Crypto Faces New Restrictive AML Rules From EU Parliament, Experts Say

The EU Parliament has proposed to remove a 1,000-euro threshold below which crypto exchanges wouldn’t be obliged to collect and provide this information. This would mean that, if approved, crypto exchanges would have to report every single crypto transaction regardless of the amount. Ajinkya Tulpule, chief compliance officer at crypto exchange bitFlyer, told PYMNTS in an interview that this measure seems excessive, but it is nonetheless likely to be approved.

“A lot of exchanges have lobbied hard against it, as you can imagine, but from what I heard from a chat with an MEP recently, the majority of the MEPS are in favor of removing the threshold. So it’s not great news,” Tulpule said.

For crypto, this may be a headache, he said. This measure could curtail some of the benefits of being a disruptive technology and still facing all the regulation of traditional financial services. Reporting every transaction, even for a single penny, with all the information that is usually required, will be a challenge, Tulpule noted, but it seems that a solid, robust and automated know your customer (KYC) program is the best solution, if not the only solution, since crypto transactions can occur 24/7.

“For the bulk of the customers that are likely to be low risk, we can automate the onboarding. We can automate a collection of data. We can even automate the transmission of data and verification of incoming data.”

The problem, Tulpule said, is that if firms need to comply with the travel rule there will be certain times where they will have to put the transaction on hold until a complete KYC is done, and this results in frustration for customers. An additional challenge for crypto exchanges to comply with this rule is that their digital assets are not always as traceable as traditional assets, and they don’t get the service offering from third parties that traditional financial derivates and securities have. “There are some coins which are not covered by transaction monitoring systems,” said Tulpule.

While the rule is well-intentioned and necessary to impose AML controls, Tulpule and others in the industry question the impact this may have for European Union regulated exchanges that will need to observe stricter rules than unregulated exchanges outside of the EU.

Another important rule, arguably more liked by the industry, is the Markets in Crypto Assets (MiCA), which may also soon be approved. According to Tulpule, MiCA wants to avoid regulatory arbitrage between member states and have a harmonized layer of regulation at the EU level. This is a good thing, and it will help to get just one set of rules across the EU, Tulpule argues. The law is still under negotiation, and even if most of the text has been agreed among the EU institutions, a few changes may be expected before the final stamp of approval.

On the potential last minutes changes to the text, Tulpule said, “what I would like to see is that once MiCA is out, it allows European regulated exchanges who have gone through the trouble of being regulated to at least have their customer bases not get wiped out by unregulated exchanges from overseas.”