The Transfer of Funds regulation presupposes applying the same tracing requirements to crypto asset transfers as EU regulators demand from traditional money transfer providers
The EU Parliament has voted to approve a new set of rules that allows the tracing of crypto-asset transfers, including bitcoin and electronic money tokens.
The Transfer of Funds Regulation (TFR) means that all crypto transactions in the EU will need to carry identifying data. The regulation is part of the EU’s legislative efforts to improve its anti-money laundering (AML) and counter-terrorism financing (CTF) policies. It was first introduced to the EU Commission in July 2021.
MEPs approved this first piece of EU legislation that allows including crypto in the tracing requirements, with 529 votes in favour, 29 against and 14 abstentions.
In order for suspicious crypto transactions to be blocked in case of illegal activities detected, the cryptocurrency service providers will need to include certain information when funds are sent electronically to another provider. These are: names, addresses, postcodes, account numbers or mobile wallet unique numbers, national IDs, etc. In some cases, money transmitters will need to check whether the information given to them is correct.
The factual implementation of the proposed law will rely on the so-called ‘travel rule,’ which mandates that any information on the source of the asset and its beneficiary must ‘travel’ with the transaction, being stored on both sides of the transfer.
In case of self-hosted wallets, the new law will apply to transactions above €1000 only when the wallets are managed by crypto-assets service providers. The rules aren’t applicable to P2P transfers conducted without a provider involved.
Previously, the EU regulators have passed the Markets in Crypto Act (MiCA) package, which enables consumers to be better informed about the costs, risks, and charges linked to their crypto operations. France, which has a strong crypto regulation set already in place, is considering fast track transition to MiCA for certain registered crypto companies.
To further combat money-laundering risks, the European Securities and Markets Authority (ESMA) also aims to create a public register that will include non-compliant crypto asset service providers that operate in the EU without authorisation.