New EU Rules Tighten Crypto Due Diligence

The European Parliament recently voted to implement new regulations that will significantly alter the landscape for crypto-asset service providers (CASPs) and enhance anti-money laundering efforts across the sector.

The legislation, adopted on Wednesday, mandates enhanced due diligence measures and rigorous identity checks for customers, particularly impacting crypto asset managers and centralized crypto exchanges.

Under the newly adopted laws, crypto firms will be required to conduct thorough Know Your Customer (KYC) and Anti-Money Laundering (AML) procedures similar to those already in place under the current AMLD5 framework. This move is part of a broader push to integrate crypto operations more fully into the regulated financial system and to mitigate the risks associated with illicit activities like money laundering.

Patrick Hansen, Circle’s EU Strategy and Policy Director, remarked on social media platform X that the adoption of these rules was anticipated and welcomed. He noted that the regulations will formally take effect three years after being ratified by the Council of the EU. This timeline provides CASPs ample opportunity to align their operations with the new requirements.

Addressing concerns within the crypto community, Hansen clarified last month that the regulations would not extend to banning anonymous crypto wallets or self-custodial payments. Instead, the focus will remain on CASPs already regulated under the Markets in Crypto-Assets Regulation (MiCA), a comprehensive regulatory framework that entered into force in June 2023 and will be fully applicable by year’s end.

The provisions included in the new laws emphasize standard KYC/AML procedures, reinforcing the ongoing obligations of crypto exchanges and custodial wallet providers in the EU. Hansen highlighted that the final version of the anti-money laundering regulations (AMLR) is a “great outcome” for the industry, attributing the favourable terms to effective lobbying and a collaborative approach between regulators and the crypto sector.

Hansen also pointed out that previous drafts of the AMLR proposed much stricter measures, including KYC requirements for the originators and beneficiaries of self-custody wallets. Thanks to concerted industry efforts, a more balanced, risk-based approach was adopted, offering various compliance options that consider both security concerns and operational feasibility.

While the new regulations introduce more stringent controls, they also provide a structured and predictable framework for crypto businesses. This regulatory clarity is expected to foster greater trust and stability in the crypto markets, encouraging more widespread adoption and integration into the global financial ecosystem.