Europe fights back against money laundering with a new set of crypto rules

The European Banking Authority (EBA) has recently introduced a new set of rules and guidelines regarding illicit behavior in the financial sector, particularly focusing on money laundering and terrorism financing risk factors to crypto-asset service providers (CASPs). The goal was to help the still fragile and unregulated crypto sector tackle the risks involved with illicit finance.

The new rules come as the next step in trying to regulate crypto after initially introducing its cryptocurrency legislation in May 2023.

Risks and mitigation measures

The new guidelines have listed risk factors, as well as mitigation measures that crypto-asset service providers are supposed to consider while creating AML and CTF policies. Specifically, they include assessing risks coming from customers, transactions, products, as well as jurisdictions.

EBA’s statement noted that CASPs can easily end up being abused for financial crime purposes, including both money laundering and terrorism financing. It also warned that there is a possibility that these risks may increase in time, for reasons such as the speed of crypto-asset transfers or simply because certain products come with features that allow users to hide their identities.

However, the banking authority also provided some pointers in terms of what CASPs can do to adjust controls, such as blockchain analytics, transaction monitoring, and increased due diligence. The document even covers managing risks associated with self-hosted wallets.

The EBA’s advice for banks has also highlighted the dangers of dealing with unregulated crypto companies. Unregulated crypto firms have a greater chance of being fraudulent companies, and if customers lose their funds to such entities, there is little that authorities can do to help them get their money back.

The banking authority also warned that this risk escalates where traditional financial institutions have users who are active in the crypto sphere.

The crypto sector is as volatile as ever, warns European Securities and Markets Authority

The move itself also comes as the European Union brought CASPs into the AML/CFT regulatory perimeter. Recently, the EU approved laws such as MiCA, which requires crypto companies to meet strict anti-money laundering and counter-terrorism financing rules.

With that said, the European Securities and Markets Authority did warn industry participants that MiCA is “no safe harbor,” stating that crypto assets are still highly volatile and speculative as they used to be before the rules were introduced.

National regulators will have to confirm that they are fully compliant with the new MiCA guidelines. Their deadline for doing so will be two months from the moment the translations are published, which will likely happen by the end of the current year. As for the measures themselves, they are scheduled to get into effect from December 30, 2024.