Parliament and Council negotiators reached a preliminary agreement on Wednesday on new legislation to ensure the traceability of cryptocurrency transfers and block suspicious transactions.
Traceability from the transfer of the first euro
The agreement aims to extend the scope of the “travel rule” – which already exists in traditional finance – to include transfers of crypto assets. The rule states that information about the asset’s source and its beneficiaries must “travel” with the transaction and be stored on both sides of the transfer. Crypto asset service providers will be required to provide this information to the appropriate authorities in the event of an investigation into money laundering and terrorist financing.
Since crypto-asset transactions can easily circumvent existing thresholds that would create traceability requirements, Parliament’s negotiators have ensured that there are no minimum thresholds or exceptions for asset transfers, a small amount, as initially proposed.
Concerning the protection of personal data, in particular the name and address as required by the “travel rule”, the negotiators considered that such information should not be sent if there was no guarantee of the protection of personal data at the end of the chain .
Fight against money laundering and terrorist financing
Before making crypto assets available to beneficiaries, providers must verify that the source of the asset is not subject to restrictive measures or sanctions, and that there is no risk of money laundering, money or terrorist financing.
Negotiators have agreed to establish a public registry for non-compliant or unsupervised crypto asset service providers, which EU providers are not allowed to trade with. This registry will be subject to the Crypto Asset Markets Regulation, which is currently under negotiation.
The rules also apply to transactions by non-hosted wallets (a crypto-asset wallet address operated by a private user) when interacting with wallets operated by crypto-asset service providers.
If a customer sends or receives more than $1,000 to or from their own non-hosted wallet, the service provider must verify that the non-hosted wallet is actually owned or controlled by that customer.
The rules do not apply to transfers of crypto assets between individuals that are made without the involvement of a service provider, such as bitcoin exchanges, or between service providers acting on their own initiative.
Ernest Urtasun (Verts/ALE, ES), co-rapporteur of the Committee on Economic and Monetary Affairs: “This new regulation strengthens the European framework to fight money laundering, reduces the risk of fraud and makes transactions with crypto assets more secure. The EU ‘travel rule’ will not only ensure crypto-asset service providers can prevent and detect sanctioned addresses, but also that crypto-asset transfer assets are fully traceable. In addition, it introduces one of the most ambitious ‘travel rules’ for cryptocurrencies . transfers of assets in the world. We hope that other jurisdictions will follow the ambitious and rigorous approach agreed upon by the co-legislators today.”
Assita Kanko (ECR, BE), co-rapporteur from the Committee on Civil Liberties, Justice and Home Affairs, added: “Crypto assets have remained under the radar of our law enforcement agencies for too long. Terrorists used cryptocurrency for fundraising, child pornography and criminals used it to hide their activities. This has really taken its toll on many people’s lives and has led to concerns about the industry. Today we have taken an important step to tackle these problems. It will be much harder to sell crypto assets and innocent traders and investors will be better protected. The extension of the ‘travel rule’ will make the world a safer place.”
The Parliament, the Council and the Commission are now working on the technical aspects of the text. Before entering into force, the agreement must be approved by the Economic Affairs and Civil Liberties Committees, and then by Parliament as a whole.