The European Parliament may soon decide whether to approve a proposal to expand a “travel rule” for crypto businesses that would include virtually all transactions. The travel rule is an anti-money laundering (AML) rule that also applies to traditional banking. Basically, it forces financial institutions to provide certain information about the sender and recipient in a transaction, such as date of birth, ID, or account number.
The EU Parliament has proposed removing a €1,000 threshold below which cryptocurrency exchanges would not be required to collect and provide this information. This would mean that if approved, cryptocurrency exchanges would have to report every single cryptocurrency transaction, regardless of the amount. Ajinkya Tulpulecompliance director of crypto exchange bitFlyer, told PYMNTS in an interview that this measure seems excessive, but that it is likely to be approved nonetheless.
“Many exchanges have lobbied hard against it, as you can imagine, but from what I recently heard in a conversation with an MEP, most MEPs are in favor of removing the threshold. So it’s not good news,” Tulpule said.
For cryptocurrencies, this can be a headache, he said. This move could reduce some of the benefits of being a disruptive technology and still face all the regulation of traditional financial services. Reporting every transaction, even for a single penny, with all the information that is generally required, will be a challenge, Tulpule noted, but it seems that a solid, robust, automated know-your-customer (KYC) program is the best solution, if it is not the only solution, as crypto transactions can happen 24/7.
“For most customers that are likely to be low risk, we can automate onboarding. We may automate a data collection. We can even automate data transmission and verification of incoming data.”
The problem, Tulpule said, is that if businesses are required to comply with the travel rule, there will be certain times when they have to suspend the transaction until a full KYC is completed, and this creates frustration for customers. An additional challenge for crypto exchanges to comply with this rule is that their digital assets are not always as traceable as traditional assets, and they do not get the offering of third-party services that traditional securities and financial derivatives have. “There are some currencies that are not covered by transaction monitoring systems,” Tulpule said.
While the rule is well-intentioned and necessary to impose AML controls, Tulpule and others in the industry question the impact this may have on regulated exchanges in the European Union who will be required to observe stricter rules than unregulated exchanges outside the EU. EU.
Another important rule, possibly more to the liking of the industry, is the Crypto Asset Markets (MiCA), which may also be approved soon. According to Tulpule, MiCA wants to avoid regulatory arbitrage between member states and have a harmonized layer of regulation at the EU level. This is a good thing and will help to get just one set of rules across the EU, Tulpule argues. The law is still under negotiation, and even if most of the text has been agreed between the EU institutions, some changes can be expected before the final seal of approval.
On possible last-minute changes to the text, Tulpule said, “what I would like to see is that once MiCA is out, it allows European regulated exchanges that have gone through the hassle of being regulated to at least not have their bases. Of customers. wiped out by unregulated exchanges from abroad.”