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European Union

European Union

Currently, the AMLD5 brings cryptocurrency-fiat currency exchanges under the scope of EU anti-money laundering legislation, requiring exchanges to perform similar compliance obligations as financial institutions. In December 2020, the AMLD6 came into effect: the directive made cryptocurrency compliance more stringent by adding cybercrime to the list of money laundering predicate offences.In September 2020, the European Union started to be more proactive with the publication of the Digital Finance Package. The most comprehensive is the proposal for a Regulation on “Markets in Crypto-Assets” (MiCA) that seeks to create a fully harmonised European market for virtual assets by establishing a legal taxonomy of virtual assets and defining rules for issuers and service providers.

In July 2021, the European Commission unveiled an AML action plan that proposed to create an EU-wide AML supervisor, harmonising the 27 Member States’ AML regimes and extending anti-financial crime obligations to all virtual asset service providers (VASPs). This included a proposed Regulation “on information accompanying transfers of funds and certain crypto-assets”. 

On 29 June 2022, a provisional agreement by the European Parliament, Council and Commission on the proposed revised Transfer of Funds Regulation (TFR) was reached. This Regulation aims to implement the Financial Action Task Force’s (FATF’s) Recommendation 16 (Travel Rule) - which previously only applied to traditional wire transfers - to virtual asset transfers involving VASPs in Europe. The regulation, therefore, will be applicable to all VASPs operating in countries that are members of the European Union, without the need for transposal to local laws.

The final version of the Regulation is still to be published. 

The following day, 30 June 2022, an agreement on MiCA Regulation was also reached.

The European Union has opted to use the term crypto asset service provider (or CASP). Please note that when the term virtual asset service provider (or VASP) has been used in the below text, it holds the equivalent meaning to crypto asset service provider and CASP.

What is the scope of the Travel Rule in the European Union?

“Crypto-assets service providers” as defined in article 3(1) MiCA: 

(8) “any person whose occupation or business is the provision of one or more crypto-asset services to third parties on a professional basis;

(9) ‘crypto-asset service’ means any of the services and activities listed below relating to any crypto-asset:

(a) the custody and administration of crypto-assets on behalf of third parties;

(b) the operation of a trading platform for crypto-assets;

(c) the exchange of crypto-assets for fiat currency that is legal tender;

(d) the exchange of crypto-assets for other crypto-assets;

(e) the execution of orders for crypto-assets on behalf of third parties;

(f) placing of crypto-assets;

(g) the reception and transmission of orders for crypto-assets on behalf of third parties

(h) providing advice on crypto-assets”.

When implemented, the Regulation will apply to “transfers of funds, in any currency, or crypto assets, which are sent or received by a payment service provider, a crypto-asset service provider, or an intermediary service provider established in the European Union”.

It does not apply to person-to-person (P2P) transfer of crypto-assets. A “person-to-person transfer” (peer-to-peer transfer) is defined as “a transaction between natural persons acting, as consumers, for purposes other than trade, business or profession, without the use or involvement” of a VASP. Examples include the use of cryptocurrency trading platforms and wallet owners acting on their own behalf - that is, without any VASP assistance.

Neither does it apply when “both the payer and the payee are payment service providers or both the originator and the beneficiary are crypto-asset service providers acting on their own behalf”. In other words, when the originator and beneficiary are payment services providers or a VASP acting on their own behalf, the Travel Rule does not apply. 

Who is the supervisory body for CASPs in the European Union?

Each Member State responsible Authority

New EU AML Authority - planned to be set up in 2023

What is the Travel Rule threshold in the European Union (TFR)?

EUR 0

Every crypto asset transaction between two VASPs must comply with the Travel Rule. There is no transfer value exemption (de minimis threshold) for transactions involving at least one company registered in a European Union country. The VASP of the originator needs to collect and send to the beneficiary VASP:

  • Name of the originator;

  • Account number of the originator, where such an account exists and is used to process the transaction;

  • Originator’s address, official personal document number, customer identification number or date and place of birth.

  • Name of the beneficiary;

  • Beneficiary’s account number, where such an account exists and is used to process the transaction.

Beneficiary VASPs are required to collect and store the above information and should implement effective procedures to detect whether the information on the originator is missing or incomplete.

If an unhosted wallet owner sends or receives more than EUR 1000 to or from their own wallet using a VASP, the VASP will need to ascertain if the unhosted wallet is controlled by the owner. 

Is the Travel Rule applicable to unhosted wallets in the European Union?

Transfers to and from unhosted wallets are in the scope of the Transfer of Funds Regulation (TFR) when transactions involve VASPs. Therefore, VASPs are required to apply enhanced due diligence measures with respect to transfers involving unhosted wallets.

When performing transfers to or from unhosted wallets, VASPs need to collect ownership proofs if:

  • The transaction value is above 1000 EUR, and

  • The owner of the wallet is the VASP’s client.

When do you need to comply with the Travel Rule in the European Union?  

The regulation is set to be enforced by June 2024. However, it is always good to be prepared and proactive and start communicating with Travel Rule compliance implementation providers.

Which regulations are applicable to the European Travel Rule?

Digital Finance Package

Proposal for a Regulation of the European Parliament and the Council on Markets in Crypto-assets, and amending the Directive (EU) 2019/1937

Proposal for a Regulation of the European Parliament and the Council on information accompanying transfers of funds and certain crypto-assets

New AML Package

MLRs

Written by:
Delphine Forma
Delphine Forma
Senior Compliance Manager at BitMEX

Delphine Forma is an experienced compliance officer who worked across different industries including Bank of Tokyo, Mitsubishi UFJ, HSBC Bank, and crypto businesses (exchanges and miners). She holds a diploma from Sciences Po Lyon, and two masters specialising in European Criminal Business Law and Frauds and Money Laundering Prevention. Delphine is a board member of the OpenVASP Association.

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