Key Provisions of the Approved Legislation
The Committee on Economic and Monetary Affairs (ECON) and the Committee on Civil Liberties (LIBE) voted overwhelmingly in favor of the proposal, with 93 votes to 14 and 14 abstentions. Introduced over a year ago by the European Commission, the legislation requires crypto exchanges to access, store, and share transaction details. Information about the senders and recipients of digital asset transfers will be made traceable and accessible to competent authorities.
The proposal also encourages the European Banking Authority to establish a public registry of crypto-asset service providers flagged for money laundering risks. Non-compliant providers will also be included in this list, and all service providers must verify the source of funds to mitigate risks of criminal activity, including terrorism.
Impact of the New Rules
Ernest Urtasun, a Spanish Green Party lawmaker, championed the proposal in the European Parliament, highlighting its benefits:
- Facilitates identification and reporting of suspicious transactions.
- Enables freezing of digital assets to prevent illegal activities.
- Discourages users from engaging in high-value transactions.
Initially, the legislation targeted transfers exceeding €1,000. However, following a cross-party agreement, the de minimis rule was removed, making all transactions traceable, regardless of value. Urtasun emphasized that exemptions for smaller amounts create loopholes, enabling users to circumvent regulations by dividing transactions into smaller sums. He also noted that low-value transfers can still be linked to criminal activities.
The proposal aims to phase out unhosted wallets held by individual users while leaving exchange wallets unaffected. Individuals with hosted wallets must document and report transactions exceeding €1,000 to relevant authorities.
Link to Russian Sanctions
Co-rapporteur Eero Heinäluoma highlighted the importance of combating money laundering amid global sanctions related to Russia’s invasion of Ukraine. Sanctions have targeted Russian oligarchs and government officials, with the ruble’s value plummeting as cryptocurrencies gained prominence. This raised concerns about the potential use of digital currencies to evade economic sanctions.
Future Steps in European Crypto Regulations
The European Parliament is set to vote on the proposal in an upcoming plenary session before trilogue negotiations between the EU Parliament, Commission, and Council begin.
Reactions to the vote have been mixed. Patrick Hansen, Head of Strategy at DeFi startup Unstoppable Finance, labeled the decision a setback but stressed that the battle is not over. He criticized the proposal for creating “personal data honeypots” within private crypto companies and government agencies, increasing the risk of hacking. Following the vote, Bitcoin’s price dropped 2% within minutes, falling from $47,500 to $46,400.
