As part of the European Union’s revamped anti-money laundering (AML) regulations, lawmakers on the European Parliament’s Economics and Civil Liberties Committees voted in favour of laying down restrictions on crypto transactions made by anonymous and unverified users.
EU Caps Anonymous Crypto Transfers at $1,000, Prohibits Privacy Tokens and Coin Mixers
The proposal which is meant to prevent digital assets, like cryptocurrencies and non-fungible tokens (NFTs), from being used for financial crimes, will set a limit of $1,000 on European residents and citizens that send or receive anonymous crypto transactions.
The latest AML regulations are also applicable to decentralized autonomous organizations (DAOs), NFT platforms, and decentralized finance (DeFi) platforms operating in the bloc.
Damien Careme, a French member of the European Parliament and lead negotiator of the AML revamp discussions, said the newly imposed limits would not impact regular or larger crypto transactions conducted between individuals whose identities can be verified or if a regulated crypto service provider is involved in the process.
The Green Party member clarified that the EU is preventing crypto transactions where individuals or entities cannot be identified.
Reports were surfacing that the EU’s newly launched anti-money laundering agency (AMLA) was planning to ban crypto exchanges from listing privacy tokens such as Monero (XMR), zcash (ZEC), and Dash (DASH).
The agency also wants to prohibit users from leveraging token-mixing platforms, like Tornado Cash, which conceal information about senders and receivers of crypto assets. However, Careme said there was no case to impose a ban as the bloc’s imminent Markets in Crypto Assets (MiCA) regulations already prohibit the assets and services from being used by its residents.
DAOs, NFT, and DeFi Platforms Required to be Controlled by Legally Identifiable Persons
The legislation also blocks crypto service providers in the EU from maintaining any business relationship with unregistered or unlicensed foreign cryptocurrency service providers. As for DAOs, NFT, and DeFi platforms, the entities will be required to comply with the AML legislation and must be controlled “directly or indirectly” through smart contracts or voting protocols by legally identifiable persons.
The ruling comes after the EU voted on a draft for the upcoming Data Act in February, which eases regulatory requirements for smart contract offerings. Smart contracts are blockchain-based computer programs that power decentralized applications (DApps).
According to provisions of the Data Act, those who trade smart contracts may no longer need to go through conformity evaluation or sign an obligatory declaration to comply with EU regulations.
The proposal also got rid of compliances that would otherwise require the computer programs to follow technical terms. Furthermore, the forthcoming regulatory framework will now only cover “the contractual party offering a smart contract” as opposed to earlier involving vendors and developers of the smart contract.
However, unlike the MiCA, Europe’s AMLA counts decentralized organizations and platforms as entities obliged to comply with the region’s regulations.
According to Careme, these institutions and service providers will be required to conduct due diligence and report suspicious transactions to authorities just like entities in the traditional finance (TradFi) and real estate sectors do.
The new AML proposal was approved by the Parliament after 99 lawmakers voted in favour, eight voted against it, and six abstained from the vote. The legislation will be enacted as law once the EU Parliament and the European Council agree on its terms. Meanwhile, the bloc’s landmark crypto bill, MiCA, is up for a vote by diplomatic members on April 19.
MiCA Crypto Bill Expected to be Voted into Law in April
In October, members of the EU Parliament’s Economic and Monetary Affairs Committee voted in favour of the Markets in Crypto Assets (MiCA) regulation. The legislation’s legal text was also approved by diplomats of the member nations.
The MiCA is the first of its kind digital asset regulation in Europe that will only allow crypto companies such as wallets and exchanges to operate within the bloc if they meet regulatory standards and can obtain a license from authorities.
MiCA also requires stablecoin issuers to mint European currency while proving they hold enough cash reserves to issue the fiat-backed crypto tokens.
A controversial addition to the bill is a law called the Transfer of Funds regulation, which will require crypto service providers to verify their users’ identities before allowing them to make transactions.
The law was approved by policymakers in a unilateral decision in June 2022. If accepted by the European Parliament, the MiCA will be published in the EU’s official journal before being enacted as common law in member nations by 2025.