How will EU Parliament’s vote to squash privacy rules on crypto affect investors?

One of crypto’s biggest strengths is its anonymity. But that powerful benefit is coming under fire in Europe. For months, the EU has been considering a number of measures designed to crack down on money laundering, terrorist financing, and even crypto theft – potentially setting the stage for a digital Euro. 

Last week, after months of discussions, the European Union Parliament voted in favor of a proposal to tighten anti-money laundering (AML) requirements for crypto asset transactions over 1,000 euros (~$1,114 USD). 

The EU Parliament has given its backing to the proposal, but it still needs to be approved by the EU Council before it can become law. If the EU council and Parliament approve and enforce the proposal, a number of changes impacting anonymity of the payers and recipients could go into effect.

What’s behind the move to tighten regulations on crypto transfers?

There’s little already in place to limit how owners of unhosted wallets can transact anonymously. Currently, any bank transfer over $1,099 (€1,000) must be reported, but EU governments want to remove that minimum altogether. The move will also eliminate the practice of “smurfing” (breaking down large payments into smaller ones) commonly used by terrorist groups. 

One of the most controversial aspects of the proposal is the requirement for financial institutions to collect and verify the identity of their customers. 

Here’s what was agreed upon in the vote:

• It will force exchanges to report any customer who receives more than €1k worth cryptocurrency from their own hosted wallet. 

• Payers and recipients will no longer be able to make anonymous payments of even the smallest crypto transactions; the identity of each will need to be reported, including for transactions with non-hosted or self-hosted wallets. 
• This also paves the way for unregulated crypto exchanges to be potentially restricted from traditional financial systems.

Some have raised concerns that the new rules could stifle innovation and make it difficult for legitimate users to maintain privacy. However, the EU Parliament has pointed to the need for a balance between fighting crime and protecting civil liberties, and believes that this proposal strikes the right balance.

Will this impact international crypto remittances?

The vote comes from national laundering officials and lawmakers. They point to crypto’s use in funding terrorism and human trafficking, and say that requiring identity checks for any size of crypto payment could stop it.  

CoinDesk reported that lawmakers also are reportedly telling crypto service providers to refrain from making or aiding any transfers deemed at high risk of money laundering or crime. That could mean no more international transfers – aka remittances – from the EU to anywhere that could be seen as a tax haven, including the U.S. and U.K. Virgin Islands.

This is certainly not the last of the regulations that have been considered by the EU. While some regulatory attempts have failed – like the attempt to enforce environmental sustainability minimums – others aimed at developing a legal framework for cryptocurrency seem to still be in consideration. 

The entire world will be paying attention as to how this progresses. Will crypto continue to be under heavy fire from EU regulators?