Europe Sets New Rules for Crypto Assets to Combat Money Laundering

The European Banking Authority (EBA) has extended its guidelines on money laundering (ML) and terrorist financing (TF) risk factors to crypto-asset service providers (CASPs). The move aims to help the nascent crypto sector tackle illicit finance risks and is the next step after the introduction of cryptocurrency legislation in May last year.

EBA Issues Guidance to Crypto Firms on Managing Financial Crime Risks

The new guidelines list risk factors and mitigation measures that CASPs should consider when developing anti-money laundering (AML) and countering terrorism financing (CTF) policies. These include assessing risks from customers, products, transactions, and jurisdictions.

“CASPs can be abused for financial crime purposes, including ML and TF,” the authority commented. “The risks of this happening can be increased, for example because of the speed of crypto-asset transfers or because some products contain features that hide the user’s identity.”

The guidelines explain how CASPs can adjust controls like transaction monitoring, blockchain analytics, and enhanced due diligence. They also cover managing risks from self-hosted wallets.

Advice for banks highlights the dangers of dealing with unregulated crypto firms. This risk escalates where traditional financial institutions have customers active in crypto-assets.

Complying With Tighter Regulation

The move comes as the EU brings CASPs into its AML/CTF regulatory perimeter. Recently approved laws like the Markets in Crypto Assets (MiCA) require crypto firms to meet strict AML and CTF rules. However, the European Securities and Markets Authority warned yesterday (Tuesday) that MiCA is “no safe harbour” and crypto assets still remain “highly volatile and speculative.”

Markets in Crypto-Assets Regulation 🙊 Why should you #BeCryptoAware? What's ESMA's role?Consumers face risks when investing in #CryptoAssets or consuming crypto services.#MiCA is no safe harbour. Crypto assets remain highly volatile and speculative.https://t.co/CYVPFJgIZx pic.twitter.com/vWGKR3vaQV

National regulators must confirm whether they comply with the new MiCA-related guidelines within two months of translations being published, likely by the end of 2024. The measures themselves take effect from 30 December 2024.

The EBA said extending its risk factor guidelines represents "an important step forward in the EU’s fight against financial crime" in crypto-assets. The sector's growth has raised policymaker concerns globally about illicit usage.

The regulation of cryptocurrencies was announced a few days ago by Poland. The local financial supervisory authority is expected to start controlling this market at the end of 2024.