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EU’s AML proposals risk it becoming a ‘crypto pariah’

By Daniela Ešnerová

08:17, 31 March 2022

EU flags waving outside the European Parliament
European Union’s anti-money-laundering proposals risk it becoming a “crypto pariah” – Photo: Shutterstock

The cryptocurrency community breathed a sigh of relief earlier this month when the European Parliament rejected a ban on proof-of-work digital tokens, but market watchers are on the alert again.

European Union lawmakers are set to vote on an anti-money-laundering (AML) package on Thursday, including an amendment to the Transfer of Funds Regulation.

The proposal includes a major overhaul of requirements for crypto assets service providers to hand over user data that one market watcher says will negatively impact the trading bloc’s status as a global centre for crypto use. 

Transfer of Funds Regulation

“We believe that the implications can be significant, as adopting such a restrictive text poses the risk of the EU turning into a crypto industry pariah, which is the exact opposite of what the EU (European Union) regulators had in mind when they initiated the legislative process,” Marina Markezic, co-founder of EU Crypto Initiative and adviser to crypto projects tells

The proposed Transfer of Funds Regulation amendment, which will go before an EU parliamentary committee on Thursday has caused a stir among cryptocurrency market participants.

Last week, lobby group the EU Crypto Initiative red-flagged that the proposed document would effectively ban unhosted wallets, by barring “the ability to crypto asset service providers to transfer of crypto assets from or to a crypto-asset wallet not held by a third party”.

Specifically, this amendment would require crypto asset service providers to verify personal data behind all transactions, and inform “competent AML authorities” about every transfer between “un-hosted wallets” over €1,000 ($1,111.8).

Proposals ‘detrimental to the EU’ 

This led many in the crypto sector to fear the implications of such rules for the privacy of cryptocurrency holders.

“AML regulation was not written with the specifics of Crypto in mind and we see how the combination of both can be detrimental to the EU industry, but also to the privacy of individuals.

“The EU has one of the most stringent regulations in this regard and will cause heavy operational burdens on the crypto assets service providers,” Markezic adds.

A number of big players, including the world’s largest cryptocurrency exchange Coinbase, invited the crypto community to lobby the Members of the European Parliament (MEPs) to vote against the proposal. The company’s co-founder and CEO Brian Armstrong tweeted against what he termed, a “new crypto surveillance regime”.


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Tougher rules than for fiat

He described the proposals as anti-innovation, anti-privacy, and anti-law enforcement and posted a link for EU residents to lobby their MEPs against the proposals. 

In another tweet, Armstrong wrote on the latest draft of the Transfer of Funds Regulation treats crypto and people who hold it in a different way from fiat.

“This means before you can send or receive crypto from a self-hosted wallet, Coinbase will be required to collect, store, and verify information on the other party, which is not our customer, before the transfer is allowed.”

Like banks reporting a rent payment

“Moreover, any time you receive 1,000 euros or more in crypto from a self-hosted wallet, Coinbase will be required to report you to the authorities. This applies even if there is no indication of suspicious activity.”

Armstrong likened the proposals to a bank having to file a report every time one of their customers made a rent payment. 

“Or if you sent money to your cousin to help with groceries, the EU required your bank to collect and verify private information about your cousin before allowing you to send the funds. How could the bank even comply? The banks would push back. That’s what we are doing now.”

The EU Crypto Initiative, which has been in continuous dialogue with MEPs on cryptocurrency matters, held a series of talks with the industry and MEPs in the days coming up to a vote.

Crypto ‘shall not fade’

The controversial proposal has galvanised cryptocurrency market players.

Independent developer Samuel JJ Gosling, says this is the first time he has engaged in lobbying MEPs over crypto regulation. “I have no experience in or past notations to lobby Irish MEPs on the matter of regulation of the crypto asset class. It is only recently I am seeking to outreach upon hearing the contentiousness of the ballot on Thursday,” Gosling says.

“The efforts of this realm of technology shall not fade under any regulation, so it is best to negotiate policies that compliment both sides instead of disenfranchising the means of individual sovereignty,” says Gosling.

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The difference between trading assets and CFDs
The main difference between CFD trading and trading assets, such as commodities and stocks, is that you don’t own the underlying asset when you trade on a CFD.
You can still benefit if the market moves in your favour, or make a loss if it moves against you. However, with traditional trading you enter a contract to exchange the legal ownership of the individual shares or the commodities for money, and you own this until you sell it again.
CFDs are leveraged products, which means that you only need to deposit a percentage of the full value of the CFD trade in order to open a position. But with traditional trading, you buy the assets for the full amount. In the UK, there is no stamp duty on CFD trading, but there is when you buy stocks, for example.
CFDs attract overnight costs to hold the trades (unless you use 1-1 leverage), which makes them more suited to short-term trading opportunities. Stocks and commodities are more normally bought and held for longer. You might also pay a broker commission or fees when buying and selling assets direct and you’d need somewhere to store them safely.
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