The European Parliament and the Council of the European Union have reached a provisional agreement on the Transfer of Funds Regulation (TFR) that is to ensure crypto transfers can be traced and that transactions considered suspicious are blocked, potentially paving the way for tougher enforcement by the European Union.
The bill extends Brussels’ supervision over so-called ‘unhosted wallets’, or just regular wallets controlled by their owners, in what many industry representatives call a harmful measure that could hamper the sector’s development in Europe.
The European Parliament said in a statement that,
“The agreement extends the so-called ‘travel rule’, already existing in traditional finance, to cover transfers in crypto assets. This rule requires that information on the source of the asset and its beneficiary travels with the transaction and is stored on both sides of the transfer.”
Furthermore, the statement noted that,
“Crypto-assets service providers (CASPs) will be obliged to provide this information to competent authorities if an investigation is conducted into money laundering and terrorist financing.”
Negotiators from both institutions agreed that the set-up of a public register for non-compliant and non-supervised CASPs, with which the EU-based CASPs would not be allowed to engage in trade, will be covered in the bloc’s Markets in Crypto-assets (MiCA) regulation which is currently being negotiated.
For the so-called ‘unhosted wallets’, the agreement foresees that, if a customer receives or sends more than EUR 1,000 (USD 1,044) from such a wallet, the relevant CASP will be required to verify whether the wallet is effectively owned or controlled by the involved customer.
“The rules do not apply to person-to-person transfers conducted without a provider, such as bitcoins trading platforms, or among providers acting on their own behalf,” according to the statement.
Industry observers are worried about the regulation’s potential impact on the crypto sector. However, Patrick Hansen, Head of Strategy and Business Development at Unstoppable Finance, argues that, under the proposal, there “won’t be a mandatory verification” for “most transfers from/to wallets,” and for this reason, “this key demand (‘unhosted wallet verification’) from the EU Parliament was quite weakened”.
As part of the EU’s complex legislative process, informal tripartite discussions, also known as trilogues, can end with provisional agreements on the draft legislation by European institutions. These agreements are informal, and they subsequently require to be formally approved by each of the three institutions: the Parliament, the Council, and the European Commission.
The latest development comes shortly after the EU unveiled plans to create a dedicated Anti-money laundering Authority (AMLA). Under the Council’s proposal, the authority is to be enabled to directly supervise certain types of credit and financial institutions. These will include cryptoasset service providers “if they are considered risky.”
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