BRUSSELS, Belgium – The European Union (EU) finally agreed on landmark anti-money laundering rules for crypto transactions Wednesday, despite industry concerns over the law harming privacy and innovation.
The final proposals will mean customer identity needs to be verified for even the smallest crypto transfers, if it’s between two regulated digital wallet providers – but payments to unhosted private wallets will largely be left out of laundering checks.
EU lawmakers and government representatives have been meeting over the last three months to hash out a political deal on the bill, which was introduced in July 2021 by the European Commission.
Two sources leaving the meeting, who asked not to be named, told CoinDesk a deal had been reached on the legislation after just over an hour of talks.
Just under an hour following the publication of this article, EU lawmaker Ondřej Kovařík confirmed the provisional deal in a tweet, saying that it “strikes the right balance in mitigating risks for fighting money laundering in the crypto sector without preventing innovation and overburdening businesses.”
Outside the meeting room, Kovařík told CoinDesk that negotiators had found a “good balance” that would not prevent innovation.
"It will allow the further development of crypto in Europe," Kovařík said.
In March, lawmakers said they wanted to significantly expand the scope of the bill to include transactions with unhosted digital wallets – those which aren’t managed by a regulated service provider like a licensed crypto exchange – and to have transaction details reported to the authorities regardless of risk.
That drew a cry of protest from industry players, from lobby groups to prominent crypto firms such as Coinbase (COIN), and some legal experts said it could also be considered a disproportionate and unlawful privacy breach.
Late-stage talks on the law were being held in Brussels to find a set of rules agreeable to both the European Parliament, and the Council of the EU (which groups together the 27 member states to make collective legislative decisions). The Council is currently chaired by France. The deal was made in the nick of time, just over one day before France would have had to cede control over talks to the Czech Republic.
For the rules on transfers to unhosted wallets, Kovařík said the final result had “moved quite far from the initial proposal of the European Parliament” – something likely to be met by a sigh of relief by many in the industry.
Kovařík said those unhosted wallet rules would only apply when transfers were made to a person’s own private wallet, and only when the value was over 1,000 euros ($1,052). A further source briefed on talks has confirmed those details.
Urtasun confirmed that the final deal would mean that, for transactions between regulated wallets, customer identity details have to be recorded for even the smallest transaction. That makes crypto rules unlike those for the conventional banking sector, which only catch those worth over 1,000 euros.
Lawmakers and governments overturned European Commission plans to exempt small transactions, arguing that price volatility and the ability to break up payments into smaller chunks would make it unworkable for crypto.
Socialist lawmaker Paul Tang, who had pushed for tough anti-money laundering measures, told CoinDesk in a statement the deal meant “the verification of unhosted wallets is deeply engrained in the EU's fight against money laundering through crypto.”
“We cannot just focus on the regulated sector while keeping the backdoor open to large anonymous crypto flows,” Tang said.
The deal, which sets the essential policy lines that the final law will take, still needs to be translated into legislative text and gazetted in the EU’s Official Journal.
UPDATE (June 29, 18:49 UTC): Adds comment from EU lawmaker Paul Tang and tweet from lawmaker Ondřej Kovařík.
UPDATE (June 29, 19:28 UTC): Adds comment from lawmaker Ondřej Kovařík and tweet from Ernest Urtasun. Confirms details regarding exemptions for small payments and unhosted wallets.
UPDATE (June 29, 19:45 UTC): Updates headline.