- As the EU’s bill on anti-money laundering enters the next phase of negotiations, the crypto industry has a last shot to ease restrictions on self-hosted wallets.
- Decentralised finance and NFT platforms are included in the scope of the regulation, but may pose enforcement hurdles.
European legislators have a last chance to prevent a ban on self-hosted wallets in the bloc as the anti-money laundering bill enters its final stretch of political negotiations this week.
Three European institutions held their first meeting of so-called trilogues on Thursday, where in the coming months, each will defend their position on the anti-money laundering bill.
Some in the crypto industry worry that language in the European Council and European Commission versions of the text could in effect ban regulated entities from offering self-hosted, or non-custodial, wallets by regulated entities. Those are wallets where the users hold their own keys and assets.
‘It’s crucial’
“It’s crucial that we get the regulation of self-hosted wallets right,” said Tommaso Astazi, head of regulatory affairs at Blockchain for Europe, a trade association mobilising efforts as lawmakers work to reach an agreement.
The group relays policy commentary from major industry players, including centralised exchanges giants Binance, Coinbase and Kraken, as well as decentralised exchange Uniswap and open source protocol Aave among others.
“If we allow for a world where self-custody is allowed, encouraged and easy to do, then users will really have that control over their own funds, over their own assets, or their own data,” Astazi told DL News.
The European Parliament’s text, after long discussions over the past months, tweaked the onerous language to effectively exclude those who offer self-hosted wallets from the ban, as long as they only provide software services and don’t hold asset custody.
But the regulation would prohibit licensed companies from offering anonymous accounts. Anonymous privacy-enhancing coins, like Monero or Dash, could also be banned under the legislation.
Commercial payment caps
The European Parliament added a new proposal in its text which would limit commercial payments involving self-hosted wallets to payments over €1,000, or about $1,090.
Blockchain for Europe’s position paper, which is circulating among key policymakers, suggests that the AML bill aligns with the Transfer of Funds Regulation. The regulation requires identification details to accompany crypto transactions over that threshold. Otherwise, the advocacy group proposes to increase the transfer limit to €7,000 to match the cap on cash payments.
Crypto transactions wouldn’t pose a bigger money laundering threat compared to cash, since the “inherent transparency of blockchain technology offers a more sophisticated level of traceability for crypto-asset payments than cash payments,” according to the paper, seen by DL News.
Once a political agreement is reached in trilogues, technical meetings will continue. The legislation needs a final vote of approval from the Parliament plenary and the Council member state representatives.
Closing the gap
The EU’s comprehensive Markets in Crypto-Assets regulation, expected to kick in by June, excluded decentralised finance and NFTs from its scope. The AML regulation intends to close that gap and bring DeFi, NFTs and DAOs under its umbrella.
Regulating the decentralised space will be problematic, said Peter Kerstens, adviser at the European Commission’s finance and capital markets branch, at an online event on Wednesday.
“The entire architecture of the anti-money laundering regulation is around obliged entities,” Kerstens said. “If there is genuinely no obliged entity in the mix, I can’t see how you can apply the AML framework to such non-entities.”
The AML bill’s take on NFT regulation does not differentiate between non-financial use cases.
“A one-size-fits-all approach to all NFT platforms, regardless of their business models and use cases, would curtail innovation in the nascent Web3 space, hinder economic activity, and could even risk limiting privacy of their users,” the Blockchain for Europe paper said.
Follow-up legislation
The anti-money laundering proposal includes mandates for the European Commission to assess the need for new anti-money laundering legislation for crypto after the regulation comes into effect.
The Parliament’s text suggests that three years after the laws kick in, the Commission will evaluate the need to change the rules on self-hosted wallet payment restrictions. Changes would need to align with the Anti-Money Laundering Authority — another significant part of the AML package — and the European Digital Identity Framework.
The Commission will also revisit the anonymous crypto account ban after the legislation comes into force. Other privacy-enhancing crypto tools, like privacy wallets, mixers and tumblers, could be banned if the Commission decides they pose too high a risk in the future.
Original source: https://www.dlnews.com/articles/regulation/europe-rules-for-crypto-wallets-nears-final-showdown/
