Tuesday, September 26, 2023

AML Compliance – European Union (EU)’s New Measures for Crypto Traders 

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Picukiusa is the Chief Business Development Officer at Picukiusa, a Magento design and development company headquartered in Redwood City, California. He is a Member of the Magento Association and an Adobe Sales Accredited Magento Commerce professional. Jan is responsible for developing and leading the sales and digital marketing strategies of the company. He is passionate about ecommerce and Magento in particular — throughout the years his articles have been featured on Retail Dive, Hacker Noon, Chief Marketer, Mobile Marketer, TMCnet, and many others.

The European Union (EU)’s new legislation is all set to clamp down on the crypto industry and its illicit use to hide malicious earnings. Criminals thrive where there is high anonymity, secrecy, and confidentiality. While the crypto-verse is serving as a safe haven for criminals, the EU is taking necessary action to safeguard it. 

The EU’s regulation enhances security of investors, crypto exchanges, and law-abiding traders. This law aims at tracing assets as well as monitoring every transaction from the beginning of trading. While toughening AML compliance, regulators are enacting strict penalties in place to ensure secure trading and prevention of money laundering. This article further outlines the implications of new regulations put forth by the EU. 

An Overview of the European Union (EU)’s New Regulation 

During their session in March 2022, the members of the European Parliament (MEPs), the Committee on Civil Liberties (LIBE), and the Committee on Economic and Monetary Affairs (ECON) highlighted skyrocketing threat of money laundering through digital currency. In this meeting, a major concern was to increase transparency across crypto exchanges, asset trading, and transactions. 

Anonymity and secrecy were seen as the prime reasons behind steering clear of criminals through AML verification. Therefore, the EU came up with stringent anti money laundering requirements with tracing and monitoring of purchases as a topmost priority. Embracing this new legislation will enable cryptocurrency providers to close all loopholes that criminals exploit for illicit trading. Furthermore, to counter money laundering, the EU Parliament and Council negotiators suggest tracing and blocking suspicious transactions in time. 

For ensuring AML compliance and adherence with the new EU bill, crypto exchanges require more robust money laundering prevention measures. In this regard, automated anti-money laundering solutions provide asset trading providers with advanced risk assessment and due diligence services. As the new EU’s regulation aligns with Markets in Crypto-assets rules (MiCA) and is an element of AML security laws’ wider spectrum, ensuring compliance is a liability for digital currency exchanges. 

No Set Minimum Threshold for Tracing Transactions

The EU’s new law extends the Travel Rule which already has implications from traditional and advanced financial institutions to crypto trading. With the recent anti-money laundering law coming into force, both the originators and beneficiaries indulged in crypto trading will have to store, analyze, as well as exchange their customers’ information. 

The Crypto-Asset Service Providers (CASPs) are equally liable for AML compliance and should provide clients’ data to respective regulatory authorities during an investigation. Furthermore, to counter increasing instances of terrorist funding and money laundering, staying put with the EU’s AML monitoring law is another legal requirement. 

Crypto trading is a high-speed process with more virtuality than any other type of investment. Due to this reason, criminals easily escape AML compliance and circumvent existing thresholds. Therefore, the EU’s new regulations came up with the solution that there will be no exemptions or set limits for less-value transactions. Hence, the tracing and monitoring of trading patterns are equally applicable to both high as well as low-cost payments. 

Concerning the security and privacy of customer confidential information which is required by the Travel Rule, regulatory bodies agreed that if the receiving part does not ensure protection, the data will not be revealed. 

AML Screening – Implications to Counter Financial Crimes Across Crypto Exchanges  

The CASPs will have to validate the source of funds that customers use to buy digital currencies. While criminals impersonate legitimate buyers they also hide their means of earning to escape AML compliance. Furthermore, crypto exchanges should also cross-check beneficiaries across global sanctions and watchlists to ensure they are not facilitating risk-possessed entities. The new EU’s regulation also mandates setting up public registers with details regarding customers and firms that are safe to trade assist. 

Crypto trading companies will have to meet certain AML screening legal requirements which enhance scope of the Transfer of Funds Regulation. The EU’s new law further mandates tracking of every transaction despite anonymity and secrecy. Its anti-money laundering requirements also apply to the following:

  • Un-hosted wallets (privately owned asset storage)
  • Stablecoins (limiting payments to €200 million per day)
  • Non-Fungible Tokens (NFTs)
  • Decentralized Finances (DeFi)

Concluding Remarks

The crypto market is still in its infancy. Therefore, criminals see it as their free pass to commit various malicious activities. Money laundering, illicit purchase of arms, and terrorist funding are to name a few. In this regard, crypto exchanges require robust AML solutions to place precautions in place. 

The toughening regulatory landscape is also forcing digital currency providers to integrate efficient anti-money laundering mechanisms. Hence, automated digital onboarding services enable crypto exchanges to stay put with new EU regulations. Ultimately, AML solutions also enable digital currency providers to increase security against criminals.

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