Less than a week after the potential ban on digital assets based on proof-of-work (PoW) consensus was removed from the future EU MiCA framework, A new threat to the cryptocurrency sector in the European Union could be emerging. This time, it is non-custodial, or non-hosted, wallets that are in the crosshairs of regulators.
On Thursday, March 31, the Committee on Economic and Monetary Affairs of the European Parliament will vote on a regulatory package against money laundering (AML) that aims to review the current Funds Transfer Regulation (TFR) in such a way that the obligation of financial institutions to attach information about the parties that carry out the transactions to crypto assets. The rapporteurs of the regulation are Ernest Urtasun, of the Greens, and Assita Kano, of the group of Conservatives and Reformists.
What warned the defender of cryptocurrencies, Patrick Hansen, From blockchain firm Unstoppable DeFi, the latest draft regulation would require cryptocurrency service providers to not only collect personal data related to transfers made to and from non-hosted wallets (as they are already required to do), but also “verify the accuracy of information regarding the originator or beneficiary behind said non-hosted wallet.”
The obvious problem with this language is that in many cases it can be difficult, if not impossible, for cryptocurrency service providers to verify an “unhosted” counterparty. Thus, to continue to comply with the regulations and safeguard their place in the EU market, these companies would be forced to cut off transactions with this type of wallet, Hansen fears.
Even if legislators were to establish some guidelines for verification procedures, the potential operational costs of compliance would likely they would drive away to smaller companies and would lead to greater market concentration.
The project also includes the obligation to inform the “competent authorities in the fight against money laundering” of any transfer worth 1,000 euros or more to or from a non-hosted wallet. What’s more, within one year of the bill’s enactment, the EU Commission must assess whether “additional specific measures are needed to mitigate the risks” of such transactions.
It is not very clear what additional measures might be involved, but, as warned Hansen, this could mean anything up to a complete ban on non-custodial wallets.
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