After a limit on crypto asset mining was considered earlier this month, a new proposal is being considered by the European Parliament’s Economic and Monetary Affairs (ECON) Committee. If approved, it would monitor all cryptocurrency transactions by regulated entities, regardless of the amount.
New set of measures from the European Union
The Commission says crypto-currencies should be brought into line, and regulated as part of the overhaul of the anti-money laundering and anti-terrorist financing regime, which had been applied to other forms of currency:
“Until today, crypto-assets have remained outside the scope of this regulation, which applies only to conventional funds, defined as “banknotes and coins, scriptural and electronic money”, but not to crypto-asset transfers. “
Unsurprisingly, the European Union justifies this new bout of regulation by linking cryptocurrencies to criminal activity:
“The global reach, the speed at which transactions can be processed, and the anonymity possibilities offered by crypto-currency transactions make them particularly suitable for criminals who wish to make illicit transfers […] and operate across national borders. “
We take this opportunity to remind you that illicit transactions accounted for only 0.15% of total cryptocurrency transaction volume in 2021, and 0.62% in 2020, according to analytics firm Chainalysis. The crypto ecosystem is therefore not the den of bandits presented by the ECON Commission, but this does not prevent it from proposing particularly restrictive measures based on this interpretation.
The main points of this proposal are:
1. Collection of information on transfers, regardless of the amount
In the EU, transfers over €1,000 are monitored, and information on the sender and recipient is collected. However, the ECON Commission wants to get rid of this high limit for cryptocurrencies, and collect information for all amounts:
“Because of the specific characteristics and high risk profile of crypto-assets, the obligation to inform should apply [to them] regardless of the value of the transfer. “
In practical terms, this would mean that any cryptocurrency transaction conducted via a regulated service would have to be accompanied by information about both parties, which would then be made available to the authorities. The proposal also envisages collecting information on the history of cryptocurrencies traded in this way:
“Crypto asset service providers should also obtain information on the source and destination of these crypto assets. “
2. Monitoring of self-hosted wallets
In recent days, the crypto-community has been concerned about a possible ban on self-hosted wallets. In reality, it is not a ban, but a very thorough surveillance. The proposed law explains that the new monitoring rules would apply to Ledger and other wallets. The regulated entities would have to request information directly from the wallet holders:
“The information will have to be obtained by the crypto-asset service provider, directly from its customer, and it will have to be held and made accessible for the competent authorities. “
So it is indeed a question of monitoring transfers made to and from such wallets. In concrete terms, this would mean that any transfer between a Ledger and a centralised exchange platform would be recorded, and identifying information would be collected.
This type of measure would of course put a huge brake on the development of the crypto ecosystem in Europe, not to mention the ethical problems that such extensive surveillance can pose. The demand that is made on exchange platforms could indeed prompt them to simply stop transacting with self-hosted wallets:
7/ But it doesn’t say how exactly a crypto service provider should be able to verify the unhosted counterpart
The consequence of this, imo, is that most crypto companies won’t be able or willing to transact with unhosted wallets anymore in order to stay compliant.
– Patrick Hansen (@paddi_hansen) March 26, 2022
Many voices have been raised in the community to warn about this bill, including that of the Coinbase exchange platform. The vote will take place on Thursday of this week, and if the proposal passes, it could well affect a huge part of the European cryptocurrency ecosystem. So we’ll be watching its development carefully.
