EU reaches AML agreement on travel rule for crypto-asset transfers

Under the proposal, crypto-asset service providers operating in the EU will have to collect and make accessible full information about the originator and the beneficiary of the transfers of crypto-assets they execute, so that they can be traced or blocked, regardless of the transaction value. There will be specific requirements for crypto-asset transfers between crypto-asset service providers and unhosted wallets.

The travel rule for crypto transfers is already mandated by the Financial Action Task Force's (FATF’s) Recommendations 15 and 16. However, few jurisdictions have implemented it because of its technical difficulty for crypto-transactions, which are structured differently to wire transfers conducted by traditional payment service providers. The UK government has undertaken to do so for transfers above EUR1,000, although it has also reversed its original proposal to require verification on unhosted wallets. The Cayman Islands is asking the financial sector to find ways to achieve the travel rule by July 2022.

The EU Council says the agreed proposal, originally drafted by the European Commission, will reconcile competitiveness, consumer and investor protection and the protection of the financial integrity of the internal market. No separate data protection rules will be created for fund transfers, and the EU General Data Protection Regulation will remain applicable to all.

The new rule will make it easier to enforce financial sanctions against persons and entities designated as subject to restrictive measures, says the EU Council's statement. 'Crypto-asset service providers will have to implement appropriate internal policies, procedures and controls to mitigate the risks of evasion of national and Union restrictive measures', it says. ‘More generally, the entirety of sanctions already apply to all natural and legal persons, including those operating in the crypto currencies sector’.

Eventually, EU Member States will have to enact legislation ensuring all crypto-asset service providers qualify as obliged entities under the EU Fourth Anti-Money Laundering Directive. This will enable the EU to align with FATF recommendations and equalise Member States that have developed so far different approaches in that regard, says the EU Council.

The EU Council's proposal also includes the creation of a new AML authority operating across the EU. This agency will contribute to the harmonisation and coordination of supervisory practices in the financial and non-financial sectors, the direct supervision of high-risk and cross-border financial entities and the coordination of financial intelligence units. It will also be given powers to directly supervise certain types of credit and financial institutions, including crypto-asset service providers, if they are considered a risk.

Sources

• EU Council
• EU Council (2)
• STEP UK News 20 June 2022: UK amends AML regulations to cover formation of all registrable entities
• Mishcon de Reya (unhosted wallets)
• Cayman Islands Monetary Authority (PDF)