EU Implements Crypto Regulations to Combat Money Laundering

In a move to tackle money laundering, the European Parliament has approved new regulations imposing formal due diligence requirements on cryptocurrency companies.

The legislation focuses on enhancing due diligence measures and identity verifications for customers, extending these obligations to crypto asset managers as well. Additionally, entities such as crypto-asset service providers (CASPs), including centralized crypto exchanges governed by the Markets in Crypto-Assets (MiCA) regulation, will be mandated to report any suspicious activities to authorities.

The MiCA framework, established by the European Union to regulate digital assets and their markets, was introduced in June 2023 and is set to be fully enforceable by the year’s end.

To oversee the implementation of these regulations, a new agency named the Authority for Anti-Money Laundering and Countering the Financing of Terrorism (AMLA) has been designated. Headquartered in Frankfurt, Germany, AMLA’s role will be crucial in supervising compliance with the new rules.

While the legislation awaits formal adoption by the Council and publication in the EU Official Journal, Patrick Hansen, EU strategy and policy director at Circle, expressed anticipation for its outcome. He highlighted that the package would undergo official adoption by the Council of the EU and take effect three years later.

Hansen emphasized that CASPs would need to adhere to standard Know Your Customer (KYC) and Anti-Money Laundering (AML) procedures, such as customer due diligence. However, he noted that this requirement is not new, as existing legislation already mandates compliance for all crypto exchanges and custodial wallet providers in the EU.

Describing the final version as a “positive result” for the crypto sector, Hansen acknowledged earlier proposals suggesting a stricter approach, including KYC requirements for self-custody originators/beneficiaries. He credited industry efforts for advocating a risk-based approach with multiple options, leading to consensus.

Notably, in the previous month, a majority of the European Parliament’s lead committees eliminated the 1,000-euro ($1,080) limit on cryptocurrency payments from self-hosted crypto wallets as part of new AML laws.