The European Banking Authority has warned that draft EU rules to prevent money laundering through crypto exchanges and wallet providers could overwhelm the financial sector, which has been slow to adopt the new technology.
The new European Union proposal rules from Brussels would require crypto platforms in Europe to identify customers using “traveler’s cheques or prepaid cards.” The new rules will monitor crypto transactions with unhosted wallets
Policymakers from the European Commission also warned any decision to scrap a 1,000-euro threshold for identifying crypto payers would need to be backed by evidence.
The EU voted to identify participants in crypto payments on March 31. The identification efforts will also include transactions with wallets that aren’t hosted by any regulated exchange. Monitoring unhosted wallets in particular has raised a high number of concerns that the new regulations could hurt innovation and cramp privacy.
The plans to force large transactions with unhosted wallets to be automatically reported to the authorities could prove overwhelming, the European Banking Authority’s Joana Neto said at an event held Wednesday at the European Parliament in Brussels.
“The EBA is still concerned that the requirements to monitor and report on transactions with virtual currencies not hosted by a regulated exchange may be disproportionate and place an unnecessary burden on market participants, in particular innovative start-ups,” Neto said.
“It’s very resource intensive,” said Neto, who is an anti-money laundering data specialist. “Who’s going to handle this? … If it’s going to be the competent authority, what are they going to do with that information?” A requirement to report missing data to the authorities was “amazing in theory,” but might not be practical, she added.
“The essence of the risk-based approach is not exactly reflected in the draft from the European Parliament,” she continued, referring to the principle of matching data collection to the threat of actual money laundering.
It’s not just the new regulations that have some in the crypto community concerned. The European Central Bank is also reportedly considering a ban on anonymous crypto transactions and could soon unveil its own plans for regulating digital assets. In response to the proposed regulations, the European Commission said it would carefully assess their impact before making any decisions.
The ongoing efforts by European regulators to introduce new regulations for the crypto industry come as authorities in the U.S. have also stepped up their scrutiny of digital assets. The U.S. Department of Justice recently launched a task force to investigate cryptocurrency crimes, and the Securities and Exchange Commission has said it plans to increase its focus on the space.
EU lawmakers also supported governments in proposing to remove a 1,000-euro threshold that already applies to conventional bank transfers. That means crypto payments, uniquely, would have to identify the participants even if they are of small value. Financial legal experts fear that such an approach could trigger privacy concerns.
The EU’s plans to regulate the crypto industry are raising concerns among some in the industry, who say that these new regulations could overwhelm regulators and make it difficult for them to effectively monitor the growing digital asset space. As more and more people turn to cryptocurrencies for everything from investment opportunities to money laundering, governments and regulators need to be prepared for this uptick in crypto adoption.