The Parliament approved the first EU rules on the traceability of cryptocurrencies, to prevent money laundering, but also to protect consumers.

On Thursday, MEPs voted in favor with 529 votes (29 against and 14 abstentions) on the EU’s first legislation on the traceability of cryptocurrency transfers, such as bitcoins and electronic money tokens. The legislative text (on which there was a provisional agreement between the negotiators of the Parliament and the Council in June 2022) aims to ensure that cryptocurrency transfers, as with any other financial transaction, can always be detected and seized suspicious transactions. The so-called “travel rule” already used in traditional banking transactions (ie the requirement that information about the source of the asset and its beneficiary “travel” with the transaction and be stored on both sides of the transfer), it will also cover cryptocurrency transfers in the future.

The legislation will also cover transactions above €1,000 from so-called self-hosted wallets (ie the email address of a private user’s cryptocurrency wallet) when they interact with “hosted” wallets managed by cryptocurrency service providers. The rules will not apply to transfers between persons made without a provider or between providers acting on their behalf.

Single European market rules for cryptocurrencies

The plenary also gave the final green light (with 517 votes in favor, 38 against and 18 abstentions) to the new common rules on supervision, consumer protection and environmental safeguards of cryptocurrencies, including cryptocurrencies (MiCA). The draft law agreed informally with the Council in June 2022 includes safeguards against market manipulation and financial crime.

The regulation will cover cryptocurrencies that are not regulated by current financial services legislation. The key provisions for those issuing and trading cryptocurrencies (including asset-backed digital currencies and digital e-money) cover transparency, disclosure, licensing and supervision of transactions. Consumers will be better informed about the risks, costs and burdens associated with their activities. In addition, the new legal framework will support market integrity and financial stability through the regulation of crypto public offerings.

Finally, the agreed text includes measures against market manipulation and to prevent money laundering, terrorist financing and other criminal activities. To address money laundering risks, the European Securities and Markets Authority (ESMA) should create a public register of non-compliant crypto service providers operating in the European Union without a license.

To reduce the high carbon footprint of cryptocurrencies, major service providers should make their energy consumption public.

Statements

Stefan Berger (EPP, Germany), responsible for the MiCA regulation, said: “The EU is at the forefront of the digital economy with 10,000 different cryptocurrencies. Consumers will be protected from fraud, and the sector, which was damaged by the collapse of FTX, can regain lost confidence. Consumers will have all the information they need and all risks related to cryptocurrencies should be monitored. We have ensured that environmental impact disclosure is taken into account by investors. This regulation provides a competitive advantage to the EU. The European crypto industry has regulatory clarity that countries like the US do not have.”

Ernest Urtasun (Greens, Spain), Economic and Monetary Affairs Committee co-rapporteur on crypto transfers said: “Currently, illegal flows of crypto assets are rapidly spreading across the world, with a high chance of never being detected. The rule reform will oblige crypto service providers to detect and disrupt criminal cryptocurrency flows, but also ensure that all categories of cryptocurrency companies are subject to the full anti-money laundering package. This will fill an important gap in our anti-money laundering framework and implement in the EU the most ambitious travel rules legislation in the world, in full compliance with international standards.”

Co-rapporteur for the Committee on Civil Liberties, Justice and Home Affairs Assita Kanko (Conservatives, Belgium) said: “Parliament and Council have reached a fair compromise that will make the system safer for those who wish, in good faith, to hold and to trade cryptocurrencies. However, it will make it more difficult for criminals, terrorists and sanctions evaders to abuse cryptocurrencies. Any administrative burden on cryptocurrency companies and innovators will be more than offset by the fact that we are consolidating the currently fragmented European market of 27 regulatory regimes.”

Next steps

The texts will now have to be formally approved by the Council, before being published in the EU’s Official Journal. They will enter into force 20 days later.

By approving this legislation, Parliament is responding to citizens’ expectations regarding the establishment of safeguards and standards for the use of blockchain technology, as reflected in proposal 35(8) of the final report of the Conference on the Future of Europe.

Nikos Andritsos