HomeCryptoEU Tightens Grip on Crypto: Mandatory Due Diligence Targets Money Laundering

EU Tightens Grip on Crypto: Mandatory Due Diligence Targets Money Laundering

Comprehensive regulatory package marks a significant step in combating financial crimes within the evolving cryptocurrency space.

European policymakers have reached a provisional agreement on a comprehensive regulatory framework aimed at combating money laundering within the burgeoning cryptocurrency sector. This marks a significant step in addressing concerns about the misuse of digital assets for illicit activities, signaling a proactive approach to tackle financial crimes.

Key Elements of the New Regulations

  • Mandatory due diligence: All crypto firms must conduct “customer due diligence measures for transactions exceeding €1,000 ($1,090).” This ensures greater transparency and scrutiny of large transactions.
  • Focus on self-hosted wallets: Additional measures will mitigate risks associated with transactions involving self-hosted wallets, which were previously less regulated.
  • Single rulebook and supervisory authority: The agreement establishes a unified set of regulations and creates a dedicated supervisory body to oversee the crypto sector, ensuring stronger enforcement and consistency across member states.

Building on Existing Efforts

This new set of regulations builds on the EU’s prior initiatives to combat financial crime in the crypto sphere. These include:

  • AML checks on crypto fund transfers: Existing regulations mandate anti-money laundering checks on crypto fund transfers.
  • MiCA regulation: The landmark Markets in Crypto Assets (MiCA) regulation, finalized in 2023, sets a broader regulatory framework for the crypto sector.
  • AML supervisory authority: The establishment of a dedicated AML supervisory authority for the crypto sector was agreed upon in December 2023, further strengthening oversight.

Addressing Concerns and Balancing Privacy

The legislative process included considerations regarding the potential misuse of cryptocurrencies for sanctions evasion and money laundering, especially in light of recent controversies like the U.S. sanctions on Tornado Cash, a crypto anonymizing tool.

  • Clarification on privacy-enhancing crypto: Lawmakers stressed that the new measures are not intended to outlaw privacy-enhancing cryptocurrencies.
  • Industry concerns: The EU Crypto Initiative, an industry body, advocated for a balance between combating financial crime and protecting user privacy.

Significance and Next Steps

Belgian Finance Minister Vincent Van Peteghem emphasized the significance of the agreement, stating that it strengthens the EU’s overall anti-money laundering system. The measures aim to:

  • Enhance collaboration and information sharing between national systems.
  • Close loopholes exploited by fraudsters, organized crime, and terrorists.
  • Ensure criminals cannot legitimize proceeds through the financial system.

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The provisional agreement still requires formal adoption by the Parliament and Council before coming into effect. However, this development underscores the EU’s commitment to tackling financial crime in the evolving crypto landscape. By mandating stringent due diligence and establishing a dedicated regulatory framework, the EU aims to foster a more transparent and secure environment for legitimate crypto activities while cracking down on illicit actors.

Ricardo Anderson
Ricardo Anderson
Ricardo is someone with whom you can ask and talk about finance and its importance in life. A part-time cook, enthusiast, and football player, he loves to read and write on the latest updates in finance.


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