The EU will ask crypto players to identify stakeholders in a 1 euro transaction

The European Parliament and the Council have reached a preliminary agreement that requires crypto players to provide identifying information about cryptocurrency transactions.

End of suspense for the TFR regulation (for “Transfer of Funds”). This regulation, which aims to implement anti-money laundering measures, has been the subject of negotiations between the various European institutions in Brussels (European Parliament, Council of the EU and European Commission) for several months.

On Wednesday evening, the European Parliament and the Council of the EU reached a “provisional agreement” on this regulation. MEP Ernest Urtasun, who was the rapporteur for this draft regulation, announced the news on his Twitter account. “We are putting an end to the Wild West of unregulated cryptos by closing key loopholes in European anti-money laundering rules,” he said.

What does this arrangement entail?

Crypto service providers are becoming “mandatory” entities under the Fourth Anti-Money Laundering Directive.

The TFR regulation will apply from the first euro to all transactions from/to Crypto Asset Service providers (or CASP, in other words service providers on digital assets -PSAN- in France). So this concerns all exchanges (centralized exchange platforms, such as Binance, Coinbase, etc. With TFR, CASPs will have to collect a lot of private information about every party involved in a transaction.

The TFR regulations will also apply to transfers from/to so-called “non-hosted” wallets (also called cold wallets, such as the Ledger wallet) to a CASP.

“Verification of the beneficial owner’s identity of the non-hosted wallet is mandatory for large transfers over €1,000 in the event that the transfer is made to or from the CASP customer’s wallet,” added Ernest Urtasun.

Transfers between non-hosted wallets will not be affected by the settlement. For example, this will be the case for a person with cryptocurrencies on a non-hosted wallet who wants to transfer them to another non-hosted wallet (from another person for example).

“This text is a real step forward. The European Parliament has improved it enormously by working well with the Council and the Commission. We would of course have seen it more ambitious, but it is already significantly improving the situation. And there was an urgent need to close certain legal loopholes,” MEP Aurore Lalucq, who took part in the work on this regulation, told BFM Crypto.

The European Union is “making it more difficult for criminals to misuse cryptocurrencies for criminal purposes,” the Council of the EU said in a press release on Wednesday.

“The new agreement will enable the EU to address the money laundering and terrorist financing risks associated with these new technologies, while reconciling competitiveness, consumer and investor protection and the protection of financial integrity in the internal market,” it said. in the statement.

“Harmful” regulations according to the crypto sector

On the cryptocurrency industry side, it is time for disappointment.

“This preliminary agreement is making the necessary efforts by Europe to establish a harmonized framework, guardian of fair competition within the European crypto asset markets, which is now proving to be detrimental to digital asset service providers. already registered under national regimes, especially in France,” Faustine Fleuret, the president of the Association for the Development of Digital Assets (Adan), regrets with BFM Crypto.

The implementation of this regulation poses many problems for the latter.

“On the one hand, operational in the absence of European solutions. These are essential as guarantors of our digital sovereignty and the protection of information and strategic data in these new markets. On the other hand, in terms of the sector’s competitiveness internationally while Europe is moving faster and further. It is a pity that the scope of TFR includes all operations in crypto assets (from the first euro) and those between platforms and “unhosted wallets”. Finally, if supervision is not followed, this will ultimately prove to be detrimental to European industry vis-à-vis its foreign competitors, so the regulation will not achieve its objectives,” adds the latter.

It had been several months since the cryptocurrency industry, through the voice of Ledger boss Pascal Gauthier, had warned of the risks of such a decision at the European level. In a letter sent to policymakers in late April, members of the crypto industry had recommended “never exceed the recommendations of the Financial Action Task Force (FATF)”, the intergovernmental anti-money laundering agency.

For example, FATF recommendations 15 and 16 are considered extreme, as are the measures AML (Anti Money Laudering) and KYC (for “Know Your Customer” or “know your customer”, a system to verify a customer’s identity) from the first euro. Likewise, for the crypto company, the TFR would not respect the rights associated with Europeans’ privacy.

When will this regulation come into effect?

If a political agreement is reached, technical discussions will take place in the coming months before a final agreement on implementation is reached.

The TFR regulation should come into effect when the MiCa regulation (for Market in crypto-assets) will apply, explains the MEP.

“No later than 18 months after its entry into force, the Commission will assess the need to revise the Regulation to add measures to reduce the risk of unhosted portfolios,” emphasizes Ernest Urtasun.

As a reminder, the aim of the European Money Transfer Regulation (TFR) is to combat money laundering and terrorist financing. This regulation dates back to 2015 and reopened in 2021 to introduce cryptocurrencies. In particular, in July 2021, the Commission issued a impact analysis on the cryptocurrency sector, for the Council and the European Parliament.

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