Although the Markets in Crypto Assets regulation and the Transfer of Funds Regulation have garnered significant attention within the cryptocurrency industry, they are just a small component of a broader package of EU anti-money laundering (AML) policies that will significantly affect all financial institutions.
The European Council, European Commission, and Parliament are collaborating to establish a new regulatory body for cryptocurrencies. This authority will be known as AMLD6 and it will have direct oversight over the cryptocurrency sector.
Is EU Regulation of Crypto Markets Needed?
An EU-wide regulator for anti-money laundering is a critical component of this new legislation. Although there seems to be little debate on its necessity, with the legislative bodies still refining their discussions, the establishment of AMLD6 would entrust the new authority with monitoring crypto service providers, particularly those considered high-risk.
Unlike earlier anti-money laundering regulations that only provided frameworks for EU nations to gather and share information, AMLD6 is anticipated to limit jurisdictional arbitrage within the zone.
The New System
According to the European Parliament’s perspective, the new system will provide EU-level supervision using a hub-and-spoke model. This entails an EU supervisor responsible for direct oversight of certain financial institutions (FIs), indirect supervision or coordination of other FIs, and a coordinating role in overseeing the non-financial sector as an initial step.
The Markets in Crypto Assets regulation and Transfer of Funds laws will not have the same focus as AMLD6, which will emphasize different areas. Both these laws apply to all financial institutions within the bloc, whereas AMLD6 will target the cryptocurrency industry specifically.
Recent Developments
The EU has taken a stringent approach towards crypto regulations recently. For instance, the European Parliament supported anti-anonymity rules that could increase transaction costs and complexity between unhosted wallets and exchanges, making some transactions impractical. While a bill to ban Proof-of-Work mining was defeated by the legislative body, the European Central Bank anticipates such a ban in response to environmental concerns.
This marks a significant shift for the EU from previous AML directives of 2015 and 2018—particularly four and five—which set requirements for member countries to gather and make available specific data, including details about beneficial ownership of corporations.
The exact timeline for implementation will depend on negotiations between the European Parliament and subsequent trilogues with the commission. It’s likely that several years will pass before full implementation occurs, including staffing up the AMLA. However, there appears to be little doubt about the eventual arrival of such a regulator.
