New Due Diligence Requirements for Crypto Firms
On Wednesday, the European Parliament voted to adopt a comprehensive package of laws designed to combat money laundering, with significant implications for the crypto industry. These new regulations enhance due diligence measures and mandate rigorous checks on customers’ identities, specifically targeting crypto-asset managers.
Impact on Crypto-Asset Service Providers (CASPs)
The legislation primarily affects crypto-asset service providers, including centralized crypto exchanges, by imposing strict requirements to report any suspicious activities to the authorities. This move is part of a broader effort to regulate the financial activities within the crypto space and curb illegal transactions.
Formal Adoption and Implementation Timeline
According to Patrick Hansen, Circle’s EU Strategy and Policy Director, the adoption of these laws by the European Parliament was anticipated. The Council of the EU is also expected to formally adopt the package. The new rules will come into effect three years after this formal adoption, providing institutions and CASPs adequate time to comply with the new regulations.
Clarifications on Crypto Wallets and Payments
Addressing recent rumors, Hansen clarified that the new laws would not ban anonymous crypto wallets or self-custodial payments. Instead, these regulations will apply to CASPs already regulated under the Markets in Crypto-Assets Regulation (MiCA). MiCA, which came into force in June 2023 and will be fully applicable by year-end, aims to provide a comprehensive regulatory framework for digital assets and their markets within the EU.
Standard KYC/AML Procedures
Under the new laws, CASPs will need to follow standard Know Your Customer (KYC) and Anti-Money Laundering (AML) procedures such as customer due diligence. Hansen emphasized that these requirements are not new but reinforce existing obligations under the current AMLD5 directive.
Positive Industry Response
Despite the stringent measures, the final version of the anti-money laundering regulations is seen as a victory for the crypto industry. Earlier drafts of the proposed Anti-Money Laundering Regulation (AMLR) suggested stricter measures, including KYC requirements for self-custody originators/beneficiaries. However, thanks to concerted industry efforts, a more balanced, risk-based approach was adopted, offering various compliance options.
The European Parliament’s decision to pass this anti-money laundering legislation marks a significant step towards more regulated and secure crypto operations within the EU. While the new rules impose additional obligations on CASPs, they also bring clarity and stability to the market, contributing to its overall legitimacy and growth.
