tl;dr Summary: On Mar 31, 2022, the European Union (EU) parliament voted in favor of tougher regulatory measures on crypto transactions. The move, which is part of a bigger fight against money laundering and financial crime, is seen by the industry as anti-innovation and anti-privacy.
The draft regulation included three elements meant to bring uniformity in regulating crypto-assets within the EU:
- Having a uniform legal framework for crypto-assets.
- Protecting consumers and safeguarding against market manipulation and crime.
- Including crypto-assets mining within the EU taxonomy for sustainable activities.
The first two elements were passed making them part of the latest version of the proposed regulation. The third, which sought a ban on “proof of work” did not pass and is out of the proposed regulation.
These measures would prohibit anonymous crypto transactions by forcing service providers like exchanges to collect information from individuals about their transactions with self-custody or private wallets.
According to Euronews.com, “The $2.1 trillion (€1.9 trillion) crypto sector is still subject to patchy regulation across the world. But concerns that Bitcoin and its peers could upset financial stability and be used for criminal purposes have accelerated work by policymakers to bring the sector to heel.”
The crypto industry’s reaction says it all. Brian Armstrong (co-founder and CEO of Coinbase) said that this proposal is anti-innovation, anti-privacy, and anti-law enforcement. He also called on the industry to reach out to the EU members.
In his tweet, Brian said that this regulation treats crypto and people holding them differently from fiat since it intends to remove the €1000 threshold available for fiat.
Exchanges will now be required to collect, store and verify information of people making transactions with self-custody wallets who are not their customers and also report all transactions above €1000 back to the authorities.
Unstoppable Finance, a DeFi wallet project, said in their article, “Transfers from crypto service providers (exchanges, etc.) to DeFi wallets would become more costly and burdensome. All without a clear benefit in the context of AML (Anti Money Laundering).”
During the debate, co-rapporteur Eero Heinäluoma said, “a crackdown on money laundering was needed following Russia’s invasion of Ukraine, which unleashed a wave of global sanctions against Russian government officials and oligarchs.”
The Commission also said that the threshold of €1000 would not be appropriate as crypto users could easily bypass the rules by creating unlimited transfers.
The plans must now be agreed on by both the parliament and national ministers, who meet as the EU Council, to pass this into law.