The European Union has taken a significant step towards tightening its grip on the cryptocurrency industry by enacting a comprehensive set of regulations aimed at combating money laundering and terrorist financing. The European Parliament has approved a package of laws that establish formal due diligence obligations for crypto-asset service providers (CASPs), such as centralized crypto exchanges operating under the Markets in Crypto-Assets (MiCA) regulation.
TLDR
- The European Parliament has passed a law implementing stricter anti-money laundering (AML) and customer due diligence rules for crypto-asset service providers (CASPs) like centralized crypto exchanges under the Markets in Crypto-Assets (MiCA) regulation.
- CASPs will be required to conduct stringent Know Your Customer (KYC) procedures, validate users’ identities, and maintain detailed transaction records, especially for transactions exceeding €1,000.
- The new rules aim to combat money laundering and terrorist financing by banning anonymity tools, crypto mixing services, and privacy coins.
- A new Authority for Anti-Money Laundering and Countering the Financing of Terrorism (AMLA) will be established in Frankfurt to oversee and supervise the implementation of the new rules.
- From 2029, top-tier professional football clubs involved in high-value financial transactions will also be subject to enhanced due diligence measures.
These new rules are a part of the EU’s broader strategy to monitor and control financial crimes associated with the crypto sector. CASPs will now be required to adhere to stringent Know Your Customer (KYC) procedures and validate their users’ identities through enhanced due diligence measures. Additionally, they will be obligated to maintain detailed records of transactions, particularly those exceeding €1,000 in value.
One of the primary objectives of these regulations is to tackle the privacy threats posed by certain cryptocurrency transactions. To achieve this, the EU has taken the drastic step of banning anonymity tools, crypto mixing services, and privacy coins. These measures are designed to provide greater transparency and surveillance over crypto transactions, enabling authorities to more effectively detect and prevent illicit activities.
The new legislation also establishes a dedicated regulatory body, the Authority for Anti-Money Laundering and Countering the Financing of Terrorism (AMLA), which will be headquartered in Frankfurt, Germany. AMLA will be responsible for overseeing and supervising the implementation of the new rules, ensuring that CASPs and other regulated entities comply with the prescribed standards.
In addition to CASPs, the regulations will also extend to other entities, including gambling services that operate in a centralized manner. From 2029, top-tier professional football clubs involved in high-value financial transactions with investors, sponsors, advertisers, or player transfers will also be subject to enhanced due diligence measures. These clubs will be required to verify the identities of their customers, monitor transactions, and report any suspicious activities to the relevant authorities.
4/ The AMLR will apply to all CASPs (exchanges, brokers etc.) that are regulated under MiCA. These CASPs will need to follow standard KYC/AML procedures like customer due diligence (CDD) etc.
This is nothing new, as all crypto exchanges & custodial wallet providers in the EU are… pic.twitter.com/ZN1AsWdBpw
— Patrick Hansen (@paddi_hansen) March 24, 2024
The new rules also introduce an EU-wide limit of €10,000 on cash payments, except for transactions between private individuals in a non-professional context. This measure aims to curb the potential use of cash for money laundering and other illicit financial activities.
While the regulations undoubtedly represent a significant tightening of the EU’s stance on crypto-related activities, it is important to note that some concessions were made during the legislative process. Initially, there were proposals for even stricter measures, such as requiring KYC checks on self-custody wallets. However, industry efforts advocating for a risk-based approach with multiple options ultimately led to a more balanced outcome.
The adoption of these regulations by the European Parliament is a clear indication of the EU’s commitment to combating financial crimes and ensuring the integrity of its financial system. By imposing stringent due diligence requirements and establishing a dedicated regulatory authority, the EU aims to create a more transparent and accountable environment for crypto-related activities.
However, it is crucial to strike a balance between necessary regulatory oversight and fostering innovation within the crypto industry. While the new rules seek to mitigate the risks associated with money laundering and terrorist financing, it is essential that they do not stifle the growth and development of legitimate crypto-based businesses and services.
As the crypto industry continues to evolve and gain wider adoption, it is likely that regulatory frameworks will undergo further refinements and adjustments to keep pace with the dynamic landscape. Ongoing dialogue and collaboration between policymakers, industry stakeholders, and security experts will be essential to ensure that the regulations remain effective and proportionate.
