The AML/CFT regulations are now applicable to Crypto Asset Service Providers (CASP) that include crypto exchanges, crypto wallets and transfer services as well as crypto asset issuers. The implications of CASPs are mainly in “travel law” that requires the payee's information to be sent with the crypto-assets. P2P transactions and un-hosted wallets are still outside the regulatory scope.
We continue to observe the regulatory developments for crypto-assets in the European Union (EU). As a reminder, in July 2021 the European Commission (EC), EU’s executive body, proposed an Anti Money Laundering and Countering Financing of Terrorism (AML/CFT) legislation package that included:
- Regulation to establish Authority for AML/CTF (2021/0240)
- Amendments to AML/CFT regulations (2021/0420)
- Directive to EU members to implement the above at national level (2021/0423)
- Amendments to regulations on information accompanying transfer of funds and crypto assets (travel law)
The AML/CFT regulations are now applicable to Crypto Asset Service Providers (CASP) that include crypto exchanges, crypto wallets and transfer services as well as crypto asset issuers. The implications for CASPs are mainly in “travel law”. The new bill extended its requirements to cover crypto assets transfer as well. Interestingly, there was no minimum threshold for transaction size but still stricter than in traditional financial transfers.
There was also discussion around un-hosted wallets. Since the regulation is imposed through the “obliged” CASPs, the P2P transactions fell outside its scope. Then the legislators concluded that in transactions between CASP and un-hosted wallets there is also “practical impossibility” for CASP to verify the identity of an un-hosted wallet’s real owner. So, instead of strict verification and information disclosure requirements, CASP are instructed to implement risk-based AML/CFT measures and use of blockchain analytical tools to address these risks.
There are opposing views about the new regulatory developments in EU. While legislators themselves call it a balanced approach, the crypto community sees this as drawback for EU’s competitiveness in crypto.
The text of the regulations is now in its final form, yet it is expected that the procedure and implementation will take around 1–2 years.
The first amendment to EU’s AML/CFT laws was passed in a form of EU Directive in 2018. It coined the term Crypto-Assets Services Providers (CASP) and covered the crypto-to-fiat exchanges and custodian wallets. During following years, the Directive was elevated to EU regulations level and became what is now called Markets in Crypto-assets (MiCA). MiCA requirements were amended to include CASPs engaged in broader range of crypto related activities such as coin offerings, stablecoins and environmental aspects of PoW and others. It is expected that in the coming years EU crypto asset regulations will further be expanded to cover staking, other DeFi products and NFTs.
