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EU Prepares New Regulatory Body for Crypto

The EU has focused on cryptocurrencies for years, and because of that, they have been taking slow but steady steps in further regulating the crypto arena.

EU Prepares New Regulatory Body for Crypto. There has even been talking about passing a total ban on cryptocurrencies based on Proof of Work (PoW) algorithms. Since 2018, the European Parliament has been moving towards strong regulation of this sector. It first presented the steps to strengthen the EU’s legal and financial mechanisms in combating money laundering and the financing of terrorism through a series of measures, including measures to provide startups with cybersecurity policies.

After several drafts, the 6th AML Directive (AMLD6) was created, broader in scope than its predecessors. Its primary objective was to harmonize the definition of predicate offenses against money laundering by all Member States. In this way, the directive’s definition of these predicate offenses was homogenized to reinforce cross-border cooperation so that the fight against these crimes is more effective and faster in the EU. 

The AMLD6 directive

This new AMLD6 directive created a structure to harmonize, from a legislative point of view, some 22 predicate offenses for money laundering in the Member States so that they can adapt to the evolution of crime and cybercrime. They introduced a broader package into the EU’s anti-money laundering (AML) regulations, with “major consequences” implications for all financial institutions. 

They added some definitions previously not covered by other regulations, such as accomplices, instigators, facilitators, and even abettors of offenses. Another series of definitions were also specified, much broader on assets, possession, and use related to criminal assets. After several discussions, these regulations were strengthened. They even included cryptocurrencies within the scope of the fight against money laundering and laundering of proceeds of crime to break against the anonymity of crypto assets. The committees of the European Parliament voted in the first quarter of this year in favor of new and strict regulations around non-hosted cryptographic wallets, which do not identify users, under the umbrella of the fight against money laundering and the transfer of cryptocurrencies, which will now have regulatory authority. 

The European Parliament, the Commission, and the European Council drew up a draft to design a new body that will be in charge of directly regulating and supervising the industry behind the crypto ecosystem based on its proposal for the Sixth AML/CFT Directive or AMLD6.

Mitigation of money laundering

The objective is none other than the mitigation of money laundering within the EU. Thus, the Anti-Money Laundering Authority (AMLA), with direct competence over the cryptocurrency industry, whose scope and dominance could have consequences for businesses and users in the Eurozone, is in the design stage. 

Until now, all anti-money laundering directives only established a legal context for EU members to enforce data collection from their inhabitants and information sharing between countries without further scope. Instead, the authority will have functions beyond the Markets in Cryptoassets (MiCa) and Transfer of Funds (ToFR) Regulations. They are limited to regulating all financial institutions within the bloc and their connection to crypto assets. 

The powers of the newly created authority will give it a decisive role in judicial decisions, as everyone expects to reduce opportunities for jurisdictional arbitration within the EU zone. The authority will have to supervise certain financial institutions directly, assume coordinating functions for the supervision of the non-financial sector, and now monitor cryptographic service providers, especially those considered “high risk.” 

However, the creation of the AMLA will still depend on trilateral negotiations between the European Commission, the European Council, and the European Parliament. So far, it only exists in drafts. Although we expect that the Parliament will start creating the new regulatory authority at the end of the current summer vacation, in any case, it is an open secret that all EU bodies have expressed the need for stricter regulations in the crypto industry

Rule implementation

For now, some analysts estimate that the implementation of the authority as such is probably still years away. However, people agree that it could come as soon as 2025, a key date for many decisions in the EU regarding Bitcoin (BTC). As you may recall, significant environmental and climate concerns have constantly put energy use on the table. Bitcoin and the rest of the PoW-based cryptocurrencies are under scrutiny by the European Central Bank (ECB) and other EU bodies. 

In that sense, the MiCA Regulation would establish a deadline for imposing punitive measures targeting PoW crypto assets, at the latest in 2025, coinciding with the arrival of the AMLD6 authority. A few weeks ago, the ECB released a new research report comparing PoW (energy-intensive) algorithms, the footprint of fossil fuel cars, and the Proof of Stake (PoS) algorithm (which consumes 99% less energy) versus the impact of electric vehicles.

They compared crypto assets’ associated climate risks with other sectors with a significant climate impact. Bitcoin is on top of the list due to the criticism it has received for years using the PoW algorithm. Finally, the report concluded that EU authorities are unlikely to plan to limit fossil fuel cars by 2035 without first taking action against PoW cryptocurrencies. 

The ECB could take political solid and regulatory action, starting with the imposition of carbon footprint disclosure of activity, through creating a carbon tax on cryptocurrency transactions or holdings, ultimately leading to a total ban on PoW mining in the EU region. 

If so, this would constitute a new threat against Bitcoin, as it seems that the regulations aim further to restrict cryptocurrency use activity in the coming years, so the impact of these restrictions on BTC prices would remain unknown.


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