EU votes for tough regulation of unhosted wallets

The die is cast. Today the EU Parliament voted on the so-called Transfer of Funds Regulation (TFR). BTC-ECHO has the voting results. At the same time, there could be a debate on regulation in the live stream pursue. The draft for the trialogue is to be adopted on Friday.

Among other things, the TFR prescribes strict anti-money laundering measures for the transaction of crypto assets from or to so-called unhosted wallets in the “E” topic area for crypto service providers. In the future, providers will have to introduce complex recording and verification procedures for transaction data and share them with the responsible authorities from a volume of 1,000 euros. MEPs voted 62 to 51 to include the section in the draft, with five abstentions.

Paragraph 18aa can also be found in the subject complex “G”. According to this, providers of crypto transactions may in future not allow “any transfers of crypto assets” from or to non-compliant providers of crypto transfers. Industry experts see this as a ban on unhosted wallets. De facto, the DeFi space is massively restricted. MEPs voted 69 to 45 to include the section in the draft, with four abstentions. Yesterday, BTC-ECHO reported extensively on the consequences for the decentralized finance sector.

DeFi space is outraged

The vote marks a bitter defeat for the crypto location Europe. As a result, business models of numerous European crypto providers would be severely restricted or completely destroyed. As Peter Grosskopf, co-founder of Unstoppable Finance, tells BTC-ECHO:

The regulation goes far too far in the area of ​​unhosted wallets. The obligation to verify unhosted wallets is not only a serious invasion of people’s privacy, but would also have serious consequences for the DeFi ecosystem in Europe. And all this with a more than manageable money laundering benefit.

According to Grosskopf, the decision is a huge economic, financial and social setback for the DeFi space.

What happens now?

But it’s not all over yet. First of all, opponents of the DeFi ban have the opportunity to challenge the decision. To do this, however, the camp had to find a majority. The draft would then be discussed again in a plenary session, which could delay adoption.

If the draft is not challenged, it will go into the trilogue with the EU Commission and the Council (member states). Negotiations continue there. Hopes are likely to rest on a DeFi ban being defeated in further talks. Whether this will also happen is unclear at this point in time. According to information from BTC-ECHO, the Commission is quite willing to compromise. The Council has not yet included a ban on unhosted wallets in its draft.

The result then goes back to Parliament and the Council for approval. A final decision is expected in mid-June 2022, according to sources close to the EU Parliament.

The situation is serious. The EU is in danger of losing access to the decentralized financial sector.