The struggle for European crypto regulation continues. The participants in the trilogue negotiations between the EU Parliament, member states and the Commission on the controversial Transfer of Funds Regulation (TFR) reached a compromise on Wednesday.
With the TFR regulation, the EU is trying to implement guidelines to prevent money laundering and terrorist financing in the crypto space. The debate focused on different ideas about a basic obligation to collect transaction data and the appropriate handling of so-called “unhosted wallets.”
Since June 29th is certain, that the collection of transaction data will be included in the final text of the law. A minimum amount from which the data is to be collected is not planned. According to a press release, crypto transactions could so far easily bypass such thresholds. In principle, the data migrate with the transaction. So they are stored by both the sending and receiving party. However, if the protection of personal data is in doubt by the recipient, the obligation to transmit data does not apply. Transactions between two private wallets are exempt from the regulation.
On the night of today, July 1, it also became known that the EU had regulated the regulation of Bitcoin and Co. using MiCA. More about this here:
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“Unhosted wallets” only need to be verified once
The regulation also provides a framework for transactions between wallets managed by crypto exchanges and comparable service providers (so-called CASPs) and those that are external to these structures. In cases where the customer sends or receives more than EUR 1,000 to such an “unhosted wallet”, the crypto service provider must verify that the wallet belongs to the customer. This test must be carried out once. The fundamental ban on “unhosted wallets” is therefore off the table.
Crypto service providers must continue to apply a risk-based approach to transactions with third-party “unhosted wallets” that do not belong to the customer themselves. The exchanges therefore sound out the risk of money laundering and terrorist financing before approving such a transaction. In case of doubt, it applies a number of information-gathering measures designed to reduce this risk. This echoes the proposal of the federal government, which advocated the use of blockchain analysis tools on a case-by-case basis.
Crypto community remains skeptical
EU representatives spoke positively about the new rules. According to Assita Kanko of the Civil Liberties, Justice and Home Affairs Committee, “misusing crypto assets will become significantly more difficult and innocent traders and investors will be better protected.”
Robert Kopitsch, Secretary General of Advocacy Blockchain for Europe, was more ambiguous to BTC-ECHO:
The Transfer of Funds Regulation is not a work of art in the form adopted, but it enables the industry to remain operational while taking into account the technological reality, including DeFi or self-custodial wallets. Only the question of data collection and privacy remains questionable, but the ECJ recently commented on this. And their decision suggests that the last word has not yet been spoken in this regard.
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