Experts believe that the EU might adopt a more aggressive position on digital assets. Six European nations, headed by Germany, are working on establishing an Anti-Money Laundering (AML) organization. The aim is to encompass the cryptocurrency sector. The effort includes Germany, Spain, Austria, Italy, Luxembourg, and the Netherlands. In addition to the European Commission, the group is discussing “the remit and design” of a new worldwide AML watchdog that will focus on crypto. The primary platform for discussion will be the European Commission. The impact of this move on the European crypto area is yet unclear.
This new task force will cover banks, financial institutions, and crypto-asset service providers. Currently, the proposal is awaiting formal approval. Christian Toms, a partner at Brown Rudnick in London, made a statement about the initiative.
Toms noted the agency’s role in regulating crypto and related institutions. The role is still being discussed and may even be spelled out in its founding principles.
Furthermore, according to Reuters, the European Commission suggested a new Anti-Money Laundering Authority in July 2021. This would be the “centerpiece” of European crypto regulatory architecture. The proposals also included additional data requirements for virtual asset service providers.
Directed by a Set of Rules
There are a lot of issues present in the United States crypto regulation. A major one relies on organizations such as the Securities and Exchange Commission, Commodity Futures Trading Commission, Financial Crimes Enforcement Network, and many more. It’s a patchwork of several state agencies. Many of them have experience in the digital economy that Europe currently has. As a result, centralizing oversight becomes more of a need than a hostile act.
As a result, there is currently no EU-wide AML agency since EU AML standards are set via directives. Each member state must implement these standards in their national laws sometime in the future. Fintech and crypto finance expert Thibault Verbiest explained what this means.
Verbeist further stated the 5th Anti-Money Laundering Directive came into force on January 10, 2020. Since then, all member states have adopted it. It also includes crypto service providers as required businesses. However, due to the lack of an EU authority, each country’s regulator is responsible for enforcing AML regulations.
Correspondingly, some separate national-level investigations shared some data. For example, between 2007 and 2015, nearly 200 billion euros of non-resident money went through the Estonian office of Denmark’s largest bank.
New crypto regulations may have an impact on the EU. The additional enforcement power may accelerate the consolidation of the EU crypto framework. This may reduce the competitive advantage of some friendly jurisdictions. According to Verbiest, rule transposition, interpretation, and enforcement will be sorted out. Also, it will be difficult for an EU member state to take a stand.
On the other hand, money laundering is a major issue not related only to crypto. Additionally, as a challenge, it will continue to grow in importance. According to Toms, the fight against dirty money is already tightening AML norms and regulations.
Moreover, the present Ukrainian conflict and Russian sanctions may prove to be a further catalyst for tighter regulation across the board. Crypto has been on the EU’s radar for some time now. Considering this, it might be one of the targets of regulations.
The Extreme Case
Another key risk is the emergence of the central bank and state-issued digital currency projects. These developments might negatively impact the regulatory and oversight climate. If this trend spreads across Europe, unregulated cryptocurrency firms and currencies may be seen as a last resort for those who do not want to use state-approved CBDCs.
Nonetheless, a case like this is unlikely to happen. This is due to the expanding retail and institutional use of crypto and the increasing involvement of famous names in finance.
In light of these events, a possible result may be a stricter crypto policy in Europe. This is because executive decisions are less influenced by parliamentary pressure in the EU than in the US. Regarding this, the EU will tighten up on criminal and consumer protection regulations. Meanwhile, crypto is still viewed with mistrust.
However, in a decentralized environment, the crypto business will have to address transparency concerns and Know Your Customer (KYC).