Cryptocurrencies such as Bitcoin, Ethereum, or Solana are increasingly being used for money laundering. The EU is now countering this by being the first major economic region to regulate the crypto market. What is planned?
Bitcoin fell from a price of over 48,000 euros in March to below 20,000. The trend continues to fall. The recent course capers show how risky and speculative cryptocurrencies are. That’s one more reason to finally regulate them, says CSU MP Markus Ferber. This would also make it easier to combat money laundering. It is “essentially about payments that include a crypto service provider,” says the economic policy spokesman for the EPP Group in the European Parliament. “Transactions by private individuals are not recorded,” emphasizes Ferber. “With the agreement, comparable rules apply to crypto transactions in the area of combating money laundering as we already know them in other areas of the financial sector. I, therefore, consider these requirements to be strict but quite proportionate.” Ferber refers to the rulebook called “Markets in Crypto Assets,”
Data collection for all transactions
In the future, the trading platforms for digital money should determine information about the sender and recipient for all transactions and, if necessary, forward it to the responsible authorities. Martin Schirdewan agrees that this is long overdue. Because the crypto market is a money laundering paradise, says the new chairman of the Left Party and group leader in the EU Parliament.
“An estimated one in four Bitcoin investors, for example, has a criminal background. There are drug cartels, terror is financed, arms dealers and human traffickers launder their dirty money,” says Schirdewan. “That’s why it’s good that stronger transparency regulations are now helping to put an end to this money laundering and making it more difficult for criminals to launder money and put a stop to it.”
Skepticism at the Pirate Party
According to Patrick Breyer, a Member of the European Parliament, criminal prosecution has already been possible on the basis of the applicable regulations. Those who do not keep their crypto assets with an official service provider will continue to appear as a code made up of numbers and letters in the future. Direct transfers between platform-independent crypto exchanges remain just as difficult to control.
However, the MEP from the Pirate Party is convinced that the set of rules that the EU Parliament and member states have agreed on is not about fighting crime. “The declared goal of wanting to fight money laundering and terrorism is just an excuse to gain more and more control over our financial privacy, private business,” says Breyer. Anonymous payments should be prohibited.
He is convinced that this would take away people’s financial freedom. “For example, opposition figures like Alexei Navalny in Russia are increasingly dependent on anonymous donations in such virtual currencies in order to be able to continue their work at all. We should all have the right to be able to pay and donate online without all our payments being personal to be recorded.”
New rules are expected to apply from 2023
The new regulations should come into force in the EU by the end of 2023. The provisional agreement still has to be approved by the relevant committees and the plenary session of the Parliament, as well as the representatives of the Member States. But that is considered a formality.
EU regulatory framework for the crypto market – “Markets in Crypto Assets” (MiCA)
Representatives of the EU Parliament and EU countries have agreed on a set of rules called Markets in Crypto Assets (MiCA) to regulate the crypto market. Among other things, it provides for the following regulations:
License required for Crypto companies
Companies that want to issue and sell cryptocurrencies in the EU will, in the future, need a license from a supervisory authority in an EU country. With this license, the companies can serve their customers in all 27 member countries. The supervisory authorities of the countries have to report to the European Financial Market Authority ESMA every large operator that they have authorized.
Traceability of transfers
The EU wants to be able to track crypto transfers. In the future, crypto platforms will therefore have to determine information about senders and recipients when they process transactions. It does not matter how high the transferred amount is. In the event of an investigation into money laundering or terrorism, providers must forward the information to the relevant authorities. The EU focuses on where bitcoin, ether, and other digital currencies are exchanged for traditional money like euros or US dollars. Therefore, direct transfers between holders of cross-platform crypto wallets are left out.
The new EU rules aim to give stablecoin holders the right to claim their funds back for free. Issuers must maintain a minimum level of liquidity. They are also monitored by the European banking authority EBA. Crypto companies must have a registered office in the EU to issue stablecoins. There will be restrictions on stablecoins pegged to non-European currencies.
Non-Fungible Tokens (NFT)
MEPs also wanted Non-Fungible Tokens (NFTs) to be included in the regulation. But the EU countries were against it. A compromise now provides that supervisors of such NFTs – proof of ownership for digital objects – can only demand compliance with crypto regulations under very specific conditions. Should they behave like traditional securities, the EU’s MiFID financial market rules may apply. The EU Commission intends to examine within 18 months whether separate regulations are necessary for NFTs.
Climate protection requirements
In view of the high energy consumption associated with cyber currencies such as Bitcoin, crypto companies must disclose the impact of their cyber currencies on the environment and climate change. Standards are to be used that will be drafted by the European Financial Market Authority ESMA. The EU Commission wants to evaluate the environmental impact of crypto assets within two years and introduce binding sustainability rules. This should also apply to the energy-intensive systems used to mine cryptocurrencies.
Read also: The reasons for the Bitcoin crash