The European Parliament has taken a step towards combating money laundering in the cryptocurrency industry by approving new regulations that establish formal due diligence obligations for crypto companies.
The legislation, passed on April 24, 2024, aims to improve “due diligence measures and identity checks” for customers, extending to entities such as crypto asset managers and centralized crypto exchanges.
TLDR
- The European Parliament has approved new regulations that establish formal due diligence obligations for cryptocurrency companies to combat money laundering.
- The new laws aim to improve “due diligence measures and identity checks” for customers and will impact crypto-asset service providers (CASPs) such as centralized crypto exchanges under the Markets in Crypto-Assets (MiCA) regulation.
- CASPs will be required to report suspicious activities to authorities and follow standard Know Your Customer (KYC) and Anti-Money Laundering (AML) procedures, such as customer due diligence (CDD).
- A new agency, the Authority for Anti-Money Laundering and Countering the Financing of Terrorism (AMLA), will oversee and supervise the implementation of the new rule.
- The final version of the law is considered a “positive result” for the crypto sector, as earlier iterations suggested a stricter approach that would have required KYC on self-custody originator/beneficiary.
Under the new laws, crypto-asset service providers (CASPs), which include entities regulated under the Markets in Crypto-Assets (MiCA) regulation, will be required to adhere to standard Know Your Customer (KYC) and Anti-Money Laundering (AML) procedures.
These measures involve customer due diligence (CDD) and reporting any suspicious activities to the relevant authorities.
The introduction of these regulations comes as part of the European Union’s ongoing efforts to create a comprehensive framework for governing digital assets and their markets. MiCA, which came into force in June 2023, is set to be fully applicable by the end of the year, and the new anti-money laundering rules will work in tandem with this framework to ensure a more secure and transparent crypto ecosystem.
To oversee the implementation of the new rule, a dedicated agency called the Authority for Anti-Money Laundering and Countering the Financing of Terrorism (AMLA) has been designated.
With its office situated in Frankfurt, Germany, AMLA will be responsible for supervising and ensuring compliance among CASPs and other affected entities.
While the law has been approved by the European Parliament, it still needs to be formally adopted by the Council of the European Union and published in the EU Office Journal before it can take effect.
Once these steps are completed, the legislation will come into application three years later, as confirmed by Patrick Hansen, EU strategy and policy director at Circle, in a post on X (formerly Twitter).
4/ The AMLR will apply to all CASPs (exchanges, brokers etc.) that are regulated under MiCA. These CASPs will need to follow standard KYC/AML procedures like customer due diligence (CDD) etc.
This is nothing new, as all crypto exchanges & custodial wallet providers in the EU are… pic.twitter.com/ZN1AsWdBpw
— Patrick Hansen (@paddi_hansen) March 24, 2024
Hansen also noted that the new requirements for CASPs are not entirely novel, as all crypto exchanges and custodial wallet providers in the EU are already subject to similar obligations under the existing Anti-Money Laundering Directive 5 (AMLD5).
However, the formalization of these requirements through the new legislation reinforces the EU’s commitment to creating a more secure and compliant crypto industry.
Interestingly, earlier versions of the proposed Anti-Money Laundering Regulation (AMLR) had suggested a much stricter approach, which would have necessitated KYC on the self-custody originator/beneficiary. This proposal had raised concerns among industry participants, who feared that it could hinder innovation and adoption in the crypto space.
However, thanks to the efforts of the crypto industry in advocating for a more balanced and risk-based approach, the final version of the law has been described as a “positive result” by Hansen.
The consensus reached allows for multiple options and a more nuanced application of the rules, taking into account the unique characteristics of the crypto ecosystem.
The adoption of these new anti-money laundering regulations by the European Parliament marks a significant milestone in the ongoing evolution of the crypto regulatory landscape.
As the industry continues to grow and mature, it is essential for regulators to strike a balance between fostering innovation and ensuring the integrity and security of the financial system.
The EU’s proactive stance in establishing a comprehensive framework for crypto assets, encompassing both MiCA and the new anti-money laundering rules, sets a strong precedent for other jurisdictions around the world.
