Last week, the Committee of the European Parliament on Economic and Monetary Affairs (ECON) and the Committee of Civil Liberties, Justice and Internal Affairs (LIBE) voted in favor of a regulatory update which could compromise the capacity of exchange platforms to deal with non -guardian cryptographic portfolios. If the regulatory project reached the legislation phase in the coming months, it would place serious disclosure requirements on transactions between non -guardian portfolios and crypto exchanges in the European Union – a process whose signs are also visible in other parts of the globe.
What happened
On Thursday, March 31, members of the ECON and LIABE voted on the regulation of the fight against money laundering (AML), which aims to revise the current fund transfer (TFR).
The revised version of the TFR brings several legal threats to “safe” or self-affronted portfolios. Cryptographic service providers should “check the accuracy of () information concerning the initiator or the beneficiary behind the portfolio without a ditch” for each transaction made between a service provider (generally, an crypto exchange) and an un-mouche portfolio.
It can be difficult, if not impossible, for cryptographic service providers to check each counterpart “without a ditch”. Consequently, while the defender of the Crypto Patrick Hansen of the Blockchain Unstoppable Society Defi warned, to remain in conformity and not to compromise their legal position on the European market, certain companies may want to block transactions with self-déracinated portfolios if they are faced with such requirements of surveillance and disclosure. Small businesses could find the potential costs of too high compliance and leave the market to established players, which would lead to new centralization of the market.
The legislation would also oblige cryptographic companies to inform the “competent LMA authorities” of any transfer of a value of 1,000 euros (around $ 1,010) or more to or from a portfolio “without a ditch”, a surveillance threshold which is even lower than that of trustee banking operations.
The next stage of the legislation is the announcement during the plenary session of the EU Parliament, which, according to Hansen, could take place in April. If there remains undoubtedly there, the legislation will head towards the negotiations of trial between the European Parliament, the European Commission and the Council of Europe. These negotiations could take months, but their conclusion will mark the bill. After that, the cryptography industry would have nine to 18 months to comply with the legislation.
Part of a greater trend
With its increased activity on the front of cryptography regulation, the European Union is not the only one in its suspicion of non -guardian wallets. In addition to local initiatives to impose a stricter examination at each cryptographic transaction, for example, in the Netherlands and Switzerland, American regulators have turned portfolios not clinial in recent years.
In 2020, the US Financial Crimes Enforcement Network (Fincen) proposed a rule that would synchronize the registration and file holding requirements for digital assets to those of Fiat transfer funds. In the proposed framework, all transactions to or from “without pits” portfolio exceeding $ 10,000 would require banks and money service companies to verify the identity of the customer (including name and physical address) and deposit this information with Fincen.
Following this, in 2021, the Financial Action Task Force (FATF) wrote advice with recommendations for virtual asset providers (VASP) to classify transfers to and since “pits” wallets as higher risk transactions, with a examination and respective limits to apply. The new orientation of the FATF also aims to extend the scope of the travel rule to the vast if a transfer of virtual assets implies an auto-controdable portfolio.
The two proposals were victims of severe criticism from stakeholders in the cryptographic industry and were finally delayed. In January 2022, however, the Ministry of the Treasury reintroduced the proposal to tighten adhesion on non -guardian portfolios in its new regulatory plan.
To resist or adapt?
“Seven years ago, I planned that these regulations were coming, it was only a question of moment and under what conditions,” commented Justin Newton, CEO of the provider of compliance solutions, Netki, commented Cointelegraph. The company provides KYC / AML technology and develops remote identity verification solutions for blockchain companies. Newton stressed that GAFAF directives and Singapore legislation emphasizes transactions verification.
The executive decree of the American president Joe Biden on Crypto highlights the consolidatory dynamic of the regulation of cryptography, which will probably make the unfinished affairs of Fincen under the spotlight at a given time. “Earlier than late,” added Newton. He also commented:
“Biden’s executive decree specifically talked about the implementation of American regulations in accordance with global standards, and this EU proposal complies with the FACF directives.
Given this, Newton believes that regulators will leave no part to ignore their requests. It could be more productive to request a compromise on the issue, especially since the problem has its technological solutions. The main threat to privacy is not a counterpart to know who you are, but the fact that the transparency of chain transactions allows both institutional third parties and curious people to follow and unresard your activity:
“Fortunately, new technologies such as Lightning see this level of chain transparency as a bug rather than a functionality, and we can hope for better confidentiality for our cryptographic transactions than on most blockchains today.”
What is the next step?
Although the new rules concerning “without arrow” portfolios require that crypto service providers adapt, they could be less threatening to industry than certain stakeholders currently think so. By integrating existing compliance solutions that raise privacy, crypto can relatively transparently embrace compliance while preserving financial freedoms. Newton said:
“These new rules highlight the need to select compliance solutions that have the vision of seeing these new rules to come and have built their platforms to be prepared. Today, this means including non -guardian wallets in your travel rule solution. Tomorrow, it will be the confidentiality documents and the compliance networks 2 should take care of these new rules. ”
But behind any optimism, problems that cannot be resolved in a win-win manner. In addition to small market players who may not necessarily be able to adopt high-end compliance solutions, the interviewing of the interview could compromise global financial inclusion. After all, what regulators call “all-timely” wallets is an essential tool for the underbancarisites and financially un served on a global scale.
