the requirements that crypto companies must meet to collect data on user identification.
The bill, which is in the final stages before becoming law, comes as money laundering concerns plague the crypto industry.
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Software developers behind Tornado Cash crypto mixer under scrutiny In Europe and the United States. Prosecutors accuse the developers of allowing criminals to launder $1.2 billion in dirty money.
And Changpeng Zhao, founder and former CEO of Binance, the world’s largest cryptocurrency exchange, faces sentencing next week after pleading guilty to violating rules aimed at preventing state money laundering -United.
Starting in 2026, a new EU agency in Frankfurt, Germany, will oversee laws against money laundering and terrorist financing and directly supervise the riskiest institutions.
But first, EU finance ministers will have to approve the text before it is published as law.
Self-hosted wallets
Crypto companies will need to more closely monitor non-custodial wallets, or what European lawmakers call “self-hosted wallets.”
These wallets allow individuals to have full ownership and control of their own funds, without any intermediaries. This financial independence represents one of the fundamental propositions of the crypto industry.
Service providers will need to identify and verify users, monitor transactions and request more information about senders and recipients.
All of this goes against industry best practices of holding crypto assets in a secure, non-custodial wallet rather than a custodial wallet in order to protect users from the weaknesses of centralized exchanges and crypto custodians.
“This is indirectly discouraged by regulation,” Markezic said.
The legislation will not affect service providers that develop purely technology-based non-custodial wallet software, such as MetaMask.
An earlier version of the bill would have placed limits on the funds merchants could accept from self-hosted wallets, but this was dropped in the final version following industry lobbying.
Ban anonymity tools
The bill also prohibits tools allowing anonymity. This includes the list of tokens like Monero or Zcash.
The offering of crypto mixing services, which obscure transaction history, will also be prohibited.
Now crypto companies must identify and verify user identities, monitor transactions, and request more information about senders and recipients.
Know-your-customer, or KYC, processes could end up imposing burdens on users rather than encouraging them to use blockchain technologies, Markezic said.
For crypto transfers below €1,000, service providers must perform basic KYC to identify their users.
For transactions above €1,000, due diligence measures apply, which means longer-term tracking of user behavior and identity in addition to KYC.
However, some prejudices against self-hosted wallets remain. For the same measures, cash payments are limited to €10,000.
Clear rules
On the bright side, the crypto industry will have more secure safeguards to prevent crime and harm to users, which could make it easier to adopt crypto assets, Markezic said.
The regulation provides “certainty and predictability,” Markezic said, especially for new arrivals. Anti-money laundering rules make the crypto industry “more attractive to investors and users without prior crypto experience,” she said.
Inbar Preiss is a regulation correspondent based in Brussels. Contact her at inbar@dlnews.com.