A week ago, the EU Parliament and Council reached a preliminary agreement on parts of a new anti-money laundering package. What some critics called a "disastrous development" is in fact the straightforward application of the international travel rule to crypto assets.
The package deals with money laundering in general and touches on crypto assets only briefly. Specifically, the so-called "Travel Rule" is to be strictly implemented for cryptocurrency transfers. This includes comprehensive customer verification to prevent money laundering (KYC/AML) when interacting with third parties such as exchanges.
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Application of the Travel Rule in the EU
The Travel Rule is a guideline of the Financial Action Task Force (FATF), an international body that sets standards to combat money laundering and terrorist financing. According to the requirements of the Travel Rule, data on the sender and recipient of a wire transfer must be collected, exchanged and stored in certain cases. This applies to transfers to, from, or between regulated third parties such as cryptocurrency exchanges.
Under the new anti-money laundering regulation, crypto service providers must exercise strict due diligence for customer transfers exceeding €1,000. In Switzerland, the same regulations apply without a lower threshold. Since July 2023, the Western Swiss crypto broker Bity has been challenging this FINMA regulation in court. Some crypto advocates have misunderstood the EU proposal as being more restrictive than the regulations in Switzerland. However, it's important to note that the regulations do not apply to transfers between two individuals, as Travel Rule expert Hannah Zacharias clarified to CVJ.CH.
"The new AMLR has no impact on peer-to-peer transfers. Crypto Asset Service Providers (CASPs) have to identify self-hosted wallets, but ownership verification of their customers is only required for transfers above 1,000 EUR. Compared to Switzerland, where all transfers to and from self-hosted wallets require proof of ownership regardless of value, the EU has opted for a more flexible approach". - Hannah Zacharias, Regulatory Engagement Lead, 21 Analytics
Complementary regulation to MiCA
The AML adaptation will be introduced independently of the Markets in Crypto Assets (MiCA) proposal. In April, the EU Parliament adopted the groundbreaking legal framework that will, for the first time, create a single set of rules for crypto service providers in the European Economic Area. Both packages are expected to enter into force in 2025. While the new package tightens specific AML requirements, it does not fundamentally change the crypto framework.
"MiCA represents the first comprehensive legal framework for crypto assets in the EU and, once implemented, will provide much-needed legal certainty in the European Economic Area. The regulation will create a stable legal environment for the development of new crypto-based products and services." - Assessment by CVJ.CH editorial team, April 2023
