Lawmakers Want Unregulated Crypto Firms Out of the EU

Proposed anti-money laundering rules are up for a parliamentary committee vote on Thursday along with a separate provision seeking to end anonymous crypto transactions in the European Union.

AccessTimeIconMar 30, 2022 at 5:42 p.m. UTC
Updated May 11, 2023 at 3:57 p.m. UTC

Lawmakers in the European Union (EU) want to cut off unregulated crypto firms from the bloc’s financial system.

New provisions proposed by lawmakers in an anti-money laundering (AML) legislative draft up for a parliamentary committee vote on Thursday stipulates financial and credit institutions, along with regulated crypto firms in the EU, will be prohibited from doing any business with what it calls non-compliant crypto firms.

The text defines a non-compliant crypto-asset service provider to be a firm “that is not established in any jurisdiction or does not have a central contact point or substantive management presence in any jurisdiction and that is unaffiliated with a regulated entity or that operates in the Union” without authorization under the upcoming Markets in Crypto Assets (MiCA) regulatory framework that seeks to set up a license that would allow crypto firms regulated in one EU member state to operate in others.

The provision implies that crypto firms looking to offer services to customers in the EU must be registered as a business and also be licensed or approved by a regulator in any jurisdiction.

The aim of the proposed legislation is to cut off crypto service providers operating in the EU from its financial system until these firms become properly regulated, a person familiar with the matter told CoinDesk.

Multiple people suggested trouble may be ahead for companies like Binance, which has received warnings from regulators in jurisdictions including the U.K., Malta and Italy, among others, over its level of authorization. Binance, which is registered in the Cayman Islands, currently has no head office, but it did recently receive licenses to provide crypto services in Bahrain and Dubai.

Binance declined to comment on “rumors and speculation.”

AML week at the European Parliament

Crypto is front and center at the European Parliament this week as it debates proposed anti-money laundering legislation. On Thursday, lawmakers in the parliament’s Committee on Economic and Monetary Affairs will be voting on multiple AML packages – that will apply to crypto transactions as well as crypto asset service providers – before the drafts head to further negotiations between branches of the European Union (EU) government.

One framework up for a decisive vote on Thursday, aimed at extending existing AML laws to crypto transactions, contains provisions looking to end anonymous crypto payments and include transfers to self-hosted or private wallets (also called unhosted wallets) in AML checks. The provisions have drawn the ire of the crypto industry around the world because individuals and businesses view the rules as a threat to privacy.

The other, slightly overlooked framework that would prevent the use of the financial system for the purposes of money laundering or terrorist financing is also up for a vote on Thursday. In addition to the provision seeking to cut off non-compliant crypto firms from the EU, this draft framework contains a proposal from lawmakers to set up a public register of shell banks and unregulated crypto firms.

According to the provision, the responsibility of setting up and maintaining the registry would fall under the new AML authority (AMLA), which lawmakers are working to ensure will have supervision power over the crypto space.

“AMLA shall set up and maintain an indicative and non-exhaustive public register of shell banks and non-compliant crypto-asset service providers operating within and outside the Union based on information provided by competent authorities, supervisors, the Commission or obliged entities,” the draft said. These measures are needed given the high risk of money laundering and terrorist financing inherent to these entities, according to the draft.

The provisions pertaining to non-compliant crypto firms and shell banks were proposed by the co-rapporteurs, Finnish politician Eero Heinäluoma and French politician Damien Carême, in charge of overseeing the framework as it moves through the legislative process.

“Your co-rapporteurs extend specific enhanced due diligence measures to crypto-asset transactions, service providers and accounts, and insert a specific prohibition of correspondent relationships with non-compliant crypto-asset service providers,” the draft said.

The proposed AML measures, including the controversial provision seeking to impose verification requirements for crypto transfers to unhosted wallets, are likely to pass through the committee vote on Thursday.


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Sandali Handagama

Sandali Handagama is CoinDesk's deputy managing editor for policy and regulations, EMEA. She does not own any crypto.