With its sights still set on the crypto industry, Europe will discuss new measures for non-custodial cryptocurrency wallets, which threaten financial privacy.
The crypto community is on alert again in the face of Europe's apparent intentions to eliminate privacy and anonymity in cryptocurrency transactions. The European Parliament will discuss, next Thursday, a new regulatory proposal that targets self-hosted cryptocurrency wallets, also called non-custodial wallets.
Patrick Hansen, head of strategy and business development at Unstoppable Finance, tweeted that the draft bill includes some red flags that could end privacy in the cryptocurrency industry.
European legislators, who rejected the ban on cryptocurrency-based cryptocurrencies in the middle of this month Proof of Work, will discuss new measures to require crypto asset companies and service providers to collect greater data and information on transfers made to or from non-custodial wallets, in order to exercise stricter oversight over the crypto industry, to mitigate the possibility of financial crimes and other illicit activities.
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Red flags in the European Union's new AML proposal
As Hansen explains, the final draft of the AML (Anti-Money Laundering) proposal for cryptocurrencies, which Europe will discuss next week, includes several red flags for privacy.
First, the proposed law would not only require companies and financial service providers collect personal data about the parties involved in a cryptocurrency transfer with non-custodial wallets, but it would also demand “verify the accuracy of the information” regarding the recipient or beneficiary behind the self-hosted wallet, to ensure that the transaction can be “individually identified.”
This, Hansen explains, could cause most cryptocurrency companies to decide, in the future, not to transact with non-custodial wallets in order to comply with regulation; although there is still no clarity on how regulators could enforce KYC norms on non-custodial wallets.
If approved, Europe's crypto AML proposal would also require service providers with cryptocurrencies report transactions made to non-custodial wallets with a value equal to or greater than 1.000 euros. As Hansen indicates, this would apply to all transfers that exceed this threshold, even if there is no suspicion or indication that it is a money laundering transaction.
The European Commission could also redesign its regulations a year after their approval, opening a window for a possible complete ban on non-custodial wallet transactions. Furthermore, it could ban cryptocurrency transactions to certain jurisdictions labeled as risky.
Hansen indicated that the biggest concern that exists in relation to this new law proposal is that the majority of European parliamentarians seem to agree with its approval.
Intentions to regulate non-custodial wallets
In mid-2021, several European legislators they presented a draft law in which they sought to ban anonymous cryptocurrency wallets in the region. The current AML draft appears to be an extension of said bill, which also required strict KYC (Know Your Customer) control and surveillance of transactions and payments in cryptoassets, under the pretext of guaranteeing the stability of the financial system.
Hansen called the current AML proposal “an absolute violation of privacy rights,” stating that the measures being imposed are extremely rigorous and may result in a process that is too burdensome for many.
The draft law notes that cryptocurrencies can facilitate the transfer of illicit funds due to their decentralized and pseudo-anonymous nature. However, Hansen reminds lawmakers that transfers based on blockchain They offer new and additional ways to track and monitor money, thanks to their transparency and immutability.
In the United States, the Treasury Department is also evaluating a similar proposal, which was presented in 2020 by then-Treasury Secretary Steven Mnuchin. This proposal, which proposes modifying the regulations that implement the Bank Secrecy Law to impose KYC requirements on non-custodial cryptocurrency wallets, could be decided in September of this year, according to the regulation agenda Treasury and FinCEN.
MiCA moves forward without banning PoW cryptocurrencies
On the other hand, MEP Stefan Berger recently confirmed that the MiCA (Markets in Crypto-Assets) law is advancing without considering any ban on PoW cryptocurrencies, such as Bitcoin y Ethereum.
On Twitter, the MEP accurate that the bill will enter a tripartite dialogue, between the European Parliament, the European Commission and the European Council, for its possible approval, with the aim of establishing a regulatory framework for the cryptocurrency market in Europe.
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