Negotiations between European Parliament and Eurpean Council representatives reach an in-principle deal on the Travel Rule in crypto to be codified through the Transfer of Funds Regulation (TFR)
EU Parliament and Council negotiators reached a provisional deal on Wednesday, 29th of June on a new bill aiming to ensure that crypto transfers can always be traced and suspicious transactions blocked.
The agreement extends the so-called “travel rule”, already existing in traditional finance, to cover transfers in crypto assets. This rule requires that information on the source of the asset and its beneficiary travels with the transaction and is stored on both sides of the transfer. Virtual asset service providers (VASPs) will be obliged to provide this information to competent authorities if an investigation is conducted into money laundering and terrorist financing.
Unlike the Financial Action Task Force’s (FATF) Recommendation, the EU regulation will apply to all transactions, with no minimum threshold.
Preventing money laundering and terrorism financing
Before making the crypto-assets available to beneficiaries, providers will have to verify that the source of the asset is not subject to restrictive measures or sanctions, and there are no risks of money laundering or terrorism financing.
The rules would also cover transactions from non-custodial wallets, or as the EU regulators call them – un-hosted wallets, (a crypto-asset wallet address that is in the custody of a private user) when they interact with custodial (hosted) wallets managed by VASPs.
In case a customer sends or receives more than 1000 euros to or from their own non-custodial wallet, the VASP will need to verify whether the non-custodial wallet is effectively owned or controlled by this customer.The rules will not apply to person-to-person transfers conducted without a provider, such as bitcoins trading platforms, or among providers acting on their own behalf.
The EU Parliament, Council and Commission are now going to be working on the technical aspects of the agreement. Thereafter, it must be approved by the Economic and Monetary Affairs and Civil Liberties and Justice Committees and Parliament as a whole, before it can enter into force. If the agreement does not meet significant resistance during the bureaucratic rounds, it could become enforcable in the next 18 months.