Rules for Bitcoin & Co.: EU Parliament seals off anonymous crypto payments

The EU Parliament passed two regulations on Thursday, each with a large majority, with which it draws up a comprehensive regulatory framework for the cryptocurrency industry. It wants to put an end to the “Wild West” in the sector with numerous breakdowns, bankruptcies and asset losses and restore lost trust. In large areas, however, the framework falls short of the rules that are already in place, with which Canada severely restricts speculation in cryptocurrencies.

For decades, the crypto sector has offered a safe haven for fraudsters and international criminal networks, MPs complained in the context of the vote. They now want to counter this with effective money laundering, more consumer protection and strong financial supervision – but they don’t go as far as those countries that have completely banned cryptocurrency.

The agreed package includes a regulation on the transmission of information for money transfers and cryptocurrencies, which passed the House of Representatives by 529 votes to 29 with 14 abstentions. Anyone who uses virtual coins such as Bitcoin, Ethereum or Ripple in the EU should be able to be identified in the future regardless of the equivalent value. Negotiators from the EU legislative bodies and the Commission had already agreed in principle on this end for anonymous payments and donations with crypto tokens in June.

The initiative aims to ban anonymous crypto wallets and extend due diligence requirements such as identification requirements to the entire sector. The aim is to make the transfer of crypto assets “fully” traceable. In order to maintain the efficiency of the payment system and keep the underground economy small, the Commission initially advocated a de minimis limit of 1,000 euros. However, the parliamentarians and the representatives of the EU Council of Ministers canceled this limit. According to this, all transfers of crypto assets must contain information about their source and recipient. These must be made available to the competent authorities.

The regulations also apply to transactions with “unhosted wallets”, which do not require intermediaries such as exchanges or crypto value service providers and form the basis for decentralized financial applications. They are kept directly with private users. Special provisions apply to this: if a customer sends or receives more than 1000 euros to or from their own non-hosted wallet, crypto asset providers must verify whether the virtual wallet is actually owned or controlled by the customer. The rules do not apply to person-to-person transfers made without a provider. This refers, for example, to exchanges via bitcoin trading platforms.

Parliament also passed a new regulation on markets in crypto assets by a vote of 517 to 38 with 18 abstentions. These guidelines for “Markets in Crypto-Assets” (MiCA) are intended to protect consumers and investors from abuse and manipulation on volatile crypto marketplaces and to ensure financial stability. Issuers of stablecoins such as Tether or Circles USDC, which are linked to the US dollar, a basket of currencies or other assets, must in future build up a sufficiently liquid reserve at a ratio of 1:1 and partly in the form of deposits in order to prevent total defaults.

Each holder of such tokens is permanently entitled to a free exchange. There is also a limit of 200 million euros in transactions with fast-growing stablecoins per day. Such cryptocurrencies will be controlled by the European Banking Authority (EBA) in the future. A presence of the issuer in the EU is mandatory in order to be allowed to be active on the European market. Providers of wallets for crypto assets of all kinds are liable if they lose investors’ virtual coins. Any market abuse, including insider trading, should be recorded.

All providers of services for crypto assets will need a license if they want to operate in the EU. National competent authorities have three months to grant authorizations and regularly submit relevant information on the largest players to the European Securities and Markets Authority (ESMA). The ESMA should also make proposals to mitigate the negative effects of mining bitcoins in particular on the environment and the climate. The Commission must present minimum sustainability standards within two years.

Non-fungible tokens (NFTs), which are intended to represent ownership of real objects such as art, music and videos based on blockchain entries, are generally excluded from the scope. However, this does not apply if they fall under existing crypto asset categories. The Commission is mandated to carry out a comprehensive assessment within 18 months.

The new supervisory structures represent “a bulwark against Lehman Brothers moments like the crypto exchange FTX”, campaigned MiCA reporter Stefan Berger (CDU) for the regulations. In the future, issuers of new coins would also have to provide relevant information on energy consumption and environmental impact. This creates transparency for consumers. He was convinced that MiCA would set global standards and act as a booster for “young technologies like blockchain” overall.

“Currently, illicit crypto-financial flows are moving around the world quickly and with a high probability of being undetected,” said Ernest Urtasun, co-rapporteur for the transfer regulation. The EU is now putting a stop to that. “The fact that anonymous payments and donations in digital currencies are now totally banned from the first euro has no significant impact on crime,” complained Patrick Breyer (Pirate Party). However, this clause robs “law-abiding citizens of their financial freedom” and amounts to a further step “to also abolish cash”.

The IT association Bitkom celebrated MiCA as a “milestone for the blockchain and crypto industry”. This will give an “innovative and young industry legal certainty”. It is now up to the supervisory authorities to develop standards and enforce them in practice over the next 18 months. Both regulations still have to be formally approved by the Council before they are published in the Official Journal of the EU and come into force 20 days later. After the implementation period of one and a half years, the regulations then take effect.

Update 7:49 p.m.: Reference to Canadian regulation added


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