The European Parliament recently passed significant new regulations that
introduce formal due diligence responsibilities specifically targeting cryptocurrency companies. This legislation, crucial in the battle against money laundering, mandates rigorous “due diligence measures and identity checks” for clients, particularly affecting entities such as crypto asset managers. Additionally, these entities will now be obliged to report any suspicious activities directly to the relevant authorities.
Passed on April 24, this legislation impacts a wide array of crypto-asset service providers (CASPs), including those operating under the Markets in Crypto-Assets Regulation (MiCA) framework, such as centralized crypto exchanges. Furthermore, its reach extends to various other sectors, including gambling services, marking a significant broadening of regulatory oversight.
MiCA, a comprehensive regulatory framework instituted by the European Union to govern digital assets and their markets, was enacted in June 2023 and is slated to be fully enforceable by year’s end. The framework aims to enhance transparency and operational standards within the digital asset market, providing a clearer legal environment for service providers and greater protection for investors.
In alignment with the newly approved legislation, a dedicated agency, the Authority for Anti-Money Laundering and Countering the Financing of Terrorism (AMLA), has been established. This new body is tasked with overseeing and ensuring the diligent implementation of these regulations. AMLA will set up its base in Frankfurt, although the legislation itself still awaits formal adoption by the Council and publication in the EU Office Journal.
Circle’s EU Strategy and Policy Director, Patrick Hansen, took to social media platform X to share his thoughts on the parliamentary approval. He expressed optimism about the vote’s outcome and noted that the legislative package would proceed to be officially adopted by the Council of the EU, with the new rules coming into effect three years hence.
The requirements imposed by these regulations are not entirely new to CASPs. As Hansen pointed out, all crypto exchanges and custodial wallet providers in the EU are currently required to comply with standard KYC/AML procedures under existing legislation, which includes customer due diligence (CDD). The final version of this new regulation, which Hansen described as a “positive result” for the sector, illustrates a shift from the initial proposed versions, which suggested a stricter approach including KYC on the originator/beneficiary of self-custody wallets.
These changes reflect a dynamic interplay between regulatory bodies and the crypto industry, with the latter advocating for a risk-based approach that allows for multiple options in compliance. This engagement has been pivotal in reaching a consensus that balances regulatory oversight with industry flexibility.
In related news, concerns have been voiced by an EU watchdog about the potential for a small number of exchanges to dominate the crypto market, highlighting the ongoing challenges and the dynamic nature of cryptocurrency regulation.
