Crypto privacy advocates in Europe are facing a setback, as the European Union Parliament yesterday, advanced anti-anonymity rules for the cryptocurrency space, voting in favour of new rules that call for the crackdown of non hosted/non-custodial wallets.
The bill
The ECON (Economic and Monetary Affairs) and LIBE (Civil Liberties) committees on March 31 voted to approve an anti-money laundering and transfer of crypto assets proposal that could have negative implications for crypto-related companies and investors in the European Union.
The vote was passed yesterday by MEPs from both committees by 93 votes to 14, with 14 abstentions.
Ernest Urtasun, co-rapporteur for ECON, said:
“Illicit flows in crypto-assets move largely undetected across Europe and the world, which makes them an ideal instrument for ensuring anonymity. As illustrated by all the recent money-laundering scandals, from the Panama Papers to the Pandora Papers, criminals thrive where rules allowing for confidentiality allow for secrecy and anonymity. With this proposal for a regulation, the EU will close this loophole.”
Assita Kanko, co-rapporteur for LIBE said the following:
“Our report has two goals: to protect and to normalize. We should be facilitating the use of crypto-assets by people of good will safely and correctly, as well as protecting against the use of crypto-assets for terrorist financing, extortion, child sexual abuse material or money laundering. But we also seek to normalize the crypto world as it grows, implementing rules that create trust. More than a decade after the creation of Bitcoin, it is high time we took these important steps for our citizens.”
What this bill means
According to the Press Release on the subject by the European Parliament, the measure is part of a package to prevent money laundering, terrorist financing, and other crimes. But, it could have negative implications for crypto-related companies and investors in the European Union.
The amendment seeks to force crypto services to implement know-your-customer (KYC) requirements. Without KYC, users can transact digital assets without giving up any identifying information. Therefore, these requirements will allow investigators to track funds if they suspect them to be part of illegal activity.
The new measures will require crypto services providers, such as exchanges, to collect the personal details of individuals who transact over 1,000 euros of crypto using self-hosted wallets before the transfer is allowed. Self-hosted wallets are basically those not held by third-party intermediaries. This includes wallets like Ledgers, Trezor, MetaMask, Trust Wallet and MEW.
The next step for the legislation is to go through trilogue talks between representatives of the European Parliament, the European Council, and the European Commission as early as mid-April. This will present a window of opportunity for the controversial legislation to be challenged and revised.
Reactions to the European Union Parliament bill
Cryptocurrency proponents claim that the move would erode privacy and lead to broader surveillance. They insist that the amendment will take a toll on those who rely on self-hosted wallets.
Brian Armstrong, the CEO of crypto exchange – Coinbase noted that the legislation is “anti-innovation, anti-privacy, and anti-law enforcement.” He added that the proposal essentially treats cryptocurrency differently from fiat currency.
“Imagine if the EU required your bank to report you to the authorities every time you paid your rent merely because the transaction was over 1,000 euros,” Armstrong posited.
According to Patrick Hansen, head of growth and strategy at decentralized finance startup – Unstoppable Finance, it will still be possible to introduce changes to the draft before it gets enacted into law. Hence, the cryptocurrency can still work to repeal the amendments.
Tether and Bitfinex CTO Paolo Ardoino said he was bummed the proposal was passed Thursday, arguing that it “represents a big step back for human rights.” He hopes the final vote on the draft can consider the potential privacy breaches and security risks that could ensue if it’s enacted into law.
Some lawmakers are also opposed to the proposed regulations. Markus Ferber, the economic spokesperson for the European People’s Party (EPP) agrees AML checks in crypto should be taken seriously, but suggested that the new rules are commensurate with an outright ban on self-hosted wallets.
Bottomline
The subsequent trilogue sessions will allow members to suggest changes, but whether that will take place remains to be seen.
The crypto market has dropped sharply following the news, with the total market cap dropping 3.52% following the news. Bitcoin’s price is down 4.03% over the past 24 hours, dropping from $47,468 to $45,220 at press time.
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