European Union Plans to Introduce Tighter Rules on Crypto Transactions

The European Union will soon decide whether to approve a proposal that could compel crypto firms to collect data on both senders and recipients in a transaction.

The “travel rule” obliges banks and payments companies to hold information that “travels” between payers and recipients.

However, the European Parliament is nearing a vote to decide on expanding the scope of the travel rule for cryptocurrency firms. The vote is scheduled to take place in the coming weeks.

The travel rule mandates that every financial transaction above 1,000 euros should be reported to financial authorities. While this has been hailed as a win for anti-money laundering (AML), the new proposal seeks to eliminate the threshold for reporting. 

European exchanges may be obliged to report all crypto transactions

In the event that the proposal passes, exchanges will be mandated to report all crypto transactions, even as low as five euros.

The proposers of the bill argue that small transactions made with cryptocurrencies are often used to fund terrorism or launder money. Such a loophole would enable the use of digital assets to fund and hide criminal activities since illicit capital can move anonymously without any geographical limitations.

“A lot of exchanges have lobbied hard against it, as you can imagine, but from what I heard from a chat with an MEP recently, the majority of the are in favor of removing the threshold,” said Ajinkya Tulpule, head of compliance at cryptocurrency exchange bitFlyer.

Tulpule said that crypto exchanges might have to suspend certain transactions until there is full completion of the Know Your Customer (KYC) processes. This might lead to delayed settlement of transactions among other challenges.

“There are some coins which are not covered by transaction monitoring systems,” says Tulpule. This is another downside that cryptocurrency exchanges will have to grapple with as they come to terms with the new regime of regulations.

Looming on the horizon for the crypto industry in Europe is the Markets in Crypto Assets (MiCA). The legislation seeks to “streamline distributed ledger technology (DLT) and virtual asset regulation in the EU whilst protecting users and investors.”