The draft regulation seeks to expand anti-money laundering (AML) and financial crime frameworks by requiring cryptocurrency firms to collect and share transaction data. This disrupts the anonymity that has been central to the crypto ecosystem. Coinbase, a major exchange, previously cautioned that such measures could stifle innovation, while legal experts highlighted potential challenges to privacy infringements in EU courts.
Examining the Key Elements of the New Regulation
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 in support, 14 against, and 14 abstentions. Introduced by the European Commission over a year ago, the regulation requires exchanges to access, store, and share data on digital asset transfers. Both senders and recipients will now be traceable, with relevant authorities having access to this information.
The committees also propose creating a public registry, managed by the European Banking Authority, to list crypto-asset service providers deemed at high risk for money laundering or criminal activities. Non-compliant providers would also be included. The legislation mandates these providers to verify transfer sources and ensure compliance with AML protocols. CryptoChipy predicts that these measures could positively influence the value of major cryptocurrencies like Bitcoin (BTC) and Ether (ETH) in the long term.
Potential Impacts of the Regulation
Ernest Urtasun, a Spanish Green Party lawmaker, played a pivotal role in pushing the proposal. He outlined several expected benefits:
- Facilitating the identification and reporting of suspicious transactions.
- Enabling the freezing of illicit digital assets.
- Deterring high-value transactions.
Initially, the rule targeted transfers exceeding €1,000. However, the removal of this threshold means all transactions, regardless of value, are now subject to traceability requirements. Urtasun emphasized that exempting smaller transactions would create loopholes for evasion. He noted that even low-value transfers can be linked to illicit activities.
The proposal also aims to phase out unhosted wallets used by individuals while maintaining support for exchange-hosted wallets. Individuals with hosted wallets must document and report transactions exceeding €1,000 to the relevant authorities.
Link to Sanctions and Cryptocurrency Use
Co-rapporteur Eero Heinäluoma highlighted the relevance of the proposal in light of sanctions against Russia following its invasion of Ukraine. These sanctions have targeted Russian officials and oligarchs, raising concerns that cryptocurrencies could be used to evade restrictions. The ruble’s decline has contrasted with rising crypto adoption, further underscoring these concerns.
Next Steps for Cryptocurrency Regulation in the EU
The European Parliament will hold a plenary vote on the proposal, after which trilogue negotiations between the Parliament, Commission, and Council will begin.
Reactions from the crypto industry have been mixed. Patrick Hansen, Head of Strategy at Unstoppable Finance, described the proposal as problematic but emphasized that the fight is not over. He criticized the new reporting requirements, warning that they could create “personal data honeypots” vulnerable to hacking. Following the vote, Bitcoin’s price dropped 2%, from $47,500 to $46,400.
