Fintech

Europe’s new KYC rules are roiling crypto

Coinbase, Gemini and other companies denounced the EU’s anti-money-laundering requirements.

A statue holding the symbol of the Euro in front of the European Parliament building.

The European Parliament has voted to require all crypto transactions to include information on the parties involved, essentially outlawing anonymous crypto transactions.

Photo: Mark Renders via Getty Images

Europe’s stringent new approach to crypto KYC is upsetting the blockchain world.

The European Parliament has voted to require all crypto transactions to include information on the parties involved, essentially outlawing anonymous crypto transactions. The new know-your-customer rules, which would also cover transactions involving unhosted wallets, are aimed at curbing money laundering in Europe.

The EU vote underlines growing concern over the use of crypto for money laundering and other illicit activity, and the push to make crypto companies more accountable for the digital assets that flow through their platforms.

“Illicit flows in crypto assets move largely undetected across Europe and the world, which makes them an ideal instrument for ensuring anonymity,” Ernest Urtasun, co-rapporteur for the EU’s Committee on Economic and Monetary Affairs, said in a statement. Following the vote, the rules still have to be negotiated with EU governments through the EU Council before they take effect.

Crypto industry leaders quickly denounced the EU vote as harmful to innovation and counterproductive.

“This regulation harms crypto innovation without a commensurate anti-money-laundering benefit,” Cameron Winklevoss, co-founder and president of Gemini, said in a statement emailed to Protocol.

Shortly before the vote, Coinbase CEO Brian Armstrong denounced the proposal in a tweet, calling it “anti-innovation, anti-privacy, and anti-law enforcement.”

The company’s chief policy officer, Faryar Shirzad, warned that “if you transact with or through a self-hosted wallet, every one of your transactions could be recorded and stored somewhere — and larger transactions will be automatically reported to authorities — even if there is no reason to suspect wrongdoing.”

On Thursday, the SEC issued a new recommendation that crypto exchanges record the digital assets of customers on their balance sheets as assets and liabilities. Crypto companies should also disclose the “nature and amount of crypto assets” they are holding for customers, the staff accounting bulletin suggested.

SEC Commissioner Hester Peirce, who has been critical of the regulator’s stance on the crypto market, said the decision underscored the regulator’s “scattershot and inefficient approach to crypto.” She argued that the regulatory uncertainty over crypto which prompted the accounting guidance was largely the agency’s own fault.

Major crypto companies have recently unveiled initiatives aimed at improving the industry’s KYC and anti-money-laundering practices. Coinbase and Circle introduced a digital protocol that would enable companies to verify the identities of customers while allowing those customers to retain control over their personal information.

Crypto companies also unveiled a new industry organization that would make it possible for members to comply with the Treasury Department’s Travel Rule, which requires that information about who is sending how much and to whom must “travel” with that transaction.
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