EU Adopts New Crypto Regulations to Enhance Due Diligence

The EU Parliament has backed new regulations that effectively formalize due diligence requirements for companies in the cryptocurrency business as help in the fight against money laundering.

The new laws would aim at improving "due diligence measures and identity checks" of customers so that they include entities such as crypto-asset managers. They would also have to report any suspicious activity to the authorities.

On April 24th, a new law was passed that will affect 'Crypto-Asset Service Providers' (CASP), including centralized 'Crypto Exchanges,' under 'Markets in Crypto-Assets Regulation' (MiCA), among several others, including gambling services.

MiCA is the European Union's proposition of a regulating framework that aims to have control over digital assets and their markets. It was adopted in June 2023, and it is expected that the year's end should see full enforceability.

Authority for Anti-Money Laundering and Countering the Financing of Terrorism (AMLA) will be the new agency to supervise the implementation of this fresh rule.

The AMLA office will have its headquarters in Frankfurt. But this law has not been formally accepted by the Council, so neither has it been published in the Official Journal.

In a post on X, Patrick Hansen, EU Strategy and Policy Director at Circle, said the result would be watched keenly. He said the package will move to the formal adoption procedure by the Council of the EU, taking another 3 years before it is enshrined in law.

In a blog post, Hansen said these CASPs would have to follow the standard customer KYC/AML procedures, also known as Customer Due Diligence (CDD).

He noted that this is not something new because, according to him, all crypto exchanges and custodial wallet providers within the European Union are already required to comply with such regulation.

Hansen called it "a win for the crypto industry," saying that prior versions of the proposed AMLR were much stricter and required KYC enforcement even on self-custody originator/beneficiary.

He attributed that to the effort of industry in promoting a risk-based approach with a number of alternatives until consensus was reached.

Last month, the rapporteurs in charge of shepherding the new Anti-Money Laundering laws through the European Parliament's lead committees won the vote to delete the limit on cryptocurrency payments from self-hosted crypto wallets at 1,000 euros ($1,080).