European Union Outlaws All Anonymous Crypto Transactions Involving Exchanges

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The Euro­pean Union today vot­ed in favor of out­law­ing all anony­mous cryp­to trans­ac­tions – includ­ing from self-host­ed wal­lets – facil­i­tat­ed through exchanges. This rule will apply to trans­ac­tions of any size, mean­ing both pay­ers and recip­i­ents of even the small­est dig­i­tal asset pay­ment must be identified.

The Partisan Vote

The law comes as part of a pack­age of anti-mon­ey laun­der­ing revi­sions to the EU’s Trans­fer of Funds Reg­u­la­tion (TFR). It brings rules apply­ing to con­ven­tion­al trans­ac­tions of over 1000 EUR to the entire cryp­to sector.

In Decem­ber, EU ambas­sadors had shown inter­est in scrap­ping the trans­ac­tion floor on pri­vate cryp­to trans­ac­tions, as the lim­it was already eas­i­ly worked around through cryp­to anyways.

The vote today was passed by thin mar­gins, with the two rel­e­vant com­pro­mis­es pass­ing by 58/52 and 62/51 respec­tive­ly. In gen­er­al, the left-lean­ing Renew and S&D par­ties vot­ed in favor of the changes, while the right-lean­ing Euro­pean People’s Par­ty (EPP) vot­ed against them.

“Such pro­pos­als are nei­ther war­rant­ed nor pro­por­tion­ate,” said EPP eco­nom­ic spokesper­son, Markus Fer­ber, in an email to Coin­Desk. “With this approach of reg­u­lat­ing new tech­nolo­gies, the Euro­pean Union will fall fur­ther behind oth­er, more open-mind­ed jurisdictions.”

The par­ty called the lat­est changes a “de fac­to ban on self-host­ed wallets”.

Effect on the Industry

The vote is in spite of objec­tions from cryp­to exchanges like Coin­base. The company’s Chief Legal Offi­cer Paul Gre­w­al warned that these changes would under­mine self-host­ed wal­lets and unleash a “sur­veil­lance regime” against his exchange, and oth­ers like it, in a blog post on Monday.

Greg­w­al also point­ed out that the new iden­ti­ty ver­i­fi­ca­tion require­ment for unhost­ed wal­lets would be near­ly impos­si­ble to car­ry out by exchanges. It would require that they col­lect and retain exten­sive data from non-customers.

Patrick Hansen – Busi­ness Dev at Defi wal­let Unstop­pable Finance – believes that the require­ments will prove over­bur­den­some, and sti­fle the growth of the space.

“Most cryp­to com­pa­nies won’t be able or will­ing to trans­act with unhost­ed wal­lets any­more in order to stay com­pli­ant,” he said.

The crack­down on illic­it finance in cryp­to has accel­er­at­ed tremen­dous­ly fol­low­ing Canada’s Free­dom Con­voy protest and the start of the Russ­ian-Ukrain­ian war.

Coin­base now requires infor­ma­tion on the recip­i­ents of dig­i­tal asset trans­ac­tions in Cana­da, Japan, and Sin­ga­pore. Mean­while, US sen­a­tor Eliz­a­beth War­ren has pro­posed leg­is­la­tion threat­en­ing sanc­tions on cryp­to soft­ware devel­op­ers for help­ing facil­i­tate crim­i­nal transactions.

How­ev­er, heads of major blockchain analy­sis firms includ­ing Chainal­y­sis and Ellip­tic have stat­ed that cryp­to is not ide­al for evad­ing sanc­tions or pro­cess­ing crim­i­nal funds. This is due to its high­ly trans­par­ent nature, which tracks all trans­ac­tions on a pub­lic ledger.

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