Anti-money laundering: Provisional agreement reached on transparency of crypto asset transfers

(Source: Council of the EU and European Council)

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.

Background

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.

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