A proposal to prohibit Bitcoin was unsuccessful, but now the European crypto industry senses a new threat. The law would expand identification requirements to non-custodial wallets.
Just a few days after European Union lawmakers discarded a proposal to prohibit proof-of-work (PoW)-based crypto-assets like Bitcoin, a new proposal to reduce the anonymity of crypto payments is under revision.
Members of the European Parliament are getting prepared to vote this week on a regulatory package that could put the anonymity of cryptocurrency transactions to an end and even limit the use of self-custody wallets. Several news outlets reported this, including CoinDesk, Decrypt, and Cointelegraph.
The term self-custody wallets, also called “non-hosted” or “non-custodial,” gets applied to talk about software or hardware built to house digital assets that are not under an intermediary or third party’s hands. Some examples of such wallets are MetaMask, WalletConnect, Ledger, and Trezor.
The Proposal Would Impact Self-Custody Wallets
The regulatory proposal reportedly intends to monitor the current Transfer of Funds Regulation (TFR) to expand the requirement for instructions to collect information about parties transacting with digital assets.
In addition, it intends to include transactions with digital assets from non-custodial wallets to anti-money laundering (AML) controls. The proposal also wishes to stop crypto movements between European bloc countries and jurisdictions like Turkey and Hong Kong.
A Decrypt Report Quoted an Excerpt from the European Commission’s Draft Bill
During a transfer of crypto assets to or from a crypto asset wallet that didn’t get carried out by a third party, known as a ‘non-hosted wallet,’ the crypto asset service provider or other forced entity must acquire and retain the information from the customer.
Enthusiast Patrick Hansen went to Twitter to highlight some crucial aspects of the project’s current language. He warned that the regulation would need crypto service providers to gather personal information related to transfers made to and from non-custodial wallets and confirm the accuracy of the information related to the beneficiary responsible for the non-hosted wallet.
The main issue with these requirements is that, in many cases, it could be difficult for crypto service providers to confirm a non-custodial counterparty. Hansen is afraid that EU-based entities will get forced to discontinue operations to and from these types of wallets to comply with regulations and policies.
AML Requirements for all Crypto Payments
The draft also includes informing the “competent AML authorities” of any operation worth €1,000 or more to/from a non-hosted wallet. Under current law, recipients must identify themselves for any bank transfer over one thousand euros ($1,100).
CoinDesk highlights that many nations across Europe have already expressed their interest in expanding this requirement to digital assets.
Nations are waiving this lower limit because large transactions in that asset class could be split into smaller ones, a practice commonly known as smurfing.
By: Jenson Nuñez
