Brussels, 29 June 2022
- First EU rules for tracing transfers of crypto-assets like bitcoins and electronic money tokens
- Ensuring crypto-assets can be traced in the same way as traditional money transfers
- The legislation is part of the new EU anti-money laundering package and will be aligned with the Markets in Crypto-assets rules (MiCA)
Transfers of crypto-assets will be traced and identified to prevent money laundering, terrorist financing, and other crimes, says the new legislation agreed on Wednesday.
Parliament and Council negotiators reached a provisional deal on a new bill aiming to ensure that crypto transfers can always be traced and suspicious transactions blocked.
Traceability from the first euro sent
The agreement extends the so-called “travel rule”, already existing in traditional finance, to cover transfers in crypto assets. This rule requires that information on the source of the asset and its beneficiary travels with the transaction and is stored on both sides of the transfer. Crypto-assets service providers (CASPs) will be obliged to provide this information to competent authorities if an investigation is conducted into money laundering and terrorist financing.
As crypto-asset transactions easily circumvent existing thresholds that would trigger traceability requirements, Parliament negotiators assured that there is no minimum thresholds nor exemptions for low-value transfers, as originally proposed.
Regarding protecting personal data, including a name and an address required by the travel rule, negotiators agreed that if there is no guarantee that privacy is upheld by the receiving end, such data should not be sent.
Curbing money laundering and terrorism financing
Before making the crypto-assets available to beneficiaries, providers will have to verify that the source of the asset is not subject to restrictive measures or sanctions, and there are no risks of money laundering or terrorism financing.
Negotiators agreed that the set-up of a public register for non-compliant and non-supervised CASPs, with which EU CASPs would not be allowed to trade, will be covered in the Markets in Crypto-assets rules (MiCA), currently being negotiated.
The rules would also cover transactions from so-called un-hosted wallets (a crypto-asset wallet address that is in the custody of a private user) when they interact with hosted wallets managed by CASPs.
In case a customer sends or receives more than 1000 euros to or from their own un-hosted wallet, the CASP will need to verify whether the un-hosted wallet is effectively owned or controlled by this customer.
The rules do not apply to person-to-person transfers conducted without a provider, such as bitcoins trading platforms, or among providers acting on their own behalf.
Ernest Urtasun (Greens/EFA, ES), co-rapporteur for ECON said:
“This new regulation strengthens the European framework to fight money-laundering, reduces the risks of fraud and makes crypto-asset transactions more secure. The EU travel rule will ensure that CASPs can prevent and detect sanctioned addresses and that transfers of crypto-assets are fully traceable. This regulation introduces one of the most ambitious travel rules for transfers of crypto assets in the world. We hope other jurisdictions will follow the ambitious and rigorous approach the co-legislators agreed today.”
Co-rapporteur for LIBE Assita Kanko (ECR, BE) said:
“For too long, crypto-assets have been under the radar of our law enforcement authorities. Terrorists used crypto for fundraising, to access to child pornography and criminals laundered their proceeds through it. This has really harmed people’s lives and raised doubts about the crypto sector. Today, we have taken a big step to address these problems. It will be much harder to misuse crypto-assets and innocent traders and investors will be better protected. The extended travel rule will make that world safer”.
Parliament, Council and Commission are now working on the technical aspects of the text. Thereafter, the agreement must be approved by the Economic and Monetary Affairs and Civil Liberties and Justice Committees and Parliament as a whole, before it can enter into force.
Assita Kanko (ECR): “New crypto-transfer rules will oust crime and protect investors”
An agreement was reached between Parliament, Council and Commission on new rules to improve traceability of crypto-asset transfers. ECR MEP Assita Kanko was the Parliament’s lead negotiator, together with MEP Ernest Urtasun (Greens), on the law, called the ‘Transfer of Funds Regulation’.
Assita Kanko said,
“For too long, crypto-assets have been under the radar of our law enforcement authorities. For too long, terrorists have used crypto for fundraising, access to child pornography has been bought with crypto and criminals have laundered their proceeds through crypto. This has harmed the real lives of real people and placed question marks over the crypto sector as a whole.
“Today, we have taken a big step to address these problems. Misuse of crypto-assets will be much harder and innocent traders and investors will be better protected. The extension of the travel rule, which has existed for many years in traditional finance, to the crypto world, will make that world safer.”
The agreement extends the so called ‘travel rule’, which already applies to wire transfers (bank to bank) to transfers in crypto-assets. This means that the same information that banks have to send when performing an international transfer on behalf of a client will now have to be sent by crypto platforms as well. Peer-to-peer transactions are excluded from the rules. Crypto platforms will also have to comply with due diligence standards. They must know their clients and take reasonable measures to be able to recognize suspicious trading behaviour. Crypto platforms as well as banks are also instructed to have procedures in place to fully comply with sanctions, such as on Russian oligarchs and officials.
“The rules are proportionate. They do not ask the impossible of crypto platforms but rather reasonable measures to combat money laundering and terrorist financing. They are in line with international recommendations and legislation that is now being enforced in countries like Switzerland, Singapore and the United Kingdom.
“I am glad that the European Parliament, the Commission and the 27 national governments of our Member States were able to agree on this new law today.”
The Transfer of Funds Regulation is linked to the ‘Markets in Crypto-Assets’ Regulation which is currently also under negotiation. When in force, these two laws together will provide the regulatory framework for crypto trading in the European Internal Market.
EU Council: Provisional agreement reached on transparency of crypto asset transfers
29 June 2022
The EU is making it more difficult for criminals to use crypto currencies for money laundering
The EU is making it more difficult for criminals to misuse crypto currencies for criminal purposes. Negotiators from the Council presidency and the European Parliament have reached a provisional agreement on the proposal updating the rules on information accompanying the transfers of funds by extending the scope of those rules to transfers of crypto assets. The introduction of this “travel rule” will ensure financial transparency on exchanges in crypto-assets and will provide the EU with a solid and proportional framework that complies with the most demanding international standards on the exchange of crypto-assets, in particular recommendations 15 and 16 of the Financial Action Task Force (FATF), the global money laundering and terrorist financing watchdog. This is especially timely in the current geopolitical context.
The aim of this recast is to introduce an obligation for crypto asset service providers to collect and make accessible certain information about the originator and the beneficiary of the transfers of crypto assets they operate. This is what payment service providers currently do for wire transfers. This will ensure traceability of crypto-asset transfers in order to be able to better identify possible suspicious transactions and block them.
The new agreement will enable the EU to deal with the risks of money laundering and terrorist financing linked to these new technologies, while reconciling competitiveness, consumer and investor protection, and the protection of the financial integrity of the internal market.
In particular, the new agreement requires that the full set of originator information travel with the crypto-asset transfer, regardless of the amount of crypto assets being transacted. There will be specific requirements for crypto-asset transfers between crypto-asset service providers and un-hosted wallets.
Regarding data protection, the co-legislators agreed that the general data protection regulation (GDPR) remains applicable to transfers of funds, and that no separate data protection rules will be set up.
The improved traceability of transfers of crypto assets will also make it more difficult for persons and entities which are subject to restrictive measures to try to circumvent them. In addition, crypto-asset service providers will have to implement appropriate internal policies, procedures and controls to mitigate the risks of evasion of national and Union restrictive measures. More generally, the entirety of sanctions already applies to all natural and legal persons, including those operating in the crypto currencies sector.
In due course, member states will have to ensure that all crypto asset service providers qualify as obliged entities under the 4th AML directive. This will enable the EU to align with FATF recommendations and level the playing field between member states that have developed so far different approaches in that regard.
Co-legislators also agreed on the urgency to ensure traceability of crypto-asset transfers and chose to align the timetable for application of this regulation with that of the markets in crypto assets (MiCA) regulation.
This proposal is part of a package of legislative proposals to strengthen the EU’s anti-money laundering and countering terrorism financing (AML/CFT) rules, presented by the Commission on 20 July 2021. The package also includes a proposal to create a new EU authority to fight money laundering.
The Council agreed its position on the transfer of funds proposal on 1 December 2021. Trilogue negotiations started on 28 April and ended in the provisional agreement reached now, which still needs to be confirmed by the Council and the Parliament before it can be formally adopted.
- Anti-money laundering: Council agrees its negotiating mandate on transparency of crypto-asset transfers (press release, 1 December 2021)