Europe issues ‘travel rule’ guidelines for crypto firms to curb money laundering and financial crime

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The European Union (EU) is adding more layers to its crypto-related regulations to ensure that virtual digital assets (VDAs) are not misused by criminals to conduct or finance illegal activities. The European Banking Authority (EBA) has imposed a ‘travel rule’ on crypto firms under which they must store details of transactions on their platforms, aimed at reducing cases of money laundering and terrorism financing using crypto assets – these transactions often leave no traces leading back to the criminals.

According to a statement released by the regulatory authority earlier this month, the EBA has made it mandatory for all crypto firms to disclose details about each transaction on their respective platforms.

EBA’s travel rule guidelines

Under the new guidelines, crypto firms in the EU have been instructed to collect and maintain records of payers and beneficiaries for all transactions. The travel rule applies to all firms operating in the EU region, which will need to confirm their compliance. Firms seeking exemptions will have to provide reasons to authorities which will be evaluated.

Crypto firms that do not comply with this law without informing the authorities will be classified under ‘non-compliant’ businesses and may face legal action. Businesses related to crypto financing have been instructed to revise their policies in such a way that they are in line with the EBA’s travel rule, which already covers the traditional banking sector.

These guidelines are comprehensive and will be effective from December 30.

EU crypto regulations

The EBA is also working with EU policymakers to bind the volatile and financially risky crypto sector into a solid legal framework, which is expected to make the crypto sector safer for investors to explore, without putting the EU’s financial stability at risk and also help crack down on crypto exploiters.

In early June, the EBA published the final draft technical standards that will govern its Markets in Crypto Assets (MiCA) rules. The EBA addressed a number of issues in its final draft of the technical standards, including those related to liquidity requirements, stress testing programs, asset reserves, and recovery plans.

The European Union approved its MiCA law in October 2022, which aims to ensure consumer protection, prevent market manipulation, and curb financial crimes involving digital assets in the EU.


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