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

The European Parliament and the Council have reached a provisional agreement obliging crypto players to provide identifying information on cryptocurrency transactions.

End of the suspense for the TFR regulation (for “Transfer of Funds Regulation”). This regulation, which aims to apply measures against money laundering, had been under negotiation for several months between the various European institutions in Brussels (European Parliament, Council of the EU and European Commission).

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

What does this regulation contain?

Crypto service providers will become “obligated” entities under the Fourth Anti-Money Laundering Directive.

The TFR regulation will apply “to all transactions from/to Crypto Asset Service providers (or CASP, in other words service providers on digital assets -PSAN- in France) from the first euro. This therefore concerns all exchanges ( centralized exchange platforms, such as Binance, Coinbase, etc. With TFR, CASPs will be required to collect a great deal of private information on any party involved in a transaction.

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

“Verification of the identity of the beneficial owner of the non-hosted wallet will be mandatory for large transfers greater than 1,000 euros in the event that the transfer is made to or from the wallet belonging to the CASP client”, adds Ernest Urtasun.

What does not fit, however, in the TFR regulations are so-called P2P transfers (i.e. without going through CAPS). “The rules do not apply to person-to-person transfers carried out without a service provider, such as exchange platforms, or between service providers acting on their own behalf”, underlines the European Parliament in a press release. This is for example a person who has a non-hosted wallet who can transfer his cryptos to a digital wallet, to a hot wallet or to the blockchain.

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

The European Union is “making it harder 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 risks of money laundering and terrorist financing linked to these new technologies, while reconciling competitiveness, consumer and investor protection and the protection of financial integrity. internal market,” the statement read.

“Harmful” regulation according to the crypto sector

On the side of the cryptocurrency industry, it’s time for disappointment.

“This provisional agreement devotes the necessary efforts of Europe to establish a harmonized framework, guardian of fair competition within the European crypto-asset markets, which is now proving harmful for service providers on digital assets. the most virtuous, such as those already registered under national regimes, particularly in France”, regrets Faustine Fleuret, the president of the association for the development of digital assets (Adan), with BFM Crypto.

For the latter, the implementation of this regulation poses many problems.

“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 on these new markets. On the other hand, in terms of competitiveness of the sector internationally while Europe is going faster and further. It is unfortunate that the scope of TFR covers all operations in crypto-assets (from the first euro) and those between platforms and “unhosted wallets”. Finally, if supervision does not follow, this will ultimately prove detrimental to European industry in the face of its foreign competitors. The regulation will therefore 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 European level. In a letter sent to policymakers at the end of April, members of the crypto industry had recommended to “never exceed the recommendations of the Financial Action Task Force (FATF)”, the intergovernmental body for the fight against money laundering.

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

When will this regulation come into effect?

If a political agreement has been reached, technical discussions will be at work over the next few months before reaching a final agreement for implementation.

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

“At the latest 18 months after entry into force, the Commission will assess the need to review the regulation to add measures aimed at mitigating the risk of non-hosted portfolios”, emphasizes Ernest Urtasun.

As a reminder, the objective of the European regulation on transfers of funds (TFR) is to fight against money laundering and the financing of terrorism. Dating from 2015, this regulation was reopened in 2021 to introduce cryptocurrencies. In July 2021, the Commission notably carried out a impact analysis on the cryptocurrency sector, for the Council and the European Parliament.

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