The Commission, the Council and the European Parliament agreed on June 29 on a common version of the TFR regulation, or Transfer of funds regulation. This text is intended to regulate the transfer of crypto-asset funds to prevent illicit flows. A second text, the Markets in Crypto-Assets (MiCA), is discussed on June 30, this time to regulate the platforms in the sector.
Fight against money laundering
The FRR is presented by the European Parliament as the ” First EU regulation to track transfers of crypto-assets, like bitcoins and e-money tokens “. It should serve to Combat money laundering, terrorist financing and other crimes “.
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Following the provisional agreement on a version of the text, MEP Assita Kanko, co-rapporteur of the text for the Civil Liberties Committee, judged that ” For too long, crypto-assets have flown under the radar of our law enforcement authorities […] This has actually taken a toll on the lives of many people and raised concerns about the industry “.
Concretely, crypto-assets will be subject to a framework already in place in traditional finance, the “travel rule”. The regulation states that the information on the source of the asset, for example a bitcoin, must be known as that of its beneficiary, they must “travel” with the financial flow.
It will be the Digital Asset Service Providers (PSAN), players such as Binance or Coinhouse, who will have the obligation to provide, if necessary, information on this trip to the competent authorities. They must also ensure that the beneficiary or source of the flow is not subject to sanctions or other restrictive measures. A register of PSANs with which European players will not be able to exchange will be set up.
MEP Ernest Urtasun, co-rapporteur of the text for the Committee on Economic and Monetary Affairs, welcomed the ” wild west end of unregulated crypto “. In a statement, he said, ” The EU ‘travel rule’ will not only ensure that crypto-asset service providers can prevent and detect sanctioned addresses, but also that crypto-asset transfers are fully traceable “.
1/Deal! After months of negotiations with the Council, we agreed the most ambitious travel rule for transfers of crypto-assets in the world. We are putting an end to the wild west of unregulated crypto, closing major loopholes in the European anti-money laundering rules. Thread👇 pic.twitter.com/Jr9IAspsb8
— Ernest Urtasun (@ernesturtasun) June 29, 2022
The crypto-asset sector dubious at best
The adoption of the text did not materialize smoothly. The crypto-asset sector, while recognizing the need to fight against money laundering, rejected certain versions of the text that risked establishing ” a broad European-style financial oversight regime, will stifle innovation and undermine the self-hosted wallets that individuals use to securely protect their digital assets » according to a long blog post from the French startup Ledgerpublished in March.
Among the stumbling blocks, the possibility of tracing transfers of individuals, not going through PSANs, a possibility opened up by Parliament in March. Faced with the outcry, the regulations have been widely amended: non-hosted private wallets will be monitored during their interactions with service providers.
The European Union proceeds step by step
During the trilogue discussions (Parliament, Council, Commission), another measure discussed was that of a minimum threshold triggering the tracing of transactions. In its initial proposal of July 2021, the Commission set this threshold at 1,000 euros, like the traditional sector. MEPs obtained the removal of a minimum, considering crypto-assets too volatile and easy to split, therefore easily circumventing the device. An inequality and a disproportion in the eyes of the middle of the digital assets which will not have won their case.
The European institutions must now put in place the final technical details of the text before its final adoption. Ernest Ustasun hopes that ” the other jurisdictions will follow the ambitious and rigorous approach on which the co-legislators agreed today “.
In the meantime, trilogue negotiations resumed on June 30 for the second text of this legislative package for the management of crypto-assets: MiCA. A fine tribute for the last day of the French presidency of the Council of the European Union, since this text is partly based on and extends the Pacte law, passed in France in 2019. It obliges, among other things, service providers to report to financial market regulators. There too, the stumbling blocks are not lacking.