A new threat to the crypto business could emerge in the EU in less than a week. After a potential ban on proof-of-work (PoW) digital assets removed from the EU’s proposed MiCA framework. This time, regulators are after non-custodial, or unhosted, wallets.
The European Parliament’s Economic and Monetary Affairs Committee will vote on an Anti-Money Laundering (AML) regulatory package on March 31. With the goal of revising the current Transfer of Funds Regulation (TFR) to require financial institutions to attach information on transacting parties to crypto assets. The regulation’s rapporteurs are the Greens’ Ernest Urtasun and the Conservatives and Reformists’ Assita Kano.
The latest draught of the regulation, as crypto advocate Patrick Hansen of blockchain firm Unstoppable DeFi warned, would require crypto service providers to “verify the accuracy of information with respect to the originator or beneficiary behind the unhosted wallet”. In addition to collecting personal data related to transfers. Which made to and from unhosted wallets (as they already required to do).
Verifying an “unhosted” counterpart might be difficult
The obvious flaw in this language is that verifying an “unhosted” counterpart might be difficult, in many circumstances. As a result, Hansen thinks that these businesses will have to stop accepting transactions from unhosted wallets. In order to remain compliant and maintain their market share in the EU.
Even if lawmakers enacted certain rules for verification methods, the possible operational costs of compliance would likely deter smaller businesses. Leading to increased market concentration.
Any transfer worth 1,000 EUR or more to or from an unhosted wallet must also be reported to “relevant AML authorities,” according to the proposal. Furthermore, the EU Commission possibly required to review whether any “further particular measures to minimise the risks” posed by such transactions required one year following the bill’s implementation.
It’s unclear what additional actions will possibly take place. But as Hansen warned, this might range from a blanket prohibition on non-custodial wallets to a complete ban.