Crypto AML rules passed by MEPs

Members of the European Parliament’s economic affairs and home affairs committees have voted in favor of the anti-money laundering regulation, with 99 for, eight against and six abstentions. 

After weeks of back-and-forth negotiations between policymakers and stakeholders, the committees’ members agreed on their version of the text, which will move forward to a plenary vote in the Parliament. Then, it will enter inter-institutional negotiations where the Parliament, European Council and European Commission must come to an agreement.

For crypto, there are multiple implications. For one, decentralized autonomous organizations, NFT platforms and DeFi platforms will be subject to the AML rules. They will be obliged to comply as long as they are “controlled directly or indirectly, including through smart contracts or voting protocols, by identifiable natural and legal persons,” according to a draft obtained by The Block. 

Unlike the EU’s soon-to-be-enforced Markets in Crypto-Assets regulation, the anti-money laundering bill does include decentralized platforms as obliged entities. The aim of the AML file is to close the regulatory gap.  

“These categories will be obliged to conduct due diligence checks on all their customers and report suspicious transactions to the authorities, in the same way banks, financial institutions or real estate agents, for example, currently do,” a spokesperson from the office of Green party MEP Damien Careme wrote to The Block in an email. Careme is one of the two policymakers leading the European Parliament’s negotiations on the AML package.

Commercial payment caps

Should the regulation pass, credit and financial institutions must apply due diligence measures when enabling crypto transactions worth more than €1,000 ($1,080). Plus, there are enhanced due diligence measures for correspondent relationships with crypto service providers from outside the EU and payments involving self-hosted wallets. Business relations with unlicensed entities would be prohibited.

For commercial crypto payments, there would be a restriction on transactions of more than €1,000 in value stemming from self-hosted wallets unless the wallet’s owner is identified. In an earlier version of the text, policymakers set the limit for merchants accepting payments from service providers not licensed under MiCA. The industry pushed back on this, claiming this would hinder innovation and stray from the regulatory path already laid out for the EU.

“Far from prohibiting all crypto transactions above a €1,000 threshold, this provision insures that for self-hosted wallets, where identification of the owner is, by definition, very complicated, a limit is implemented,” Careme’s office wrote in the email.

There is a mandate for the European Commission to assess whether to adjust the rule on commercial payments in three years, to align with regulations, including the European Union’s digital identity framework and the newly proposed Anti-Money Laundering Authority’s requirements. 

Anonymous crypto accounts, as well as bank accounts, would be prohibited under the regulation. Other anonymizing tools, including privacy wallets, mixers and tumblers, are dubbed as higher risk. The Commission will also assess if they should be prohibited in the future.

A new anti-money laundering supervisor

On top of the Anti-Money Laundering Regulation, the EU has also proposed the establishment of a new Anti-Money Laundering Authority, which will oversee and enforce AML regulations across the 27-nation bloc, relieving some of the burdens from national authorities. The proposal passed with 102 votes in favor, 11 against and two abstentions in the joint committee vote.

While having an EU-wide AML authority would make it easier for crypto firms to navigate an otherwise fragmented set of national policies, there are still some concerns. The AMLA would need to be well-resourced to effectively oversee the crypto sector, several sources told The Block.

Isabella Chase, senior policy advisor at blockchain intelligence and risk management firm TRM Labs is optimistic about the impact of the new supervisory body. For crypto companies, “the AMLA could be a big opportunity to be in the room with supervisors sharing their experience of being supervised and hopefully establishing useful best practices that can then trickle down through the member states,” she said.

Updated to reflect the Anti-Money Laundering Authority proposal passed.

© 2023 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.