EU to Ban Anonymous Crypto Wallets, Trace Transactions
European bill would make it mandatory to identify all bitcoin transactions. The European Commission also wants to ban anonymous crypto wallets.
Authorities would tighten measures towards exchanges and other services.
The legislative adjustment would comply with Financial Action Task Force rules.
The European Commission proposes a regulatory adjustment to make all bitcoin (BTC) and other cryptocurrency transactions traceable and identifiable with user data. The agency is pushing all digital asset providers to apply the so-called "travel rule" to transactions.
The "travel rule" implies that all transactions above a set amount, for example, €1,000, must record the details of who is sending and receiving the funds. This information must contain: first and last names, amount and date of the transaction, physical address of both participants, date of birth, and the number of associated accounts, all as a KYC or "Know Your Customer" check.
In this case, exchanges, whether centralized, decentralized, custody services or P2P platforms, must comply with the regulation. The European Commission would toughen measures on the premise of fighting money laundering and terrorist financing (AML/CFT).
"Currently, only certain categories of crypto-asset service providers are included in the scope of the EU AML/CFT rules. The proposed reform will extend these rules to the entire cryptocurrency sector, obliging all service providers to apply due diligence to their customers," the commission said.
The proposal extends the scope of Regulation 2015/847 to include transfers of crypto assets carried out by crypto asset service providers (CASPs), in addition to the current provisions on the transfer of funds. It aims to reflect in the amendments to EU legislation made in June 2019 to the Financial Action Task Force (FATF) Recommendation on new technologies to cover 'virtual assets' and 'virtual asset service providers and, in particular, new reporting obligations for originating and beneficiary CASPs at both ends of a crypto asset transfer (the so-called 'travel rule')
Tighter Bitcoin regulation
The legislative adjustment that the organization intends to establish follows the guidelines laid out by the Financial Action Task Force (FATF). This organization has in the past issued suggestions for countries and other institutions to establish stricter regulations regarding the bitcoiner ecosystem.
According to the European Commission, such legislation will "ensure full traceability" of cryptocurrency transactions. On this point, the authorities would seek to ensure that, if a person withdraws from an exchange, the user must previously provide the address to which the funds are destined. In other words, each operator could only withdraw funds to the addresses provided and not to any BTC address.
It is essential to mention that the traceability of Bitcoin transactions, for example, is one of the characteristics by nature of its network. Any person, entity, or regulatory body can track the transactions of its users.
The European Parliament and the union's member states must determine whether the legislation proceeds or discards the proposal. In any case, deliberations and possible adoption of the proposal could extend for two years.
EU wants to ban anonymous crypto wallets
The European Union (EU) proposes new regulations for the cryptocurrency sector that will apply stricter rules to digital currency wallets. Officials at the European Commission, the EU's executive branch, released a new bill on Tuesday. Several news outlets, including Reuters and The Block, reviewed the news citing the 50-page document.
The proposal includes a ban on anonymous cryptocurrency wallets. Of course, providers will not be allowed to process transactions if any of the required information is missing. The measure would extend the EU ban, which already applies to anonymous bank accounts, to the cryptocurrency sector.
The European Commission, which detailed the new regulatory proposal in a press release, stressed the need for service providers in the EU space to know who their customers are and information about them moving between companies.
"Currently, only certain categories of crypto-asset service providers are included in the scope of EU AML/ KYC rules. The proposed reform will extend these rules to the entire cryptocurrency sector, obliging all service providers to conduct due diligence on their customers,"
User's non-custody wallets will not be affected.
A European Commission spokesperson explained that the ban would expressly affect crypto-asset accounts provided by virtual asset service providers, such as exchanges, but not to non-custodial private wallets. "Open source, non-custodial wallets will not be covered by the ban," the EC representative clarified.
In this regard, he specified that the rule consists of a strategy to fight against money laundering (AML) and, for this purpose, it relies on the actors "who are the guardians of our financial system and must apply AML rules to protect it from illegal funds." In cryptocurrencies, these are the VASPs, including financial entities that provide virtual asset services. "But this requirement does not apply to non-hosted wallets owned by users," the spokesperson added.
When using non-custodial wallets, there is no third party storing the private key. Instead, it is the user who must store and is responsible for their private key. Custody wallets, on the other hand, are offered by most commercial platforms. The website holds the private key.
The new requirements on the cryptocurrency sector are part of the European Commission's four legislative proposals, the statement said. All of the proposals aim to improve the tracing of suspicious transactions and stop previously flagged criminal activities.
However, it could still take up to two years before these regulatory proposals become law; we'll have to wait for a conclusion from the European Parliament.