- The European Banking Authority (EBA) is introducing new guidelines for unhosted crypto wallets.
- The new rules will call for more surveillance among crypto service providers.
Crypto-related companies may have to intensify their vigilance, especially for customers who leverage privacy coins and self-hosted wallets. A number of actions are now targeted at spotting potential money laundering activities as the European Banking Authority (EBA) is pushing efforts towards amending due diligence guidelines for Anti-Money Laundering (AML) processes which have also been extended to Virtual Asset Service Providers (VASPs).
Notably, this would imply that transactions with self-hosted wallets hold more risk. Hence, if one side of a transaction is with a self-hosted wallet, the crypto exchange will be required to perform Enhanced Due Diligence (EDD). An example to further explain the procedure was given. A user who makes a transfer from his bank account to a crypto wallet would be asked to provide identity documents.
Furthermore, if the money is from a self-hosted wallet, all the invasive AML procedures will be engaged immediately. Therefore, the users would provide proof stating the source of the fund, what their source of income is and what they do for a living. Also, they will be required to state the reason for the transaction. Per the published statement:
The EBA is proposing to amend its money laundering and terrorist financing (ML/TF) risk factors guidelines to set common, regulatory expectations of the steps CASPs should take to identify and mitigate these risks effectively
EBA Opens Public Consultation For Guideline Amendment Till August 31st
The EBA has now opened a public consultation on the amendment of these guidelines until Thursday, August 31st, 2023 while stating that these digital assets service providers who offer Bitcoin (BTC), Ethereum (ETH), and other credit and financial institutions are equally exposed to money laundering risks and terrorist financing. More so, the risk for these VASPs can be increased due to the use of innovative technologies and other factors.
While this technology is innovative and advanced, lawmakers are skeptical that it could also serve as tool for criminals.
These technological tools would include zero-knowledge proofs, privacy coins and crypto mixers like Tornado Cash which was sanctioned last year by the United States Treasury Department’s Office of Foreign Assets Control (OFAC) for its involvement in money laundering up to the tune of $7 billion.
Financial institutions that plan on onboarding crypto clients would be required to perform due diligence before approving such customers. Regulatory licenses and ownership must be confirmed before accepting crypto clients. A few months ago, members of the European Union voted in favour of four new AML regulations all of which included the need for thorough due diligence.
Now, the much-anticipated Market in Crypto assets (MiCA) comprehensive framework has finally been passed and approved by the parliament. The EU is hopeful that it would play a vital role in protecting consumers and investors.
