Europe, the great enemy of cryptos – Since the beginning of May 2021, we have been witnessing an unprecedented wave of regulations, affecting the entire crypto ecosystem. After China cracked down on Bitcoin, it’s regulators around the world who have been looking at stablecoins and anti-money laundering. Some players, such as Binance, are thus the target of repeated attacks by regulators, as if they had a message to send. With this new European regulatory proposal, the message is clear: no more anonymity possible for cryptocurrencies.
The European Commission is getting tough on cryptos
The European Commission unveiled its draft money laundering regulations on July 20. Among other things, the draft includes a section on digital assets and the identification of parties to a transaction. This provision takes up the recommendations of the Financial Action Task Force (FATF ) regarding the “travel rule”. This rule requires financial actors to be able to clearly identify the sender and beneficiary of any cross-border transaction over $10,000.
The draft plans to extend the rules of Regulation 2015/847, on money laundering and the “travel rule”, to digital asset transfers:
“It aims to reflect in EU law the June 2019 amendments to the FATF recommendation on new technologies to cover ‘virtual assets’ and ‘virtual asset service providers’ (VASPs), in particular the new reporting requirements for Crypto-Asset Service Providers (CASPs) originators and beneficiaries at both ends of a crypto asset transfer.”
Entities identified as CASPs, which are identical to the VASPs defined by the FATF, will be required to collect and share information about the originators and beneficiaries involved in CASP transactions over $1,000. As a result, in order to send $1,000 of cryptocurrency from one protocol to another, it will be necessary to have completed a full KYC.
“Today’s changes will ensure full traceability of transfers of crypto-assets, such as Bitcoin, and prevent and detect their possible use for money laundering or financial
of terrorism. In addition, anonymous wallets of crypto-assets will be banned. “
According to this proposal, service providers carrying out transfers must have the name of the originator, his account number, the number of the official personal document that identifies him (ID card, passport, …), the identification number of the customer and his date and place of birth
Moreover, the entity operating the account of the beneficiary of the transfer will have to verify that the transaction includes the data allowing to identify the issuer. In sum, under this proposal, digital assets would suffer the same fate as banking transactions.
Disastrous consequences for innovation
For several months now, actors such as ADAN in France
. ADAN’s concerns appear in the document, but are dismissed out of hand. Moreover, the text mentions that the reactions “from stakeholders have been largely positive”. However, this claim by EU bureaucrats seems to us to be greatly exaggerated, if not misleading.
“However, some EU VASP representatives have argued that the lack of a standardized, global, free and open source technical solution for the transfer rule could lead to the exclusion of small players from the cryptoasset market, with only large players having the means to comply with the rules. Nevertheless, for relevant entities operating on a cross-border basis and currently subject to divergent jurisdictional rules, significant compliance costs are created by these differences. Therefore, in the medium term, harmonised rules would lead to savings in the area of
compliance, and for newly covered entities, the additional costs would be mitigated. “
To put it simply, the European Commission graciously explains that there is absolutely no need to think about small crypto companies. Indeed, the latter would currently be victims of significant compliance costs and this proposal to harmonize European rules should reduce the costs for all crypto companies. In view of the measures included in this proposal, this statement seems to us absolutely false.
If the regulation were to be accepted as is, all crypto projects would have to have user identity verification capabilities. This would obviously include exchanges, but also all European DeFi projects, which currently have no compliance costs. The drafters of the project are thus illustrating themselves by their bad faith and their lack of understanding of the crypto ecosystem.
One thing remains reassuring, however: the draft regulation still has to make its way through the EU’s democratic apparatus. Initially, the European Parliament will have to deliberate on the draft, before amending it and then passing it. And this process may take several years, due to disagreements between the representatives of the Member States.
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