New EU legislation could force companies to improve crypto asset transparency and traceability.
According to the European Commission, new anti-money laundering rules will help tackle this growing issue by applying the ‘travel rule’ to crypto asset transactions.
In doing this, transactions will become more easily traceable and regulated in a similar fashion to traditional wire transfers.
In a statement issued yesterday, the European Commission said: “Given that virtual assets transfers are subject to similar money-laundering and terrorist-financing risks as wire funds transfers… it therefore appears logical to use the same legislative instrument to address these common issues.
“Today’s amendments will ensure full traceability of crypto-asset transfers, such as Bitcoin, and will allow for prevention and detection of their possible use for money laundering or terrorism financing.”
Crypto asset transparency
This means that an organisation handling crypto assets on behalf of a customer will be required to include information such as names, addresses and account numbers, as well as the details of recipients in the event of an exchange or transaction.
Providing anonymous crypto wallets will also be prohibited to better-align the market with rules governing the broader financial sector. Under current EU rules, anonymous bank accounts are also banned due to anti-money laundering regulations.
The European Commission noted that a range of crypto asset providers currently fall under the scope of EU anti-money laundering regulations.
These latest proposals, however, will “extend these rules to the entire crypto sector, obliging all service providers to conduct due diligence on their customers”.
Mairead McGuinness, Commissioner responsible for financial services, financial stability and Capital Markets Union, insisted the new rules will plug gaps in the EU’s current regulatory framework.
She said: “Today’s package is a response to very, very prominent cases – scandals if you like – of money laundering in the financial system.
“We have looked at where the gaps are in our regulatory framework and we’ve said enough is enough.”
The proposals come as both regulators and law enforcement continue to crack down on cryptocurrencies due to concerns over their use in money laundering, criminal activity and the financing of terrorism.
Earlier this month, the Metropolitan Police service seized nearly £300 million in cryptocurrency as part of two anti-money laundering operations.
Detectives believe the cryptocurrencies, which included Bitcoin, were being used to launder money for organised crime gangs.
Speaking at the time, Graham McNulty, deputy assistant commissioner at the Met Police, said the force has witnessed a rapid rise in the use of cryptocurrency in money laundering.
“Proceeds of crime are laundered in many different ways,” he said. “While cash still remains king in the criminal world, as digital platforms develop, we’re increasingly seeing organised criminals using cryptocurrency to launder their dirty money.”
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A regulatory crackdown on crypto trading also unfolding in the UK. The Financial Conduct Authority (FCA) recently banned Binance, the world’s largest cryptocurrency exchange, from operating in the country.
The move followed a warning issued in June that many cryptocurrency firms were failing to meet UK money laundering regulations.
In a statement, the FCA said: “A significantly high number of businesses are not meeting the required standards under money laundering regulations.
“This has resulted in an unprecedented number of businesses withdrawing their applications.”
Firms offering crypto asset trading services are obliged to register with the authority in order to operate within the UK’s regulatory framework.
The FCA had set a deadline for applications for 9th July. However, it pushed this deadline back and set a renewed date of 31st March 2022.